Stock market dictionary, stock market glossary, stock market glossary of terms, financial terms

Consolidated financial statement
A financial statement that shows all the assets, liabilities, and operating accounts of a parent company and its subsidiaries.

Consolidated mortgage bond
A bond that covers several units of property, sometimes refinancing mortgages on the properties.

Consolidated tape
Used for listed equity securities. Combined ticker tapes of the NYSE and the curb. Network A covers the NYSE-listed securities and is used to identify the originating market. Network B does the same for AMEX-listed securities and also reports on securities listed on regional stock exchanges. See: tape.

Consolidated tax return
A tax return combining the reports of affiliated companies, that are at least 80% owned by a parent company.

Consolidation
The combining of two or more firms to form an entirely new entity.

Consolidation loan
A loan that is used to combine and finance payments on other loans.

Consortium
A group of companies that cooperate and share resources in order to achieve a common objective.

Consortium banks
A merchant banking subsidiary set up by several banks that may or may not be of the same nationality. Consortium banks are common in the Euromarket and are active in loan syndication.

Constant dollar
Condition in which inflation or escalation is not applicable. Prices and costs are deescalated or reescalated to a single point in time.

Constant-dollar plan
Method of purchasing securities by investing a fixed amount of money at set intervals. The investor buys more shares when the price is low and fewer shares when the price is high, thus reducing the average cost.

Constant-growth model
Also called the Gordon-Shapiro model, an application of the dividend discount model that assumes (1) a fixed growth rate for future dividends, and (2) a single discount rate.

Constant ratio plan
Maintaining a predetermined ratio between stock and fixed income investments through regular adjustments of distribution of funds into different investments. See: formula investing.

Constant yield method
Allocation of annual interest on a zero-coupon security for income tax use.

Construction loan
A short-term loan to finance building costs.

Constructive receipt
The date a taxpayer receives dividends or other income, for use in the determination of taxes.

Consular Invoice
A document prepared by the shipper and certified in the country of origin by a consul of the country of importation. It shows the transaction details and origin of the goods.

Consumer Advisory Council (CAC)
A statutory body established by Congress in 1976. The Council, with 30 members who represent a broad range of consumer and creditor interests, advises the Federal Reserve Board on the exercise of its responsibilities under the Consumer Credit Protection Act and on other matters on which the Board seeks its advice.

Consumer credit
Credit a firm grants to consumers for the purchase of goods or services. Also called retail credit.

Consumer Credit Protection Act of 1968
Federal legislation establishing rules for the disclosure of the terms of a loan to protect borrowers. See: Truth in lending.

Consumer debenture
An investment note issued directly to the public by a financial institution.

Consumer durables
Consumer products that are expected to last three years or more, such as an automobile or a home appliance.

Consumer finance company
See: Finance company

Consumer goods
Goods not used in production but bought for personal or household use such as food, clothing, and entertainment.

Consumer interest
Interest paid on consumer loans; e.g., interest on credit cards and retail purchases.

Consumer Price Index (CPI)
The CPI, as it is called, measures the prices of consumer goods and services and is a measure of the pace of US inflation. The US Department of Labor publishes the CPI every month.

Consumption tax
See: Value-added tax

Contagion
Excess correlation of delivering or bond returns. For example, under usual conditions we might observe a certain level of correlation of market returns. A period of contagion would be associated with much higher-than-expected correlation. Some examples are the conjectured contagion in East Asian markets beginning in July 1997 when the Thai currency devalued and the impact across many emerging markets of the Russian default. Contagion is difficult to identify because you need some sort of measure of the expected correlation. It is complicated because correlations are known to change through time, for example, see Erb, Harvey and Viskanta's article in the 1994 Financial Analysts Journal. In periods of negative returns, correlations (and volatility) are known to increase, so what might appear to be excessive may not be contagion.

Contango
A market condition in which futures prices are higher in the distant delivery months.

Contingency
An additional amount or percentage added to any cash flow item (ie. Capex). Care is needed to ensure it is either to be spent or to remain as a cushion.

Contingency graph
A plot of the net profit to a speculator in currency options under various exchange rate scenarios.

Contingency order
In the context of general equities, order to buy one security, if the trader can sell another, usually given that certain price limits or conditions reach a certain level. Swap, switch order.

Contingent
In context of liabilities, those liabilities that do not yet appear on the balance sheet (ie. guarantees, supports, lawsuit settlements). For support or recourse, the trigger may occur at any time in the future.

Contingent claim
A claim that can be made only if one or more specified outcomes occur.

Contingent conversion trigger
Used in the context of convertible instruments. The price of the stock must exceed the trigger price before the bond holder can convert to common stock at a pre-established conversion price. The trigger price exceeds the conversion price. In addition, after a certain number of years, the convertible instrument usually specifies that both the conversion price and the contingent conversion trigger will increase every year by, for example, a rate equal to LIBOR.

Contingent deferred sales charge (CDSC)
The formal name for the load of a back-end load fund.

Contingent immunization
An arrangement in which the money manager pursues an active bond portfolio strategy until an adverse investment experience drives the then-available potential return down to the safety net level. When that point is reached, the money manager is obligated to pursue an immunization strategy to lock in the safety-net level return.

Contingent order
An order which can be executed only if another event occurs; i.e. "sell Oct 45 call 7-1/4 with stock 52 or lower".

