Financial glossary

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Each way
A broker's commission from his or her involvement on both the purchase and the sale side of a security.

Early Exercise
The exercise or assignment of an option contract before its expiration date.

Early withdrawal penalty
Penalty paid by the holder of a fixed-term investment penalizing an investor who withdraws money before the agreed-upon maturity date.

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. Financial glossary.

Earned income
Compensation earned from employment, which includes wages, salary, tips and compensation.

Earned income credit
A tax credit for taxpayers with children.

Earnest money
Money given to a seller by a buyer to demonstrate the buyer's good faith. If the deal falls through, the deposit is usually forfeited.

Earning asset
An asset that generates income, e.g. income from rental property. Financial glossary.

Earning power
Earnings before interest and taxes divided by total assets.

Earnings before interest after taxes
A financial measure defined as revenues less cost of goods sold and selling, general and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest plus cash income taxes.  Financial glossary.

Earnings before interest, taxes and depreciation
A financial measure defined as revenues less cost of goods sold and selling, general and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes. Depreciation expenses are not included in the costs.  Financial glossary.

Earnings before interest, taxes, depreciation and amortization
A financial measure defined as revenues less cost of goods sold and selling, general and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes. Depreciation and amortization expenses are not included in the costs.  Financial glossary.

Earnings before taxes
A financial measure defined as revenues less cost of goods sold and selling, general and administrative expenses. In other words, operating and nonoperating profit before the deduction of income taxes.

Earnings momentum
An increase in the earnings per share growth rate from one reporting period to the next.

Earnings per share (EPS)
A company's profit divided by its number of common outstanding shares. If a company earning $2 million in one year had 2 million common shares of stock outstanding, its EPS would be $1 per share. In calculating EPS, the company often uses a weighted average of shares outstanding over the reporting term. The one-year (historical or trailing) EPS growth rate is calculated as the percentage change in earnings per share. The prospective EPS growth rate is calculated as the percentage change in this year's earnings and the consensus forecast earnings for next year.  Financial glossary.

Earnings response coefficient
A measure of relation of stock returns to earnings surprises around the time of corporate earnings announcements.

Earnings retention ratio
Plowback rate.

Earnings surprises
Positive or negative differences from the consensus forecast of earnings by institutions such as First Call or IBES. Negative earnings surprises generally have a greater adverse effect on stockprices than a reciprocal positive earnings surprise.

Earnings yield
The ratio of earnings per share, after allowing for tax and interest payments on fixed interest debt, to the current share price. The inverse of the price-earnings ratio. It is the total twelve months earnings divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is shown in percentage terms. We often look at earnings yield because this avoids the problem of zero earnings in the denominator of the price-earning ratio.  Financial glossary.

Eating stock
When an underwriter can't find buyers for a stock and therefore has to buy them for his own account.

Eclectic paradigm
A theory that posits three types of advantages benefiting a multinational corporation: ownership-specific, location-specific and market internalization advantages.

Econometrics
The quantitative science of modelling the economy. Econometric models help explain and predict variables of interest.

Economic assumptions
General market environment a firm expects to operate in over the life of a financial plan.

Economic dependence
When the costs and/or revenues of one project depend on those of another.

Economic earnings
The real flow of cash that a firm could pay out forever in the absence of any change in the firm's productive capacity.  Financial glossary.

Economic exposure
The extent to which the value of a firm will change because of an exchange rate change.

Economic growth
An increase in the nation's capacity to produce goods and services. Usually refers to real GDP growth.

Economic growth rate
The annual percentage rate of change in the Gross National Product.  Financial glossary.

Economic income
Cash flow plus change in present value.

Economic indicators
The key statistics of the economy that reveal the direction the economy is heading in; for example, the unemployment rate and the inflation rate.

Economic Life
The time period over which an asset's NPV is maximized. Economic life can be less than absolute physical life for reasons of technological obsolescence, physical deterioration or product life cycle.  Financial glossary.

Economic order quantity
The order quantity that minimizes total inventory costs.

Economic rents
Profits in excess of the competitive level.

Economic risk
In project financing, the risk that the project's output will not be salable at a price that will cover the project's operating and maintenance costs and its debt service requirements.

Economic shock
Events that impact the economy which originate from outside it. They are unexpected and unpredictable (e.g. Hurricane Andrew in 1991, the rise in oil prices by OPEC).

Economic surplus
For any entity, the difference between the market value of all its assets and the market value of its liabilities.  Financial glossary.

Economic union
An agreement between two or more countries that allows the free movement of capital, labor and all goods and services and involves the harmonization and unification of social, fiscal and monetary policies.

Economic value added (EVA)
A method of performance evaluation that adjusts accounting performance for investors' required return on investment. Suppose a division produces a 12% return on capital invested. Given the risk of the division's business line, if investors would usually require 14% on capital invested for this level of risk, the division destroyed shareholder value by the EVA metric. This Stern-Stewart has a trade mark on this term.  Financial glossary.

Economies of scale
Achievement of lower average cost per unit through increased production.

Economies of scope
Scope economies exist whenever the same investment can support multiple profitable activities less expensively in combination than separately.

Economies of vertical integration
Produced by achieving lower operating costs by owning all components of production and sometimes sales outlets rather than contracting with companies in the outside marketplace.

EDGAR (Electronic Data Gathering and Retrieval)
The Securities & Exchange Commission uses Electronic Data Gathering and Retrieval to transmit company documents such as 10-Ks, 10-Qs, quarterly reports and other SEC filings, to investors.  Financial glossary.

Edge Act corporation
Corporation chartered by the Federal Reserve to engage in international banking. The Board of Governors acts on applications to establish Edge Act corporations and also examines the corporations and their subsidiaries. Named after Senator Walter Edge of New Jersey, who sponsored the original legislation to permit formation of such organizations.   Financial glossary.

