Our Glossary of Business and financial terms is designed to help you better understand the business process. Whether you're starting a business, buying or selling a business, financing a business or operating a business, you have to understand the terms that professionals frequently use. If there is a business term that you've heard that we haven't listed, please let us know, and we'll add it to the MergerPlace.com Glossary.
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Corporate actions and operations that are not sanctioned by corporate charter, sometimes leading to shareholder lawsuits.
A liability insurance policy that provides protection against damages not covered by standard liability policies, such as large jury awards in lawsuits.
Insurance for exports of an exporter whose issuer handles all administrative requirements.
Par value of a bond less the proceeds received from the sale of the bond, less whatever portion has been amortized.
The unexpensed portion of the difference between the price paid for a security and its par value.
Theory that forward exchange rates are unbiased predictors of future spot rates.
A theory that spot prices at some future date will be equal to today's forward rates.
Separation of a multinational firm's transfers of funds into discrete flows for specific purposes.
The amount of bank deposits in the form of checks that have not yet been paid by the banks on which the checks are drawn.
An account which cannot be collected by a company because the customer is not able to pay or is unwilling to pay.
When an originating investment banker cannot find enough firms to underwrite a new issue.
Describes limited interest by prospective buyers in a new issue of a security during the preoffering registration period.
A business has insufficient capital to carry out its normal functions.
A pension plan that has a negative surplus (i.e., liabilities exceed assets).
The mirror image of the asset substitution problem, in that stockholders refuse to invest in low-risk assets to avoid shifting wealth from themselves to debtholders.
What supports the security or instrument that parties agree to exchange in a derivative contract.
The security or property or loan agreement that an option gives the option holder the right to buy or to sell.
Municipal bonds issued by government entities but under the control of larger government entities and for which the larger entity shares the credit responsibility.
For options, the security that is subject to purchase or sold upon exercise of an option contract.
When a security is expected to, or does, appreciate at a slower rate than the overall market rate of performance.
Issuing securities at less than their market or fair value.
A stock price perceived to be too low or cheap, as indicated by a particular valuation model.
A security selling below its market value or liquidation value.
When a taxpayer has withheld too little tax from salary and will therefore owe tax when filing a return.
To guarantee, as to guarantee the issuer of securities a specified price by entering into a purchase and sale agreement. To bring securities to market.
A firm, usually an investment bank, that buys an issue of securities from a company and resells it to investors. In general, A party that guarantees the proceeds to the firm from a security sale, thereby in effect taking ownership of the securities.
Acting as the underwriter in the issue of new securities for a firm.
The contract between a corporation issuing new publicly offered securities and the managing underwriter as agent for the underwriting group.
The fee investment bankers charge for underwriting a security issue.
The portion of the gross underwriting spread that compensates the securities firms that underwrite a public offering for their services.
For an insurance company, the difference between the premiums earned and the costs of settling claims.
The income that is generated by the underwriting syndicate and the selling group, which is essentially the difference between the amount paid to the issuer of securities in a primary distribution and the public offering price.
A group of investment banks that work together to sell new security offerings to investors. The underwriting syndicate is led by the lead underwriter.
A purchase and sale.
Newly issued securities that are not purchased because of lack of demand during the initial public offering.
Income received in advance of the time at which it is earned, such as prepaid rent.
Interest that has been received on a loan, but that cannot be treated as a part of earnings yet, because the principal of the loan has not been outstanding long enough.
The percentage of the people classified as unemployed as compared to the total labor force.
Property that is not subject to any claims by creditors. For example, securities bought with cash instead of on margin and homes with mortgages paid off.
Debt maturing within one year (short-term debt).
Provides for the employer to pay out amounts to retirees or beneficiaries as and when they are needed. There is no money put aside on a regular basis. Instead, it is taken out of current income.
A federal tax credit that reduces tax liability, dollar for dollar, on lifetime gifts and asset transfers at death.
Collection of laws dealing with commercial business.
Legislation that provides a tax-effective manner of transferring property to minors without the complications of trusts or guardianship restrictions.
Standards of the NASD prescribing procedures for handling over-the-counter securities transactions, such as delivery, settlement date, and ex-dividend date.
A test required in some states for registered representatives who are employees of member firms of the NASD or over-the-counter brokers.
A law similar to the Uniform Gifts to Minors Act that extends the definition of gifts to include real estate, paintings, royalties, and patents.
Items in the current account of the balance of payments of a country's accounting books that correspond to gifts from foreigners or pension payments to foreign residents who once worked in the particular country.
Insurance that covers the policyholder and family if they are injured by a hit-and-run or uninsured motorist, assuming the other driver is at fault.
Reduction in the likelihood of financial distress for a conglomerate firm that comes with its diversified investments.
Also called unsystematic risk or idiosyncratic risk. Specific company risk that can be eliminated through diversification.
Shares authorized in a corporation's charter, but not issued.
More than one class of securities traded together (e.g., one common share and three subscription warrants).
Method used to determine a participant's benefits in a defined benefit plan. Involves multiplying years of service by the percentage of salary.
Money invested in a portfolio whose composition is fixed for the life of the fund. Shares in a unit trust are called redeemable trust certificates, and they are sold at a premium to net asset value.
A unit investment trust comprising one unit of prime and one unit of score.
Debt issues of the U.S. government, as distinguished from government-sponsored agency issues.
A group of stocks having a common feature, such as similar outstanding market capitalization or same product line.
The beta of an unleveraged required return (i.e., no debt) on an investment when the investment is financed entirely by equity.
The use of borrowed funds to finance less than 50% of a purchase of assets. In a leveraged program borrowed funds are used to finance more than 50%.
The required return on an investment when the investment is financed entirely by equity (i.e., no debt).
The discount rate appropriate for an investment that it is financed with 100% equity.
Full liability for the debt and other obligations of a legal entity. The general partners of a partnership have unlimited liability.
A security traded in the over-the-counter market that is not listed on an organized exchange.
A dividend declared by the directors of a corporation that has not yet been paid.
An independent auditor's opinion that a company's financial statements comply with accepted accounting procedures.
An increase/decrease in the value of a security that is not "real" because the security has not been sold. Once a security is sold by the portfolio manager, the capital gains/losses are "realized" by the fund, and any payment to the shareholder is taxable during the tax year in which the security is sold.
Issue of a security for which there is no existing market.
Debt that does not identify specific assets that the debtholder is entitled to in case of default.
Foreign exchange market intervention in which the monetary authorities have not insulated their domestic money supplies from the foreign exchange transactions.
Also called the diversifiable risk or residual risk. The risk that is unique to a company such as a strike, the outcome of unfavorable litigation, or a natural catastrophe that can be eliminated through diversification.
Raising the quality rating of a security because of new optimism about the prospects of a firm due to tangible or intangible factors. This can increase investor confidence and push up the price of the security.
The minimum price at which a seller of property will accept a bid at an auction.
The amount by which analysts or investors expect the price of a security may increase.
US government debt with a maturity of more than 10 years.
US government debt with a maturity of one to 10 years.
The expected period of time during which a depreciating asset will be productive. US Treasury bill US government debt with a maturity of less than a year.
Laws limiting the amount of interest that can be charged on loans.
A power company that owns or operates facilities used for the generation, transmission, or distribution of electric energy, which is regulated at state and federal levels.
A mathematical expression that assigns a value to all possible choices. In portfolio theory, the utility function expresses the preferences of economic entities with respect to perceived risk and expected return.
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