Contingent pension liability
Under ERISA, a firm is liable to its pension plan participants for up to 39% of the net worth of the firm.

Contingent Voting Power
Enables preferred stockholders to vote when the company fails to satisfy the agreement between itself and the preferred stockholders.

Continuous compounding
The process of accumulating the time value of money forward in time on a continuous, or instantaneous, basis. Interest is earned constantly, and at each instant, the interest that accrues immediately begins earning interest on itself.

Continuous net settlement (CNS)
Method of securities clearing and settlement using a clearing house, which matches transactions to securities available, resulting in one net receive or deliver position at the end of the day.

Continuous random variable
A random value that can take any fractional value within specified ranges, as contrasted with a discrete variable.

Contra broker
The broker on the buy side of a sell order or the sell side of a buy order.

Contract
A term of reference describing a unit of trading for a financial or commodity future. Also, the actual bilateral agreement between the buyer and seller of a transaction as defined by an exchange.

Contract month
The month in which futures contracts may be satisfied by making or accepting a delivery.

Contractual Claim
An amount that by legal agreement must be paid periodically to the buyer of a security; contractual claim may also specify the time at which the principal must be repaid and other details.

Contractual Intermediary
Holder of an indirect claim through a legal agreement that specifies that the individual must make periodic, fixed payments to the intermediary in exchange for the right to receive payments from the intermediary in the future.

Contractual plan
A plan in which fixed dollar amounts of mutual fund shares are purchased through periodic investments, usually featuring some sort of additional incentive for the fixed period payments.

Contramarket stock
In the context of general equities, stock that tends to go against the trend of the market as a whole, such as a commodities-related stock or one in an industry out of favor with investors in a bull market.

Contrarian
An investment style that leads one to buy assets that have performed poorly and sell assets that have performed well. There are two possible reasons this strategy might work. The first is a mean-reversion argument; that is, if the asset has deviated from its usual level, it should eventually return to that usual level. The second reason has to do with overreaction. Investors might have overreacted to bad news sending the asset price lower than it should be.

Contrarian investing
Ignoring market trends by buying securities that the investor considers undervalued and out of favor with other investors.

Contributed capital
See: Paid-in capital

Contribution
Money placed in an individual retirement account (IRA), an employer-sponsored retirement plan, or other retirement plan for a particular tax year. Contributions may be deductible or nondeductible, depending on the type of account.

Contribution margin
The difference between variable revenue and variable cost.

Control
50% of the outstanding votes plus one vote.

Control Limits
The upper and lower limits on the acceptable level of cash that minimizes the sum of the opportunity cost of excessive cash and the cost of marketable security transactions.

Control parameters
In a nonlinear dynamic system, the coefficient of the order parameter; the determinant of the influence of the order parameter on the total system. See: Order Parameter.

Control person
See: Affiliated person

Control-share Acquisition Laws
See Supermajority.

Control stock
The shares owned by the controlling shareholders of a corporation. Sometimes refers to stock that has voting rights rather than stock that carries no voting rights. In a situation where all stock has voting rights, it sometimes refers to the shareholdings of one investors or a group of investors that effectively control the firm.

Controlled commodities
Commodities regulated by the Commodities Exchange Act of 1936 in order to prevent fraud and manipulation in commodities futures markets.

Controlled disbursement
A service that provides for a single presentation of checks each day (typically in the early part of the day).

Controlled foreign corporation (CFC)
A foreign corporation whose voting stock is more than 50% owned by US stockholders, each of whom owns at least 10% of the voting power.

Controller
The corporate manager responsible for the firm's accounting activities. Sometimes referred to as the comptroller (which means the same thing).

Convenience yield
The extra advantage that firms derive from holding the commodity rather than a future position.

Convention statement
An annual statement filed by a life insurance company in each state where it does business in compliance with that state's regulations. The statement and supporting documents show, among other things, the assets, liabilities, and surplus of the reporting company.

Conventional mortgage
A loan based on the credit of the borrower and on the collateral for the mortgage.

Conventional option
An option contract arranged on the trading floor and traded regularly. The opposite of exotic option.

Conventional pass-throughs
Also called private-label pass-throughs, any mortgage pass-through security not guaranteed by government agencies. Compare agency pass-throughs.

Conventional project
A project with a negative initial cash flow (cash outflow), which is expected to be followed by one or more future positive cash flows (cash inflows).

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

Convertible Arbitrage
In the context of hedge funds, a style of management that involves the simultaneous purchase of a convertible bond and the short sale of shares of the underlying stock. Interest rate risk may or may not be hedged.

Convergence
The movement of the price of a futures contract toward the price of the underlying cash commodity. At the start, the contract price is usually higher because of time value. But as the contract nears expiration, and time value decreases, the futures price and the cash price converge.

Conversion
In the context of securities, refers to the exchange of a convertible security such as a bond into stock.

In the context of mutual funds, refers to the free exchange of mutual fund shares from one fund to another in a single family.

Conversion factors
Rules set by the Chicago Board of Trade for determining the invoice price of each acceptable deliverable Treasury issue against the Treasury Bond futures contract.

Conversion feature
Specification of the right to transform a particular investment to another form of investment, such as switching between mutual funds or converting preferred stock or bonds to common stock.