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

Education IRA
A type of individual retirement account enabling the contribution of up to $500 per year tax free for each child up to the age of 18 by the parents in the family.

Effective annual interest rate
An annual measure of the time value of money that fully reflects the effects of compounding.

Effective annual yield
Annualized interest rate on a security computed using compound interest techniques.

Effective call price
The strike price in a market redemption provision plus the accrued interest to the redemption date.

Effective convexity
The convexity of a bond calculated using cash flows that change with yields.

Effective date
In an interest rate swap, the date the swap begins accruing interest.

Effective debt
The total debt owed by a firm to its creditors.

Effective duration
The duration calculated using the approximate duration formula for a bond with an embedded option, reflecting the expected change in the cash flow caused by the option. Measures the responsiveness of a bond's price - taking into account that expected cash flows will change as interest rates change due to the embedded option.  Financial glossary.

Effective Interest Rate
The annual rate at which an investment grows in value when interest is credited more often than once a year.  Financial glossary.

Effective margin
Used with SAT performance measures, the amount equal to the net earned spread or margin of income, on assets in excess of financing costs for a given interest rate and prepayment rate scenario.

Effective net worth
Net worth plus subordinated debt.

Effective rate
A measure of the time value of money that fully reflects the effects of compounding.  Financial glossary.

Effective sale
A sale based on the most recent round-lot price, which determines the price of the next odd lot. The difference created between the last round-lot price and the odd-lot price is referred to as the odd-lot differential.

Effective spread
The gross underwriting spread adjusted for the impact that a common stock offering's announcement has on the firm's share price.

Effective tax rate
The net rate a taxpayer pays on income that includes all forms of taxes. It is calculated by dividing the total tax paid by taxable income.  Financial glossary.

Effective yield
Yield or return on a short-term investment after adjustment for the change in exchange rates over the period of concern.

Efficiency
The degree and speed with which a market accurately incorporates information into prices.

Efficient capital market
A market in which new information is very quickly reflected accurately in share prices.

Efficient diversification
The organizing principle of portfolio theory, which maintains that any risk-averse investor will search for the highest expected return for any particular level of portfolio risk.

Efficient frontier
The combinations of securities portfolios that maximize expected return for any level of expected risk or that minimizes expected risk for any level of expected return. Pioneered by Harry Markowitz.  Financial glossary.

Efficient market
Market in which prices correctly reflect all relevant information.

Efficient Market Hypothesis
States that all relevant information is fully and immediately reflected in a security's market price, thereby assuming that an investor will obtain an equilibriumrate of return. In other words, an investor should not expect to earn an abnormal return (above the market return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis exist: weak form (stock prices reflect all past information in prices), semistrong form (stock prices reflect all past and current publicly available information) and strong form (stock prices reflect all relevant information, including information not yet disclosed to the general public, such as insider information).  Financial glossary.

Efficient markets theory
Principle that all assets are correctly priced by the market and that there are no bargains.

Efficient portfolio
A portfolio that provides the greatest expected return for a given level of risk (i.e. standard deviation) or, equivalently, the lowest risk for a given expected return.

Efficient set
Graph representing a set of portfolios that maximize expected return at each level of portfolio risk.

Eighth
Historical term used in the context of general equities. A specialist or another broker is bidding higher or offering lower than we are, often topping or undercutting us by an eighth.

Either/or facility
An agreement permitting a bank customer to borrow either domestic dollars from the bank's head office or Eurodollars from one of its foreign branches.  Financial glossary.

Either-or order
Used in the context of general equities.

Either-way market
In the interbank Eurodollar deposit market, an either-way market is one in which the bid and offered rates are identical.

Elasticity of demand
The degree of buyers' responsiveness to price changes. Elasticity is measured as the percent change in quantity divided by the percent change in price. A large value (greater than 1) of elasticity indicates sensitivity of demand to price, e.g. luxury goods, where a rise in price causes a decrease in demand. Goods with a small value of elasticity (less than 1) have a demand that is insensitive to price, e.g. food, where a rise in price has little or no effect on the quantity demanded by buyers.  Financial glossary.

Elasticity of supply
The degree of producers' responsiveness to price changes. Elasticity is measured as the percent change in quantity divided by the percent change in price. A large value (greater than 1) of elasticity indicates sensitivity of supply to price, e.g. luxury goods, where a rise in price causes an increase in supply. Goods with a small value of elasticity (less than 1) have a supply that is insensitive to price, e.g. food, where a rise in price has little or no effect on the amount that producers supply.  Financial glossary.

Elasticity of an option
Percentage change in the value of an option given a 1% change in the value of the option's underlying stock.

Elect
The conversion of a conditional order into a market order.

Election Period
The period of time during which the holder can elect to extend and extendible bond or to retract a retractable bond.

Electronic data interchange
The direct exchange of information electronically, from one firm's computer to another firm's computer in a structured format.

Electronic depository transfers
The transfer of funds between bank accounts through the Automated Clearing House (ACH) system.

Electronic funds transfer (EFT)
Transfer of funds electronically rather than by check or cash. The Federal Reserve's Fedwire and automated clearninghouse services are EFT systems.

Electronic Funds Transfer Systems
A variety of systems and technologies for transferring funds (money) electronically rather than by check. Includes Fedwire, automated clearringhouses (ACHs) and other automated systems.

Electronic Queriable Carrier
A transporter of goods which allows tracking of goods in transit electronically using a waybill number such as United Parcel, Federal Express, etc.  Financial glossary.

Elephants
A term used to refer to large institutional investors.

Eleven bond index
An index based on the averageyield of 11 municipal bonds that mature in 20 years and carry an average AA rating. The eleven bonds used to calculate the index are also found in the 20 bond index, which serves as a benchmark in tracking municipal bond yields.

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.

Elliott Wave Theory
Technical market timing strategy that predicts price movements on the basis of historical price wave patterns and their underlying psychological motives. Robert Prechter is a famous Elliott Wave theorist.  Financial glossary.