Conversion parity
See: Market conversion price

Conversion parity price
Related: Market conversion price

Conversion parity/value
Applies mainly to convertible securities. Common stock price at which a convertible bond can become exchangeable for common shares of equal value; value of a convertible bond based solely on the market value of the underlying equity. Par value plus conversion ratio. See bond value, investment value, parity.

Conversion Period
The time period during which an investor can exchange a convertible security for common stock.

Conversion premium
The extent by which the conversion price of a convertible security exceeds the prevailing common stock price at the time the convertible security is issued. In general usage, the conversion premium is the amount by which the convertible security trades above its conversted value. For example, if a $1,000 par bond is trading at $1,100, it is convertible into 50 shares, and the shares are trading at $21, the converted value is 50 X 20.50 = $1,025, and the conversion premium is $75.

Conversion price
Applies mainly to convertible securities. Dollar value at which convertible bonds, debentures, or preferred stock can be converted into common stock, as specified when the convertible is issued.

Conversion ratio
Applies mainly to convertible securities. Relationship that determines how many shares of common stock will be received in exchange for each convertible bond or preferred stock when a conversion takes place. It is determined at the time of issue and is expressed either as a ratio or as a conversion price from which the ratio can be figured by dividing the par value of the convertible by the conversion price.

Conversion value
The value of a convertible security if it is converted immediately. Also called parity value or converted value.

Converted put
See Synthetic Put.

Convertibility
The ability to exchange a currency without government restrictions or controls.

Convertible adjustable preferred stock (Caps)
The interest rate on caps is adjustable and is pegged to Treasury security rates. They can be exchanged at par value for common stock or cash after the next period's dividend rates are revealed.

Convertible arbitrage
A practice, usually of buying a convertible bond and shorting a percentage of the equivalent underlying common shares, to create a positive cash flow position (with expected returns above the riskless rate) in a static environment and benefit from capital appreciation should the convertible's premium rise. This form of investing is far from riskless and requires constant monitoring. See: Chinese hedge and setup

Convertible bond
General debt obligation of a corporation that can be exchanged for a set number of common shares of the issuing corporation at a prestated conversion price.

Convertible eurobond
A eurobond that can be converted into another asset, often through exercise of attached warrants.

Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the issuer's option, into convertible bonds that have the same conversion features as the convertible preferred stock.

Convertible 100
Goldman Sachs index of the 100 convertibles of greatest institutional importance. Weighted by issue size, it measures the performance of its components against that of their underlying common stock and against other broad market indexes as well.

Convertible preferred stock
Preferred stock that can be converted into common stock at the option of the holder. See also: participating convertible preferred stock.

Convertible price
The contractually specified price per share at which a convertible security can be converted into shares of common stock.

Convertible security
A security that can be converted into common stock at the option of the securityholder; includes convertible bonds and convertible preferred stock.

Convex
Curved, as in the shape of the outside of a circle. Usually referring to the price/required yield relationship for option-free bonds.

Convexity
Property that a curve is above a straight line connecting two end points. If the curve falls below the straight line, it is called concave.

Cook the books
To deliberately falsify the financial statements of a company. This is an illegal practice.

Cooling-off period
The period of time between the filing of a preliminary prospectus with the Securities and Exchange Commission and the actual public offering of the securities.

Cooperative
An organization owned by its members. Examples are agriculture cooperatives that assist farmers in selling their products more efficiently and apartment buildings owned by the residents who have full control of the property.

Copenhagen Stock Exchange
The only securities exchange in Denmark. It features electronic trading of stocks, bonds, futures, and options.

Core capital
The capital required of a thrift institution, which must be at least 2% of assets to meet the rules of the Federal Home Loan Bank.

Core competence
Primary area of expertise. Narrowly defined fields or tasks at which a company or business excels. Primary areas of specialty.

Cornering the market
Purchasing a security or commodity in such volume as to achieve control over its price. An illegal practice.

C Corporation
A corporation that elects to be taxed as a corporation. The C corporation pays federal and state income taxes on earnings. When the earnings are distributed to the shareholders as dividends, this income is subject to another round of taxation (shareholder's income). Essentially, the C corporations' earnings are taxed twice. In contrast, the S corporation's earnings are taxed only once.

Corporate acquisition
The acquisition of one firm by another firm.

Corporate bonds
Debt obligations issued by corporations.

Corporate charter
A legal document creating a corporation.

Corporate equivalent yield
A comparison of the after-tax yield of government bonds selling at a discount and corporate bonds selling at par.

Corporate finance
One of the three areas of the discipline of finance. It deals with the operation of the firm (both the investment decision and the financing decision) from the firm's point of view.

Corporate financial management
The application of financial principles within a corporation to create and maintain value through decision-making and proper resource management.

Corporate financial planning
Financial planning conducted by a firm that encompasses preparation of both long-and short-term financial plans.

Corporate financing committee
A committee of the NASD that reviews underwriters' SEC-required documents to ensure that proposed markups are fair and in the public interest.

Corporate income fund (CIF)
A unit investment trust featuring a fixed portfolio of high-grade securities and other investments, usually with monthly distribution of income.

Corporate processing float
The time that elapses between receipt of payment from a customer and the deposit of the customer's check in the firm's bank account; the time required to process customer payments.

Corporate repurchase
Active buying by a corporation of its own stock in the marketplace. Reasons for repurchase include putting idle cash to use, raising EPS, creating support for a stock price, increasing internal control (shark repellant), or stock for ESOP or pension plans. Repurchase is subject to rules, such as that buying must be on a zero minus or a minus tick, after the opening and before 3:30 p.m.

Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes debt a cheaper financing method.

Corporate taxable equivalent
Rate of return required on a par bond to produce the same after-tax yield to maturity that the quoted premium or discount bond would generate.

Corporate Trust
The function of servicing and maintaining records for debt securities issued by a corporation.

Corporation
A legal entity that is separate and distinct from its owners. A corporation is allowed to own assets, incur liabilities, and sell securities, among other things.

Corpus
See: Principal

Correction
Reverse movement, usually downward, in the price of an individual stock, bond, commodity, or index. If prices have been rising on the market as a whole, and then fall dramatically, this is known as a correction within an upward trend. Antithesis of a technical rally. See: Dip, break.

Correlation
Statistical measure of the degree to which the movements of two variables (stock/option/convertible prices or returns) are related. See: Correlation coefficient.

Correlation coefficient
A standardized statistical measure of the dependence of two random variables, defined as the covariance divided by the product of the standard deviations of two variables.

Correlation Dimension
An estimate of the Fractal Dimension which measures the probability that two points chosen at random will be within a certain distance of each other, and examines how this probability changes as the distance is increased. White noise will fill its space since its components are uncorrelated, and its correlation dimension is equal to whatever dimension it is placed in. A dependent system will be held together by its correlations and retain its dimension whatever embedding dimension it is placed in, as long as it is greater than its fractal dimension.

Correlation Integral
The probability that two points are within a certain distance from one another. Used in the calculation of the correlation dimension.

Correspondent
A financial organization that performs services (acts as an intermediary) in a market for another organization that does not have access to that market.

Correspondent bank
Bank that accepts deposits of, and performs services for, another bank (called a respondent bank); in most cases, the two banks are in different cities.

Cosigner
A term referring to a person, other than the principal borrower, who signs for a loan. The cosigner(s) assumes equal liability for the loan.

Cost
The opposite of revenue. An expense that reflects the price of purchasing goods, services and financial instruments. A cash cost means that cash is given up today to the purchase. Also, the purchase price of an investment, which is compared to the sale proceeds to determine capital gain or loss.

Cost accounting
A branch of accounting that provides information to help the management of a firm evaluate production costs and efficiency.

Cost and Freight (CFR)
Seller is responsible for the payment of freight to carry goods to a named destination, as agreed with the buyer. This should be used with ocean shipments only, as the point where risk and responsibility pass from seller to buyer is the rail of the carrying vessel.

Cost basis
The original price of an asset, used to determine capital gains.

Cost-benefit ratio
The net present value of an investment divided by the investment's initial cost. Also called the profitability index.

Cost of capital
The required return for a capital budgeting project.

Cost of carry
Out-of-pocket costs incurred while an investor has an investment position. Examples include interest on long positions in margin account, dividend lost on short margin positions, and incidental expenses. Related: Net financing cost.

Cost-of-carry market
Applies to derivative products. Futures contracts trade in a "cost-of-carry market" where the underlying commodity can be stored, insured, and converted into the future easily and inexpensively. Arbitrageurs, because of the ease of switching from the spot commodity to futures, will keep these markets in line with prevailing interest rates.

Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of charge but agree to pay all operating and financing charges of the project.

Cost of equity
The required rate of return for an investment of 100% equity.

Cost of funds
Interest rate associated with borrowing money.

Cost of goods sold
The total cost of buying raw materials, and paying for all the factors that go into producing finished goods.

Cost of lease financing
A lease's internal rate of return.

Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital raised from limited partners.

Cost Insurance and Freight (CIF)
Seller is responsible for the payment of freight to carry goods to a named destination, as agreed with the buyer. The seller is also responsible for providing cargo insurance at minimum coverage against the buyer's risk of loss or damage to the goods during transport. This term should be used with ocean shipments only, as the point where risk and responsibility pass from seller to buyer is the rail of the carrying vessel.

"Cost me"
Refers to over-the-counter trading. "The price I must pay to obtain the securities you wish to buy is [$]". Usually, a standard markup is then applied for resale to this buyer. Antithesis of can get.

Cost-plus contract
A contract in which the selling price is based on the total cost of production plus a fixed percentage or fixed amount.

Cost-push inflation
Inflation caused by rising prices, usually from increased raw material or labor costs that push up the costs of production. Related: Demand-pull inflation.

Cost records
The records maintained by an investor of the prices at which securities transactions are made, so that capital gains can be computed.

Cost Recovery Period
The number of years it takes to fully depreciate a capital asset. This time period is based on classification of the depreciable life of an asset.

Council of Economic Advisers
A group of economists appointed by the President of the United States to provide economic counsel and help prepare the president's budget presentation to Congress.

Countercyclical stocks
Stocks whose price tends to rise when the economy is in recession or the market is bearish, and vice versa.

Counterpart items
In the balance of payments, counterpart items are analogous to unrequited transfers in the current account. They arise through the double-entry system in balance of payments accounting and refer to adjustments in reserves owing to monetization or demonetization of gold, allocation or cancellation of SDRs, and revaluation of the various components of total reserves.