Elves
A term the host uses to refer to guests on the PBS television show, "Wall Street Week", who are technical analysts attempting to predict the direction of stock prices over the next six months.

Embedded option
An option that is part of the structure of a bond that gives either the bondholder or the issuer the right to take some action against the other party, as opposed to a bare option, which trades separately from any underlying security.

Emergency fund
A reserve of cash kept available to meet the costs of any unexpected financial emergencies.

Emergency Home Finance Act of 1970
The federal legislation creating the Federal Home Loan Mortgage Corporation, a partially government-run program initiated to stimulate the development of a secondary mortgage market and expand mortgages available to veterans and other groups.  Financial glossary.

Emerging Company Marketplace
A service once offered by the American Stock Exchange to help small growth companies fulfill special listing requirements. The service is no longer available.

Emerging markets
The financial markets of developing economies.

Emerging Markets Free index
A Morgan Stanley Capital International index created to track stock markets in selected emerging markets that are open to foreign investment like Argentina, Chile, Jordan, Malaysia, Mexico, Philippines and Thailand.  Financial glossary.

Emerging markets fund
A mutual fund that invests primarily in countries with developing economies (that is, those that are becoming industrialized). Emerging markets funds tend to be more volatile than domestic stock funds due to currency fluctuation and political instability. Consequently, fund prices can fluctuate dramatically.  Financial glossary.

Employee contribution
An employee's own deposit to a company retirement plan.

Employee Retirement Income Security Act
The law that regulates the operation of private pensions and benefit plans.

Employee stock fund
A firm-sponsored program that enables employees to purchase shares of the firm's common stock on a preferential basis.

Employee stock ownership plan
A company contributes to a trust fund that buys stock on behalf of employees.

Employee Stock Purchase Plan
A plan usually linked to a corporation's payroll deduction system allowing employees to purchase shares at a discount from current market value.

Employer matching contribution
The amount, if any, a company contributes on an employee's behalf to the employee's retirement account, usually tied to the employee's own contribution.

Employment rate
The percentage of the labor force that is employed. The employment rate is one of the economic indicators that economists examine to help understand the state of the economy.

Empty head and pure heart test
Securities and Exchange Commission rule that allows only the bidder of a tender offer to trade in the stock while possessing inside information.  Financial glossary.

Encumbered
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.

End-of-year convention
Treating cash flows as if they occur at the end of a year as opposed to the date convention. Under the end-of-year convention, the present is time 0, the end of year 1 occurs one year hence and so on.

Endogenous uncertainty
Describes factors within the control of the firm, such as a decision to reveal information about price or input costs. Converse of exogenous.  Financial glossary.

Endogenous variable
A value determined within the context of a model.

Endorse
Transferring asset ownership by signing the back of the asset's certificate.

Endowment
Gift of money or property to a specified institution for a specified purpose.

Endowment funds
Investment funds established for the support of institutions such as colleges, private schools, museums, hospitals and foundations. The investment income may be used for the operation of the institution and for capital expenditures.

Energy mutual fund
Mutual fund investing in energy stocks only, e.g. oil and gas companies.

Engineering risk
The risk associated with the impact on a project's cash flows from deficiencies in design or engineering. Also known as design risk.

Enhanced indexing
Also called indexing-plus, an indexing strategy whose objective is to exceed or replicate the total return performance of some predetermined index.

Enhancement
An innovation that has a positive impact on one or more of a firm's existing products.  Financial glossary.

Enterprise
A business firm.

Enterprise Value
The market capitalization of a firm's equity plus the market value of the firm's debt. Often the value of assets that are non-core are excluded from the final calculation.

Entrepreneur
A person starting a new company who takes on the risks associated with starting the enterprise, which may require venture capital to cover start-up costs.

Entropy
The level of disorder in a system.

Environmental fund
A mutual fund that invests strictly in stocks of companies that are environmentally friendly and/or have the goal of environmental betterment. The investors are trying to support and profit from opportunities related to the environmental movement.  Financial glossary.

Environmental risk
The risk associated with economic or administrative consequences of slow or catastrophic environmental pollution.

Equal dollar swap
Selling common stock/convertibles in one company and reinvesting the proceeds in as many shares of (a) another type of security issued by the company or (b) another security of the same type but of another company - as can be bought with the proceeds of the sale.

Equal percentage contribution rule
Principle that each asset contributes the same proportion to the equilibrium portfolio rate premium and risk.

Equal shares swap
Applies mainly to convertible securities. Selling the underlying common and reinvesting the proceeds in as much of the convertible as can be converted into the number of shares of common just sold.

Equalizing dividend
Special dividends received by investors of a firm for income the investor lost because the firm altered the dividends payment schedule.  Financial glossary.

Equilibrium
The stable state of the system.

Equilibrium exchange rate
Exchange rate at which demand for a currency is equal to the supply of the currency in the economy.

Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the expected return offered to compensate for a perceived level of risk, each point on the line is a balanced market condition or equilibrium. The slope of the line determines the additional expected return needed to compensate for a unit change in risk. The equation of the CML is defined by the capital asset pricing model.  Financial glossary.

Equilibrium price
The price at which the supply of goods matches demand.

Equilibrium rate of interest
The interest rate that clears the market. Also called the trade-clearing interest rate.

Equipment leasing partnership
A limited partnership that receives income and tax benefits such as depreciation costs by purchasing equipment and leasing it to other parties.

Equipment trust certificates
Certificates issued by a trust that is formed to purchase an asset and lease it to a lessee. When the last of the certificates has been repaid, title and ownership of the asset transfers to the lessee.  Financial glossary.

Equitable owner
The beneficiary of a property held in a trust.

Equity
Ownership interest in a firm. Also, the residual dollar value of a futures trading account, assuming its liquidation is at the going trade price. In real estate, dollar difference between what a property could be sold for and debts claimed against it. In a brokerage account, equity equals the value of the account's securities minus any debit balance in a margin account. Equity is also shorthand for stock market investments.  Financial glossary.

Equity cap
An agreement in which one party, for an up-front premium, agrees to pay the other at specific time periods if a designated stock market benchmark tops a predetermined level.

Equity carve out
Usually occurs when a company decides to IPO one of their subsidiaries or divisions. The company usually only offers a minority share to the equity market.

Equity claim
Also called a residual claim; a claim to a share of earnings after debt obligations have been satisfied.

Equity collar
The simultaneous purchase of an equity floor and sale of an equity cap.

Equity contribution agreement
An agreement to contribute equity to a project under certain specified conditions.

Equity floor
An agreement in which one party agrees to pay the other at specific time periods if a specific stock market benchmark falls below a predetermined level.

Equity funding
An investment consisting of a life insurance policy and a mutual fund. The insurance policy is paid by the collateral value of fund shares, giving the investor the advantages of insurance protection with the growth potential of a mutual fund.

Equity kicker
Stock warrants issued attached to a new debt, preferred or common stock issue to improve the salability of the issue.

Equity-linked Eurobonds
A Eurobond including a convertibility option or warrant.

Equity multiplier
Total assets divided by total common stockholders' equity; the total assets per dollar of stockholders' equity.

Equity options
Securities that give the holder the right (but not the obligation) to buy or sell a specified number of shares of stock, at a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.

Equity REIT
A Real Estate Investment Trust that assumes ownership status in the property it invests in enabling investors of the REIT to earn dividends on rental income from the property and appreciation in property resale.  Financial glossary.

Equity swap
A swap in which the cash flows exchanged are based on the total return on some stock market index and an interest rate (either a fixed rate or floating rate).

Equityholders
Stockholders; those holding shares of the firm's equity.

Equivalent annual annuity
The amount per year for some number of years that has a present value equal to a given amount.  Financial glossary.

Equivalent annual benefit
The annual annuity with the same value as the net present value of an investment project.

Equivalent annual cash flow
Annuity with the same net present value as the company's proposed investment.

Equivalent annual cost
The cost per year of owning an asset over its entire life.

Equivalent bond yield
Effective annual yield on a short-term, noninterest-bearing security calculated for comparison to yields quoted on coupon securities.

Equivalent loan
Given the after-tax stream associated with a lease, the maximum amount of conventional debt that the same period-by-period after-tax debt service stream is capable of supporting.

Equivalent taxable yield
The yield that must be offered on a taxable bondissue to give the same after-tax yield as a tax-exempt issue.

Erosion
A negative impact on one or more of a firm's existing assets.

Escalator clause
Provision in a contract allowing cost increases to be passed on. In an employment contract, for example an escalator clause may call for wage increases in line with inflation.

Escheat
Reversion of monies or securities to the state in which the security holder was last known to reside, when no claim by the security holder has been made after a certain period of time fixed by state law. This is known as the holding period or cut-off date.  Financial glossary.

Escheat Period
The period of elapsed time required by applicable state law for property to be presumed abandoned.

Escheatment
The process of turning over unclaimed or abandoned property to a state authority. Escheatment laws require mutual funds to turn over uncashed or returned check dollars and/or client account fund shares if the owner cannot be located within a length of time determined by each state.  Financial glossary.

Escrow
Property or money held by a third party until the agreed upon obligations of a contract are met.

Escrow receipt
A document provided by a bank in options trading to guarantee that the underlying security is on deposit and available for potential delivery.

Escrowed to Maturity
Holding of the proceeds from a new bond issue to pay off an existing bond issue at its maturation date.

Estate planning
The preparation of a plan to carry out an individual's wishes as to the administration and disposition of his/her property before or after his/her death.

Estate tax
A federal or state tax imposed on an individual's assets inherited by heirs.

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.

Euclidean Geometry
The Plane geometry learned in high school, based upon a few ideal, smooth, symmetric shapes.

Euro
Originally, the term for a deposit made outside one's home country but denominated in the home country currency. This terminology is confusing now since the new European Currency unit, also called the Euro, was introduced on January 1, 1999.  Financial glossary.

Euro CDs
CDs issued by a U.S. bank branch or foreign bank located outside the U.S. Almost all Euro CDs are issued in London.

Eurodollar obligations
Certificates of deposit issued in U.S. dollars by foreign banks and foreign branches of U.S. banks.  Financial glossary.

Euro lines
Lines of credit granted by banks (foreign or foreign branches of U.S. banks) for Eurocurrencies.

Euro straight
A fixed-rate coupon Eurobond.

Eurobank
A bank that regularly accepts foreign currency-denominated deposits and makes foreign currency loans.

Eurobond
A bond that is (a) underwritten by an international syndicate, (b) issued simultaneously to investors in a number of countries and (c) issued outside the jurisdiction of any single country. Eurobonds are often bearer bonds.

Euroclear
The Euroclear group is the world's largest settlement system for domestic and international securities transactions, covering both bonds and equities for financial institutions located in over 80 countries.

Euro-commercial paper
Short-term notes with maturities up to 360 days that are issued by companies in international money markets.

Eurocredit market
Comprises banks that accept deposits and provide loans in large denominations and in a variety of currencies. The banks that constitute this market are the same banks that constitute the Eurocurrency market; the difference is that Eurocredit loans are longer-term than so-called Eurocurrency loans.  Financial glossary.

Eurocredits
Intermediate-termloans of Eurocurrencies made by banking syndicates to corporate and government borrowers.

Eurocurrency
Instrument issued outside your country, but denominated in your currency. A Eurodollar is a Certificate of Deposit in U.S. dollars issued in some other country (though mainly traded in London). A Euroyen is a CD issued in yen outside Japan.  Financial glossary.