Counterparties
The parties on either side of an interest rate swap or a currency, equity or commodity swap, or to an options or futures position.

Counterparty
The other participant, including intermediaries, in a swap or contract.

Counterparty risk
The risk that the other party to an agreement will default. In an options contract, the risk to the option buyer that the option writer will not buy or sell the underlying as agreed.

Counterpurchase
Exchange of goods between two parties under two distinct contracts expressed in monetary terms.

Countertrade
See: barter

Country allocations
The percentages of a fund's net assets distributed to securities of various countries. These percentages serve as an indicator of a fund's diversification and its vulnerability to fluctuations in foreign financial markets or currency exchange rates.

Country beta
Covariance of a national economy's rate of return and the rate of return of the world economy divided by the variance of the world economy.

Country diversification
Investment of a global or international portfolio's assets in securities of various countries.

Country economic risk
Developments in a national economy that can affect the outcome of an international financial transaction.

Country financial risk
Centers around the ability of a national economy to generate enough foreign exchange to meet payments of interest and principal on its foreign debt.

Country risk
The general level of political, financial, and economic uncertainty in a country which impacts the value of the country's bonds and equities. See:Sovereign risk.

Country selection
A type of active international management that measures the contribution to performance attributable to investing in the better-performing stock markets of the world.

Coupon
The contractual interest obligation a bond or debenture issuer covenants to pay to its debtholders.

Coupon bond
A bond featuring coupons that must be presented to the issuer in order to receive interest payments.

Coupon-equivalent rate
See: Equivalent bond yield

Coupon equivalent yield
True interest cost expressed on the basis of a 365-day year.

Coupon pass
Canvassing by the desk of primary dealers to determine the inventory and maturities of their Treasury securities. The desk then decides whether to buy or sell certain issues (coupons) in order to add or withdraw reserves.

Coupon payments
A bond's interest payments.

Coupon rate
In bonds, notes, or other fixed income securities, the stated percentage rate of interest, usually paid twice a year.

Covariance
A statistical measure of the degree to which random variables move together. A positive covariance implies that one variable is above (below) its mean value when the other variable is above (below) its mean value.

Covenant
An agreed action to be undertaken (Positive) or not done (Negative). A breach of a covenant is a default.

Cover
The amount above UNITY of a debt service ratio.

Coverage
See: Fixed-charge coverage

Coverage initiated
Usually refers to the fact that analysts begin following a particular security. This usually happens when there is enough trading in it to warrant attention by the investment community.

Coverage ratios
Ratios used to test the adequacy of cash flows generated through earnings for purposes of meeting debt and lease obligations, including the interest coverage ratio and the fixed-charge coverage ratio.

Covered
A written option is considered to be covered if the writer also has an opposing market position on a share-for-share basis in the underlying security. That is, a short call is covered if the underlying stock is owned, and a short put is covered (for margin purposes) if the underlying stock is also short in the account. In addition, a short call is covered if the account is also long another call on the same security, with a striking price equal to or less than the striking price of the short call. A short put is covered if there is also a long put in the account with a striking price equal to or greater than the striking price of the short put.

Covered call
A short call option position in which the writer owns the number of shares of the underlying stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the stock does not have to be bought at the market price, if the holder of that option decides to exercise it.

Covered call writing strategy
A strategy that involves writing a call option on securities that the investor owns. See: Covered or hedge option strategies.

Covered foreign currency loan
A loan denominated in a currency other than that of the borrower's home country, for which repayment terms are prearranged through the use of a forward currency contract.

Covered interest arbitrage
Occurs when a portfolio manager invests dollars in an instrument denominated in a foreign currency and hedges the resulting foreign exchange risk by selling the proceeds of the investment forward for dollars.

Covered Interest Rate Parity
The principle that the yields from interest-bearing foreign and domestic investments should be equal when the currency market is used to predetermine the domestic currency payoff from a foreign investment.

Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the underlying stock, designed so that one position will help offset any unfavorable price movement in the other, including covered call writing and protective put buying. Related: Naked strategies

Covered option
Option position that is offset by an equal and opposite position in the underlying security. Antithesis of naked option.

Covered position
Use of an option in a trading strategy in the underlying asset which is already owned.

Covered put
A put option position in which the option writer also is short the corresponding stock or has deposited, in a cash account, cash or cash equivalents equal to the exercise price of the option. This limits the option writer's risk because money or stock is already set aside. In the event that the holder of the put option decides to exercise the option, the writer's risk is more limited than it would be on an uncovered or naked put option.

Covered straddle
An option strategy in which one call and one put with the same strike price and expiration are written against 100 shares of the underlying stock. In actually, this is not a "covered" strategy because assignment on the short put would require purchase of stock on margin. This method is also known as a covered combination.

Covered straddle write
The term used to describe the strategy in which an investor owns the underlying security and also writes a straddle on that security. This is not really a covered position.

Covered writer
An investor who writes options only on stock that he or she owns, so that option premiums may be collected.

Covering
Using forward currency contracts to predetermine the domestic currency amount of an expected future foreign receipt or payment. Also, the buying back ('covering') of a short position.

CPI
A measure of inflation. See: Consumer Price Index.