Eurocurrency deposit
A short-term fixed-rate time deposit denominated in a currency other than the local currency (e.g. U.S. dollars deposited in a London bank).

Eurocurrency market
The money market for borrowing and lending currencies that are held in the form of deposits in banks located outside the countries where the currencies are issued as legal tender.

Eurodollar
Refers to a certificate of deposit in U.S. dollars in a bank that is not located in the U.S. Most of the Eurodollar deposits are in London banks, but Eurodeposits may be anywhere other than the U.S. Similarly, a Euroyen or EuroDM deposit represents a CD in yen or DM outside Japan and Germany, respectively.  Financial glossary.

Eurodollar bonds
Eurobonds denominated in U.S.dollars.

Eurodollar certificate of deposit
A certificate of deposit paying interest and principal in dollars, but issued by a bank outside the United States, usually in Europe.

Euroequity issues
Securities sold in the Euromarket. That is, securities initially sold to investors simultaneously in several national markets by an international syndicate.  Financial glossary.

Euro-medium term note (Euro-MTN)
A non underwritten Euronote issued directly to the market. Euro-MTNs are offered continuously rather than all at once as a bond issue is. Most Euro-MTN maturities are under five years.

Euro NM
Created on March 1, 1996, Euro NM is a pan- network of regulated markets dedicated to growth companies, regardless of their sector of activity or country of origin. Euro NM member exchanges and their respective new markets consist of the Paris Stock Exchange (Le Nouveau Marché), the Deutsche Börse AG (Neuer Markt),  the Amsterdam Exchanges (NMAX) and the Brussels Stock Exchange (Euro NM Belgium).  Financial glossary.

Euro-note
Short- to medium-term debt instrument sold in the Eurocurrency market.

Euroyen bonds
Eurobonds denominated in Japanese yen.

European, Australia, and Far East index
Stock index, computed by Morgan Stanley Capital International.

European Association of Securities Dealers Automated Quotation
European equivalent of Nasdaq.

European Bank for Reconstruction and Development
Bank targeted at Eastern Europe and the former Soviet Union.

European Central Bank
Bank created to monitor the monetary policy of the countries that have converted to the Euro from their local currencies. The original 11 countries are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.  Financial glossary.

European Currency Unit
An index of foreign exchange consisting of European currencies, originally devised in 1979.

European exchange rate mechanism (ERM)
The system that countries in the European Union once used to pay exchange rates within bands around an ERM central value.

European Exercise
A feature of an option that stipulates that the option may only be exercised at its expiration. Therefore, there can be no early assignment with this type of option. Most index options are European-style exercise.  Financial glossary.

European Monetary System (EMS)
A system adopted by European Community members with the aim of promoting stability by limiting exchange-rate fluctuations. The system was originated in 1979 by the nine members of the European Community (EC). The EMS comprised three principal elements: the European Currency Unit (ECU), the monetary unit used in EC transactions; the Exchange Rate Mechanism, ERM, whereby those member states taking part agreed to maintain currency fluctuations within certain agreed limits; and the European Monetary Cooperation Fund, which issues the ECU and oversees the ERM. The 1992 Maastricht Treaty provided for the move to Economic and Monetary Union (EMU), including a European Monetary Institute to coordinate the economic and monetary policy of the EU, a European Central Bank (ECB) to govern these policies and the presentation of a single European currency.  Financial glossary.

European option
Option that may be exercised only at the expiration date.

European-style exercise
A method of exercising options contracts in which the buyer can only exercise the contract on the last day before expiration.

European-style option
An option contract that can be exercised only on the expiration date.

European terms
A foreign exchange quotation that states the foreign currency price of one U.S. dollar.

European Union
An economic association of European countries founded by the Treaty of Rome in 1957 as a common market for six nations. It was known as the European Community until January 1, 1994 and currently comprises 15 European countries. Its goals are a single market for goods and services without any economic barriers and a common currency with one monetary authority.  Financial glossary.

Evaluation period
The time interval over which funds assess a money manager's performance.

Evening up
Buying or selling to offset an existing market position.

Event anomalies
Occurrences such as earnings surprises or stock splits that seem to present opportunity to generate abnormal returns for those trading on the news.

Event driven
In the context of hedge funds, a style of management that combines many different types of hedge fund investing such as merger arbitrage, distressed securities and high yield investing, in conjunction with an important "event" that is supposed to unlock firm value (like a merger announcement, earnings announcement or a regulator decision).  Financial glossary.

Event risk
The risk that the ability of an issuer to make interest and principal payments will change because of rare, discontinuous and very large, unanticipated changes in the market environment such as (a) a natural or industrial accident or some regulatory change or (b) a takeover or corporate restructuring.  Financial glossary.

Event study
A statistical study that examines how the release of information affects prices at a particular time.

Events of default
Contractually specified events that allow lenders to demand immediate repayment of a debt.

Evergreen
A contract that rolls over after each agreed (short-term) period until cancelled by one party.

Evergreen credit
Revolving credit without maturity.

Evergreen funding
A British term referring to the gradual injection of capital into a new or existing enterprise.

Ex Works (EXW)
A transaction in which the seller's only responsibility is to make the ordered goods available to the buyer at the seller's premises. The buyer bears the cost and risk in transporting the goods from the seller's premises to destination. Since this includes pre-carriage and export clearance in the seller's country, EXW is not a very practical Incoterm for U.S. exports.  Financial glossary.

Ex-all
The sale of a security without the privileges associated with the security such as dividends, voting rights or warrants.

Ex ante return
The expected return or anticipation return of an asset or portfolio.

Ex ante value
The forecasted price or value.

Exception
A proxy which does not authorize the proxy committee to act on its behalf concerning any other business, adjournments or substitutions.

Exceptional Return
Residual return plus benchmark timing return. For a given asset with beta equal to one, if its residual return is 2% and the benchmark portfolio exceeds its consensus expected returns by 1%, then the asset's exceptional return is 3%.