Cramdown
The ability of the bankruptcy court to confirm a plan of reorganization over the objections of some classes of creditors.

Cram-down deal
A merger in which stockholders are forced to accept undesirable terms, such as junk bonds instead of cash or equity, due to the absence of any better alternatives.

Crash
Dramatic loss in market value. The last great crash was in 1929. Some refer to October 1987 as a crash but the market return for the entire year of 1987 was positive.

Crawling peg
An automatic system for revising the exchange rate. It involves establishing a par value around which the rate can vary up to a given percent. The par value is revised regularly according to a formula determined by the authorities.

Credible signal
A signal that provides accurate information; a signal that can distinguish among senders.

Credit
Money loaned.

Credit analysis
Evaluating information on companies and bond issues in order to estimate the ability of the issuer to live up to its future contractual obligations. Related: Default risk.

Credit balance
The surplus in a cash account with a broker after purchases have been paid for, plus the extra cash from the sale of securities.

Credit bureau
An agency that researches the credit history of consumers so that creditors can make decisions about granting of loans.

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

Credit enhancement
The purchase of the financial guarantee of a large insurance company to raise funds. In the context of project financing, the issuance of a guarantee or additional collateral to reinforce the credit strength of a project financing. Also, the reduction of counterparty risk on a swap transaction through such measures as bilateral netting.

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

Credit insurance
Insurance against abnormal losses due to unpaid accounts receivable.

Credit linked security
A note whose cash flow depends upon a credit event or credit measure of a referenced entity or asset such as default, credit spread, or rating change. The manager would purchase such a note to hedge against possible down grades, or loan defaults that would guarantee payment into the portfolio of the manager even if moneys on referenced assets are reduced.

Credit period
The length of time for which a firm's customer is granted credit.

Credit Policy Delay
The period between the sale of goods for a credit and the payment for those goods. This lag is determined largely by the selling firm's credit policy.

Credit Rating Agencies
Firms that compile information on and issue public credit ratings for a large number of companies.

Credit Standards
The guidelines a company follows to determine whether a credit applicant is creditworthy.

Credit Terms
The conditions under which credit will be extended to a customer. The components of credit terms are: cash discount, credit period, net period.

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

Credit quality
A measure of a bond issuer's ability to repay interest and principal in a timely manner. Rating agencies assign letter designations such as AAA, AA, and so forth. The lower the rating, the higher the probability of default.

Credit rating
An evaluation of an individual's or company's ability to repay obligations or its likelihood of not defaulting See: Creditworthiness.

Credit risk
The risk that an issuer of debt securities or a borrower may default on its obligations, or that the payment may not be made on a negotiable instrument. Related: Default risk.

Credit scoring
A statistical technique that combines several financial characteristics to form a single score to represent a customer's creditworthiness.

Credit spread
Applies to derivative products. Difference in the value of two options, when the value of the one sold exceeds the value of the one bought. One sells a "credit spread." Antithesis of a debit spread Related: Quality spread.

Credit union
A not-for-profit institution that is operated as a cooperative and offers financial services such as low-interest loans to its members.

Credit watch
A warning by a bond rating firm indicating that a company's credit rating may change after the current review is concluded.

Crediting rate
The interest rate offered on an investment type insurance policy.

Creditor
Lender of money.

Creditor's committee
A group representing firms that have claims on a company facing bankruptcy or extreme financial difficulty.

Creditworthiness
Eligibility of an individual or firm to borrow money.

Creeping expropriation
The act of a government squeezing a project by taxes, regulation, access, or changes in law.

Creeping tender offer
The process by which a group attempting to circumvent certain provisions of the Williams Act gradually acquires shares of a target company in the open market.

CREST
CREST is CrestCo's real-time settlement system for UK and Irish shares and other corporate securities. CrestCo has provided settlement systems for government bonds and money market instruments in the UK since 1990.

Crisp Sets
The fuzzy set term for traditional set theory. That is, an object either belongs to a set, or does not.

Critical Levels
Values of control parameters where the nature of a nonlinear dynamic system changes. The system can bifurcate, or make the transition from stable to turbulent behavior. An example is the straw that breaks the camel's back.

Cross
Securities transaction in which the same broker acts as agent for both sides of the trade; a legal practice only if the broker first offers the securities publicly at a price higher than the bid.

Cross-border factoring
Concluding a transaction by a network of factors across borders. The exporter's factor can contact correspondent factors in other countries to handle the collection of accounts receivable.

Cross-border risk
Describes the volatility of returns on international investments caused by events associated with a particular country as opposed to events associated solely with a particular economic or financial agent.

Cross-Collateral
An agreement among project participants to pool collateral, to allow recourse to each other's collateral.

Cross-default
A provision under which default on one debt obligation triggers default on another debt obligation.

Cross hedging
Applies to derivative products. Hedging with a futures contract that is different from the underlying being hedged. Use of a hedging instrument different from the security being hedged. Hedging instruments are usually selected to have the highest price correlation to the underlying.

Cross-holdings
The holding by one corporation of shares in another firm. One needs to allow for cross-holdings when aggregating capitalizations of firms. Ignoring cross-holdings leads to double-counting.

Cross rates
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates that are both expressed in terms of a third currency. Foreign exchange rate between two currencies other than the US dollar, the currency in which most exchanges are usually quoted.