Excess accumulation
The amount of a required minimum distribution that an IRA holder fails to remove from an IRA in a timely manner. Excess accumulations are subject to a 50% IRS penalty tax.

Excess contribution
The amount by which an IRA contribution exceeds the allowable limits. If an excess contribution is not properly corrected, a 6% IRS penalty applies.

Excess reserves
Amount of reserves held by an institution in excess of its reserve requirement and required clearing balance.

Exchange Ratio
The number of new shares in an acquiring firm that are given for each outstanding share of an acquired firm.  Financial glossary.

Exchange Traded Fund
Similar to an index mutual fund, these tracking stocks trade continuously. Two popular ETFs are the Standard and Poor's depositary receipt (SPDR) launched in 1993 and the NASDAQ-100 Index Tracking Stock (QQQ) which was launched in 1999. These vehicles are popular for hedging as well as investment.  Financial glossary.

Ex-dividend
This literally means "without dividend." The buyer of shares when they are quoted ex-dividend is not entitled to receive a declared dividend. It is the interval between the record date and the payment date during which the stock trades without its dividend-the buyer of a stock selling ex-dividend does not receive the recently declared dividend.   Financial glossary.

Ex-dividend date
The first day of trading when the buyer of a stock is no longer entitled to the most recently announced dividend payment ( i.e. the trade will settle the day after the record date, too late for the buyer to appear on the shareholder record and receive the dividend.) The date set by the NYSE (and generally followed on other U.S. exchanges) is currently two business days before the record date. A stock that has gone ex-dividend is denoted by an x in newspaper listings on that date.

Executor
An individual or trust institution nominated in a will and appointed by a court to settle the estate of a deceased person.

Ex-legal
A municipal bond offered without a law firm's legal opinion. A majority of bonds are issued with legal opinions.

Expatriate
An employee who is a U.S. citizen living and working in a foreign country.

Ex-pit transaction
The closing out of a futures position off the exchange floor. Effected when two hedgers, one long and one short, make a private deal in the cash market and no longer need their (equal and opposite) futures contracts to hedge. The hedgers contact the exchange and request the contracts be nullified without making a trade on the floor. This must be done (a) to ensure neither contract results in delivery/the requirement to deliver; (b) to properly reflect open interest; and (c) to eliminate the uncertainty of the fill price should a trade actually be done to offset the positions. Extremely rare. Also known as an EFP transaction, an exchange-for-physicals transaction or an against-actuals transaction.  Financial glossary.

Ex-rights
Shares of stock that are trading without rights attached.

Ex-rights date
The date on which a share of common stock with rights on it begins tradingex-rights.

Expropriation
The taking over of a company or project by the state, implying compensation will be paid. Nationalization.

Ex-warrants
Describes a stock sale during the time in which the buyer of the stock is not entitled to the warrant accompanying the stock.

Exact interest
Interest paid based on the basis of a 365-day/year schedule by a bank or other financial institution as opposed to a 360-day basis (ordinary interest). Difference can be material when large principal sums of money are involved.  Financial glossary.

Exact matching
A bond portfolio management strategy that involves finding the lowest cost portfolio generating cash inflows exactly equal to cash outflows that are being financed by investment.

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

Expected rate of inflation
The public's expectations for inflation. These expectations determine how large an effect a given policy action by the Fed will have on economic activity.

Excess kurtosis
Kurtosis measures the "fatness" of the tails of a distribution. Positive excess kurtosis means that distribution has fatter tails than a normal distribution. Fat tails means there is a higher than normal probability of big positive and negative returns realizations. When calculating kurtosis, a result of +3.00 indicates the absence of kurtosis (distribution is mesokurtic). For simplicity in its interpretation, some statisticians adjust this result to zero (i.e. kurtosis minus 3 equals zero) and then any reading other than zero is referred to as excess kurtosis. Negative numbers indicate a platykurtic distribution; positive numbers indicate a leptokurtic distribution.  Financial glossary.

Excess margin
Equity present in an individual's account above the legal minimum required for a margin account or the maintenance requirement at a brokerage firm.

Excess profits tax
Additional federal taxes placed on the earnings of a business, used only in time of national emergency such as war.

Excess reserves
Actual reserves that exceed required reserves.

Excess return on the market portfolio
Difference between the return on the market portfolio and the riskless rate.

Excess returns
Difference between an asset's return and the riskless rate. Sometimes confused with abnormal returns, returns in excess of those required by some asset pricing model.

Exchange
A marketplace in which shares, options and futures on stocks, bonds, commodities and indexes are traded. Principal U.S. stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange (AMEX) and National Association of Securities Dealers Automatic Quotation System (Nasdaq).  Financial glossary.

Exchange, The
A nickname for the New York Stock Exchange. Also known as the Big Board, where more than 2000 common and preferred stocks are traded. The exchange is the oldest in the United States, founded in 1792 and the largest. It is located on Wall Street in New York City.  Financial glossary.

Exchange of assets
Acquisition of another company by purchase of its assets in exchange for cash or stock.

Exchange controls
Government restrictions on the purchase of foreign currencies by domestic citizens or on the purchase of the local domestic currency by foreigners.

Exchange distribution
A sale on an exchange floor of a large block of stock in a single transaction. A broker bunches a large number of buy orders and sells the block all at once. The broker receives a special commission from the seller.

Exchange fund (also known as swap fund)
Investment vehicle introduced in 1999 that appeals to wealthy investors with large holdings in a single stock who want to diversify without paying capital gains taxes. These funds allow investors to exchange their stock for shares in a diversified portfolio of stocks in a tax-free transaction.  Financial glossary.

Exchange offer
An offer by a firm to give one security, such as a bond or preferred stock in exchange for another security, such as shares of common stock.