Cross-sectional analysis
Assessment of relationships among a cross-section of firms, countries, or some other variable at one particular time.

Cross-Sectional Ratio Analysis
A method of analysis that compares a firm's ratios with some chosen industry benchmark. The benchmark usually chosen is the average ratio value for all firms in an industry for the time period under study.

Cross-sectional approach
A statistical methodology applied to a set of firms at a particular time.

Cross-share holdings
Often used in risk arbitrage. Corporations' or governments' equity share ownership in another corporation's shares.

Cross-border bonds
Bonds that firms issue in the international market.

Crossed market
In the context of general equities, happens when the inside market consists of a highest bid price that is higher than the lowest offer price. See: Overlap the market.

Crossed trade
The prohibited practice of offsetting buy and sell orders without recording the trade on the exchange, thus not allowing other traders to take advantage of a more favorable price.

Crossover rate
The return at which two alternative projects have the same net present value.

Crowd trading
Used for listed equity securities. Group of exchange members with a defined area of function tending to congregate around a trading post pending execution of orders. Includes specialists, floor traders, odd-lot dealers, and other brokers as well as smaller groups with specialized functions. See: Priority.

Crowding out
Heavy federal borrowing that drives interest rates up and prevents businesses and consumers from borrowing when they would like to.

Crown jewel
A particularly profitable or otherwise particularly valuable corporate unit or asset of a firm. Often used in risk arbitrage. The most desirable entities within a diversified corporation as measured by asset value, earning power, and business prospects; in takeover attempts, these entities typically are the main objective of the acquirer and may be sold by a takeover target to make the rest of the company less attractive. See: Scorched earth policy.

Crown Law
A law derived from English law (ie. England, Ireland, Canada, PNG, Australia, Hong Kong, Singapore, India, Malaysia).

Cum dividend
With dividend; said of a stock whose buyer is eligible to receive a declared dividend. Stocks are usually "cum dividend" for trades made on or before the third trading day preceding the record date, when the register of eligible holders is closed for that dividend period. Antithesis of ex-dividend.

Cum rights
With rights.

Cumulative abnormal return (CAR)
Sum of the differences between the expected return on a stock (systematic risk multiplied by the realized market return) and the actual return often used to evaluate the impact of news on a stock price.

Cumulative dividend feature
A requirement that any missed preferred or preference stock dividends be paid in full before any dividend payment on common shares is made.

Cumulative preferred stock
Preferred stock whose dividends accrue, should the issuer not make timely dividend payments. Related: Non-cumulative preferred stock.

Cumulative probability distribution
A function that shows the probability that the random variable will attain a value less than or equal to each value that the random variable can take on.

Cumulative total return
The actual performance of a fund over a particular period.

Cumulative Translation Adjustment (CTA) account
An entry in a translated balance sheet in which gains and/or losses from translation have been accumulated over a period of years. The C.T.A. account is required under the FASB No. 52 rule.

Cumulative voting
A system of voting for directors of a corporation in which shareholder's total number of votes is equal to the number of shares held times the number of candidates.

The Curb
Another name for the American Stock Exchange (AMEX).

Cure
To make good a default.

Currency
Money.

Currency appreciation
An increase in the value of one currency relative to another currency. Appreciation occurs when, because of a change in exchange rates, a unit of one currency buys more units of another currency.

Currency arbitrage
Taking advantage of divergences in exchange rates in different money markets by buying a currency in one market and selling it in another market.

Currency basket
The value of a portfolio of specific amounts of individual currencies, used as the basis for setting the market value of another currency. It is also referred to as a currency cocktail.

Currency Board
Entity charged with maintaining the value of a local currency with respect to some other specified currency.

Currency call option
Contract that gives the holder the right to purchase a specific currency at a specified price (exchange rate) within a specific period of time.

Currency Carry Trade
A carry trade where you borrow and pay interest in order to buy something else that has higher interest. For currencies, it might be that you borrow in Yen (where the interest rate might be low) and use the proceeds to purchase U.S. dollar long term debt. While the trade might produce a positive return, it is risky in two dimensions. First, U.S. rates could increase diminishing the value of the bond you purchased. Second, the exchange rate could take an unfavorable move effectively increasing your borrowing costs. Related: Carry Trade.

Currency depreciation
A decline in the value of one currency relative to another currency. Depreciation occurs when, because of a change in exchange rates, a unit of one currency buys fewer units of another currency.

Currency devaluation
A deliberate downward adjustment in the official exchange rates established, or pegged, by a government against a specified standard, such as another currency or gold.

Currency diversification
Using more than one currency as an investing or financing strategy. Exposure to a diversified currency portfolio typically entails less exchange rate risk than if all the portfolio exposure were in a single foreign currency.

Currency Exchange Risk
Uncertainty about the rate at which revenues or costs denominated in one currency can be converted into another currency.

Currency futures contract
Contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

Currency future
A financial future contract for the delivery of a specified foreign currency.

Currency hedge
Applies mainly to international equities. Hedging technique to guard against foreign exchange fluctuations (i.e., short Euro l00 mm when holding a long position of Euro l00 mm in stocks).

Currency in circulation
Paper money, coins, and demand deposits that constitute all the money circulating in the economy.