Exchange privilege
A mutual fund shareholder's right to switch from one fund to another within one fund family, usually at no additional charge.  Financial glossary.

Exchange rate
The price of one country's currency expressed in another country's currency.

Exchange Rate Mechanism (ERM)
The methodology by which members of the EMS maintain their currency exchange rates within an agreed-upon range with respect to other member countries.

Exchange rate risk
Also called currency risk; the risk that an investment's value will change because of currency exchange rates.

Exchange risk
The variability of a firm's value that results from unexpected exchange rate changes or the extent to which the present value of a firm is expected to change as a result of a given currency's appreciation or depreciation.

Exchange of stock
Acquisition of another company by purchase of its stock in exchange for cash or shares.

Exchange Traded Funds (ETF)
Also known as ETF. A basket of stocks similar to an index mutual fund. However, there are a number of important differences between ETFs and mutual funds. The ETF can be traded within the day, they can be shorted, purchased on margin and there even exists options on some ETFs.

Exchangeable
Applies mainly to convertible securities. Means the issuer, if so stated, may substitute a convertible debenture for an existing convertible preferred with identical terms. Most often used when a corporation has an immediate need for equity capital and a low tax rate and expects either or both conditions to change. This would make the debenture less attractive if the interest tax-deductibility is lost.  Financial glossary.

Exchangeable instrument
Applies mainly to convertible securities. Bond or preferred stock that may be exchangeable into the common stock of a different public corporation.

Exchangeable Security
Investment instrument that grants its holder the right to exchange it for the common stock of a firm other than the issuer of the instrument.

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

Exclusionary self-tender
A firm's offer to buy a given amount of its own stock while excluding targeted stockholders.  Financial glossary.

Exclusive
In the context of general equities, having sole possession of the customer order/indication; not in competition with other dealers.

Execution
The process of completing an order to buy or sell securities. Once a trade is executed, it is reported by a Confirmation Report; settlement (payment and transfer of ownership) occurs in the U.S. between one (mutual funds) and three (stocks) days after an order is executed. The time varies greatly across countries. In France, for example settlements are only once per month.

Execution costs
The difference between the execution price of a security and the price that would have existed in the absence of a trade, which can be further divided into market impact costs and market timing costs.

Exempt List
Sophisticated investors, usually institutional investors, who are considered informed enough that new issues can be marketed to them without a prospectus. This exemption reduces the cost of private placements.

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.

Exemption
Direct reductions from gross income allowed by the IRS.

Exercise
To implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security.

Exercise limit
Cap on the number of option contracts of any one class of contract that can be exercised within a five-day period contract. There are no restrictions on exercise for the last 10 trading days before expiry. A stock option's exercise limit varies with the volume of the underlying stock.  Financial glossary.

Exercise notice
A broker's notification from a client who wants to exercise a right to buy or sell (depending on the type of contract) the underlying security of the option contract.

Exercise price
The price at which the security underlying an options contract may be bought or sold.

Exercise settlement amount
The difference between the exercise price of the option and the exercise settlement value of the index on the day an exercise notice is tendered, multiplied by the index multiplier.  Financial glossary.

Exercise value
The value of an in-the-money option if it was exercised today (before the expiration date). For a call option, this is the difference between the current asset price and the stike price. For a put option, it is the difference between the strike price and the current asset price.

Exercising the option
The act of buying or selling the underlying asset via the option contract.

Exhaust price
The low price at which a broker must liquidate a client's holding in a stock purchased in a margin account in order to meet a margin call when the client cannot meet the call.  Financial glossary.

Exogenous
Describes facts outside the control of the firm.

Exogenous variable
A variable whose value is determined outside the model in which it is used.

Exotic option
Refers to options that are more complex than simple put or call options. For example, a Caput is a call option on a put option. Exotic options trade over-the-counter.

Expansion
Phase of the business cycle as it climbs from a trough toward a peak.

Expectations hypothesis theories
Theories of the term structure of interest rates, which include the pure expectations theory; the liquidity theory of the term structure and the preferred habitat theory. These theories hold that each forward rate equals the expected future interest rate for the relevant period. These three theories differ, however, on whether other factors also affect forward rates and how.  Financial glossary.

Expectations theory of forward exchange rates
A theory of foreign exchange rates that states that the expected future spot foreign exchange ratet periods from now equals the current t-period forward exchange rate.

Expected dividend yield
Total amount of dividends received during the life of a futures contract or total dividends received for holding a particular stock one year.

Expected future cash flows
Projected future cash flows associated with an asset.

Expected future return
The return that is expected to be earned on an asset in the future. Also called the expected return.

Expected return
The expected return on a risky asset, given a probability distribution for the possible rates of return. Expected return equals some risk-free rate (generally the prevailing U.S. Treasury note or bond rate) plus a risk premium (the difference between the historic market return, based upon a well diversified index such as the S&P 500 and the historic U.S. Treasury bond) multiplied by the asset's beta. The conditional expected return varies through time as a function of current market information.  Financial glossary.

Expected return on investment
The return one can expect to earn on an investment.

Expected Spot Rate
The exchange rate between two currencies that is anticipated to prevail in the spot market on a given future date. It differs from the current spot rate primarily by the extent to which inflation expectations in the two currencies differ.

Expected value
The weighted average of a probability distribution. Also known as the mean value.

Expected value of perfect information
The expected value if the future uncertain outcomes could be known minus the expected value with no additional information.

Expense ratio
The percentage of the assets that are spent to run a mutual fund (as of the last annual statement). This includes expenses such as management and advisory fees, overhead costs and 12b-1 (distribution and advertising) fees. The expense ratio does not include brokerage costs for trading the portfolio, although these are reported as a percentage of assets to the SEC by the funds in a Statement of Additional Information (SAI). The SAI is available to shareholders on request. Neither the expense ratio nor the SAI includes the transactions costs of spreads, normally incurred in unlisted securities and foreign stocks. These two costs can add significantly to the reported expenses of a fund. The expense ratio is often termed an Operating Expense Ratio (OER).  Financial glossary.