Currency no longer issued
Old and new series gold and silver certificates, Federal Reserve notes, national bank notes, and 1890 Series Treasury notes.

Currency put option
Contract that gives the holder the right to sell a particular currency at a specified price (exchange rate) within a specified period of time.

Currency option
An option to buy or sell a foreign currency.

Currency overvaluation
Applies mainly to international equities: (1) consideration that a currency is overvalued if private demand for the currency at the going exchange rate is less than total private supply (i.e., central banks are buying up the difference, supporting the value of the currency through foreign exchange intervention); (2) currency value exceeding purchasing power parity.

Currency revaluation
A deliberate upward adjustment in the official exchange rate established, or pegged, by government against a specified standard, such as another currency or gold.

Currency risk
Related: Exchange rate risk

Currency selection
Asset allocation in which the investor chooses among investments denominated in different currencies.

Currency swap
An agreement to swap a series of specified payment obligations denominated in one currency for a series of specified payment obligations denominated in a different currency. Usually fixed for fixed.

Current account
Net flow of goods, services, and unilateral transactions (gifts) between countries.

Current account balance
The difference between the nation's total exports of goods, services and transfers and its total imports of them. Current account balance calculations exclude transactions in financial assets and liabilities.

Current assets
Value of cash, accounts receivable, inventories, marketable securities and other assets that could be converted to cash in less than 1 year.

Current coupon
A bond selling at or close to par, that is, a bond with a coupon close to the yields currently offered on new bonds of a similar maturity and credit risk.

Current Coupon Bond
Bonds on which the coupon is set approximately equal to the bonds' yield to maturity at the time of their issuance.

Current-coupon issues
Related: Benchmark issues

Current dollar
Refers to the use of actual or real prices and costs. Escalation or inflation effects are included.

Current income
Regular series of cash flows that is routinely received from investments in the form of dividends, interest, and other income sources.

Current income bonds
Bonds paying semiannual interest to holders. Interest is not included in the accrued discount.

Current issue
In Treasury securities, the most recently auctioned issue. Trading is more active in current issues than in off-the-run issues. Also known as on-the-run issue.

Current liabilities
Amount owed for salaries, interest, accounts payable and other debts due within 1 year.

Current market value
The value of a client's portfolio at today's market price, as listed in a brokerage statement.

Current maturity
Current time to maturity on an outstanding debt instrument.

Current/noncurrent method
The translation of all of a foreign subsidiary's current assets and liabilities into home currency at the current exchange rate while noncurrent assets and liabilities are translated at the historical exchange rate; that is, the rate in effect at the time the asset was acquired or the liability incurred.

Current order
In the context of periodic repayment schedules, the next periodic principal repayment.

Current production rate
The highest interest rate permissible on current Government National Mortgage Association, mortgage-backed securities.

Current rate method
The translation of all foreign currency balance sheet and income statement items at the current exchange rate.

Current ratio
Indicator of short-term debt-paying ability. Determined by dividing current assets by current liabilities. The higher the ratio, the more liquid the company.

Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with the transaction. The arrangement involves a customized hedge contract embedded in the underlying transaction.

Current yield
For bonds or notes, the coupon rate divided by the market price of the bond.

Cushion
In the context of project financing, the extra amount of net cash flow remaining after expected debt service.

Cushion bonds
High-coupon bonds trading at a premium that tend to fall in price much less than comparable bonds when interest rates rise (hence the cushion effect), because of their high coupons.

Cushion theory
The theory that a stock with many short positions taken in it will rise, because these positions must be covered by the stock.

CUSIP number
Unique number given to a security to distinguish it from other stocks and registered bonds. See: Committee on Uniform Securities Identification Procedures.

Custodial fees
Fees charged by an institution that holds securities in safekeeping for an investor.

Custodian
Either (1) a bank, agent, trust company, or other organization responsible for safeguarding financial assets, or (2) the individual who oversees the mutual fund assets of a minor's custodial account.

Custodian bank
Applies mainly to international equities. Bank or other financial institution that keeps custody of stock certificates and other assets of a mutual fund, individual, or corporate client. See: Depository Trust Company (DTC)

Customary payout ratios
A range of payout ratios that is typical according to an analysis of comparable firms.

"Customer picking prices"
Customer is firm on price and has set the price at which to transact.

Customer's loan consent
Agreement signed by a margin customer that allows a broker to borrow margin securities up to the level of the customer's debit balance to help cover other customers' short positions.

Customers' net debit balance
The total amount of credit given by NYSE member firms to finance customers purchasing securities.

Customized benchmarks
A benchmark that is designed to meet a client's requirements and long-term objectives.

Customs Broker
An individual or firm licensed by customs authorities to enter and clear imported goods through customs. The broker represents the importer in dealings with the customs authorities.

Customs union
An agreement by two or more countries to erect a common external tariff and to abolish restrictions on trade among members.

Cut Off Date
The date prescribed in the unclaimed property law in most states for determining the items of property that must be turned over to the state. See: Escheat.

Cutoff point
The lowest rate of return acceptable on investments.

Cycles
A full orbital period.

Cyclical stock
Stock that tends to rise quickly when the economy turns up and fall quickly when the economy turns down. Examples are housing, automobiles, and paper.

Cyclical unemployment
Unemployment caused by a low level of aggregate demand associated with recession in the business cycle.