Expensed
Charged to an expense account, fully reducing reported profit of that year, as is appropriate for expenditures for items with useful lives under one year.

Experience rating
A technique insurance companies use to determine the correct price of a policy premium.

Expiration
The time an option contract lapses.

Expiration cycle
The recurring cycle of expiry months for which options on a particular security can be available. Basic options are placed in one of three cycles; Cycle 1 (the January/April/July/October or the first month of each quarter); Cycle 2 (the second month of each quarter); or Cycle 3 (the third month of each quarter).
At any one time, a basic option has contracts with three expiration dates outstanding. For example, in mid-February, options trading on cycle 3 will have March, June and September expiries available. Late in March, after the March options expire, a December contract will be added, thus offering June, September and December expiries.
Higher-volume equity options, index options and LEAPS can trade on other cycles, such as Cycle 4, Cycle 5 or Cycle 6. Cycle 4, for example, offers options in the two nearest months plus two months from Cycle 3. For example, in mid-April, there would be April, May, June and September expires available. A month later, there would be May, June, September and December expiries available for trading.  Financial glossary.

Expiration date
The last day (in the case of American-style) or the only day (in the case of European-style) on which an option may be exercised. For stock options, this date is the Saturday immediately following the third Friday of the expiration month; brokerage firms may set an earlier deadline for notification of an option holder's intention to exercise. If Friday is a holiday, the last trading day will be the preceding Thursday.  Financial glossary.

Expiration time
The time of day by which all exercise notices must be received on the expiration date. Technically, the expiration time is currently 11:59AM on the expiration date, but public holders of option contracts must indicate their desire to exercise no later than 5:30PM on the business day preceding the expiration date. The times are Eastern Time.

Explicit Bankruptcy Costs
Specific costs incurred during the bankruptcy process such as legal fees, court costs, consultants' fees and document preparation expenses.

Explicit tax
A tax specifically collected by a government; includes income, withholding, property, sales and value-added taxes and tariffs.

Exploding term sheet
Venture capital jargon. Often a proposed term sheet might explode or be null and void in a fixed period set to negotiate the final contract.

Export Commodity Control List
A listing administered by the U.S. Department of Commerce of items requiring validated export licenses for shipment to some or all countries.

Export Credit Agency
An agency established by a country to finance its nation's goods, investment and services, often offers political risk insurance.

Export Credit Guarantee
Guarantee from the UK Export Credit Agency.

Export Development Corp.
Canada's Export Credit Agency.

Export Finance Insurance Corp.
Australia's Export Credit Agency.

Export-import Bank
The U.S. federal government agency that extends trade credits to U.S. companies to facilitate the financing of U.S. exports.

Export financing interest
Interest income derived from goods manufactured in the U.S. and sold outside the U.S. as long as not more than 50% of the value is imported into the U.S.

Export License
Permission from the exporter's government to export specific merchandise to a particular country.

Export management company
A foreign or domestic company that acts as a sales agent and distributor for domestic exporters in international markets.  Financial glossary.

Export Management Consultant (EMC)
A company serving as the export department of other firms. Normally, EMC's work on a commission basis and do not take title to the goods they export.

Export Trading Company
A company serving as the export department of other firms. They usually take title, risk and responsibility for the goods they export.

Exports
Goods or services sold to parties in foreign countries.

Exposure netting
Offsetting exposures in one currency with exposures in the same or another currency, when exchange rates are expected to move in such a way that losses or gains on the first exposed position should be offset by gains or losses on the second currency exposure.  Financial glossary.

Expost average rate of return
The historical mean percentage an asset has yielded.

Expropriation
The official seizure by a government of private property. Any government has the right to seize such property, according to international law, if prompt and adequate compensation is given.

Expunge
Used in the context of general equities. Remove any trace of an Autoindication's existence at any time.

Extendable bond
Bond whose maturity can be extended at the option of the holder (investor).

Extendable notes
Note with maturity that can be extended by mutual agreement between the issuer and investors.

Extension
Voluntary arrangements to restructure a firm's debt, under which the payment date is postponed.

Extension date
The day on which the first option either expires or is extended.

Extension swap
Extending maturity through a swap, e.g. selling a 2-year note and buying one with a slightly longer current maturity.

External finance
Funding that is not generated by a firm's operations: new borrowing or a stock issue.

External funds
Funds originating from a source outside the corporation to increase cash flow and to aid in expansion efforts, e.g. bank loan or bond offering.

External market
Also referred to as the international market, the offshore market or, more popularly, the Euromarket. A mechanism for trading securities that at issuance (a) are offered simultaneously to investors in a number of countries and (b) are issued outside the jurisdiction of any single country.   Financial glossary.

Extinguish
Retire or pay off debt.

Extra Dividend
A temporary increase in a firm's dividends beyond the normal level.

Extraordinary call
Early redemption of a revenue bond because the revenue source paying the interest on the bond has been eliminated or has disappeared.

Extraordinary item
An unusual and unexpected one-time event that must be explained to shareholders in an annual or quarterly report, e.g. write down for a discontinued operation, employee fraud, a lawsuit or other one-time events. Results are often presented with and without these items. The logic of excluding these items is that investors have a better notion of future performance if one-time events are excluded. Differs from an unusual item in that extraordinary items are (a) material; (b) non-recurring; and (c) outside the ordinary nature of the business.  Financial glossary.

Extra or special dividends
A one-time or special dividend that is paid in addition to a firm's established or expected quarterly dividend.  Financial glossary.

Extraordinary positive value
A positive net present value.

Extrapolative statistical models
Models that apply a formula to historical data and project results for a future period. Such models include the simple linear trend model, the simple exponential model and the simple autoregressive model.