Financial Glossary
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A
- A Nasdaq stock symbol specifying that the stocks are Class "A" shares of the company.
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A Priori Probability
- Probability calculated by logically examining existing information.
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A Ton Of Money
- A slang term used to describe a significant amount of money. The amount implied typically depends on the person, company or situation.
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A+/A1
- One of the top ratings that a ratings agency assigns to an issuer or insurer. This rating signifies that the security or carrier has stable financial backing and ample cash reserves. The risk of default for investors or policyholders is very low.
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A-/A3
- This is generally the third- or fourth-highest rating that a rating agency assigns to a security or insurance carrier. It is often the lowest investment-grade rating, but it signifies that the issuer is fairly stable with relatively low default risk.
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A-Credit
- The highest credit grade available as assigned to a borrower by a lender. Lenders use a credit grading system to qualify borrowers. The higher the borrower's credit grade, the lower the interest rate offered to that borrower on a loan.
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A-Share
- In a family of multi-class mutual funds, this is the class that is usually characterized by a loaded fee structure. Class A mutual fund units will commonly have a front- or rear-end load, to compensate for the sales person's commission. Not all fund companies follow this class structure; however, it is the prominent method of distinction.
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A-Shares
- Shares in mainland China-based companies that trade on Chinese stock exchanges such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A-shares are generally only available for purchase by mainland citizens; foreign investment is only allowed through a tightly-regulated structure known as the Qualified Foreign Institutional Investor (QFII) system.
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A/A2
- Usually the second- or third-highest rating that a rating agency assigns to a security or carrier. This rating signifies that there is a relatively low risk of default because the issuer or carrier is fairly stable. Investors and policyholders are therefore taking very little risk with these companies.
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AA+/Aa1
- The highest rating that some ratings agencies assign to a security or insurance carrier. This rating signifies that there is little to no risk of default and is often assigned to securities that have AMBAC or another type of insurance backing. Investors or policyholders can rest assured that their money is secure with this rating.
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AAA
- The highest rating given on bonds by bond rating agencies.
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AARP
- Formerly known as the American Association of Retired Persons, AARP is the nation's leading organization for people age fifty and older. Founded in 1958 by retired educator Dr. Ethel Percy Andrus, it is a nonprofit, nonpartisan association with a membership of 40 million. It provides information, education, research, advocacy and community services through a nationwide network of local chapters and experienced volunteers. It focuses its work on consumer issues, economic security, work, health and independent living issues, and engages in legislative, judicial and consumer advocacy in these areas.
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ABA Bank Index
- A banking index that is made up of community banks and banking institutions. This index was created to represent the smaller institutions of the banking industry and stands in contrast to the KBW Banking Index in that respect. The ABA index trades on the Nasdaq under the symbol ABAQ.
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ABA Transit Number
- A unique number assigned by the American Bankers Association (ABA) that identifies a specific federal or state chartered bank or savings institution. In order to qualify for an ABA transit number, the financial institution must be eligible to hold an account at a Federal Reserve bank. ABA transit numbers are also known as ABA routing numbers, and are used to identify which bank will facilitate the payment of the check.
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Abandonment
- 1. The act of surrendering a claim to, or interest in, a particular asset.
2. The permitted withdrawal from a forward contract that is made for the purchase of deliverable securities.
3. The act of allowing an option to expire unexercised.
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Abandonment And Salvage
- An expression that describes the forfeiture of property and the ensuing claim over that property by a second party. Abandonment and salvage can be added as a clause in an insurance contract; this gives the insurance company the ability to accept the abandoned property. Abandonment must be expressed with intent. The potential financial rewards mean that salvage rights are sometimes legally contested by several parties.
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Abandonment Clause
- A clause in a property insurance contract that, under certain circumstances, permits the property owner to abandon lost or damaged property and still claim a full settlement amount. If the insured party's property cannot be recovered, or the cost to recover or repair it is more than its total value, it can be abandoned and the insured party is entitled to a full settlement amount.
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Abandonment Option
- A clause granting parties the option of withdrawing from the contract before the fulfillment or completion of all contractual duties. This clause adds value by giving the parties the ability to end the obligation if it is unprofitable.
A type of "real option".
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Abandonment Value
- The value of a project or asset if it were immediately liquidated. Also referred to as the liquidation value.
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Abatement
- In general, a decrease in the amount of taxation faced by an individual or company.
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Abatement Cost
- A cost borne by many businesses for the removal and/or reduction of an undesirable item that they have created. Abatement costs are generally incurred when corporations are required to reduce possible nuisances or negative byproducts created during production.
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ABC Agreement
- An agreement made between a purchasing member with a seat on the NYSE and the firm in which he or she works. With the approval of the NYSE, this agreement stipulates that the employee of the firm may:
a) transfer the seat to another employee of the firm
b) retain ownership and purchase a new seat for another individual designated by the firm
c) sell the seat and transfer any gains to the firm.
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Abeyance
- A situation in which the rightful owner of a property, office or title has not yet been decided. Abeyance results when the current owner or holder does not declare a single current beneficiary. Instead, the new owner is determined through the outcome of a particular event at some time in the future. Thus, the ownership of the property, office, or title is left unfilled. Abeyance is derived from the Old French word "abeance", which means a longing or gaping, with future expectation.
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Ability to Pay
- The principle that taxes should vary according to an individual's level of wealth or income.
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Abnormal Return
- A term used to describe the returns generated by a given security or portfolio over a period of time that is different from the expected rate of return. The expected rate of return is the estimated return based on an asset pricing model, using a long run historical average or multiple valuation.
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Above Full-Employment Equilibrium
- A macroeconomic term used to describe the real gross domestic product (GDP) is currently in excess of its long-run average, or some other historical measure. Accordingly, the amount that the current real GDP is greater then the historic average is called an inflationary gap, as this will create inflationary pressures in this particular economy.
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Above Par
- A term used to describe the price of a security when it is trading above its face value. A security usually trades at above par when its income distributions are higher than those of other instruments currently available in the market.
If an investor purchases a security above face value, he or she will incur a capital loss at maturity when it is redeemed for face value.
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Above The Market
- An order to buy or sell at a price set higher than the current market price of the security. Examples of above the market orders include: a limit order to sell, a stop order to buy, or a stop-limit order to buy.
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Above Water
- 1. Refers to the condition of a company’s asset when its actual value is higher than the book value used in its financials.
2. Financially referring to a person staying out of economic trouble or a company remaining financially viable.
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Absolute Advantage
- The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service.
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Absolute Beneficiary
- A designation of a beneficiary that can not be changed without the written consent of that beneficiary. Also referred to as an "irrevocable beneficiary", absolute beneficiaries can also refer to a trust, an employee benefit plan such as a pension, or any other instrument or contract with a beneficiary clause.
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Absolute Breadth Index - ABI
- A market indicator used to determine volatility levels in the market without factoring in price direction. It is calculated by taking the absolute value of the difference between the number of advancing issues and the number of declining issues. Typically, large numbers suggest volatility is increasing, which is likely to cause significant changes in stock prices in the coming weeks.
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Absolute Frequency
- A statistical term describing the total number of trials or observations within a given interval or frequency bin. The frequency bins can be of any size, but they must be mutually exclusive, exhaustive and the data must be grouped.
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Absolute Physical Life
- The length of time that it takes for an asset takes to become fully depreciated, at which time it provides no additional use. The absolute physical life is often taken into consideration when companies purchase assets. The measure is typically associated with assets that have low risk of becoming technically obsolete.
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Absolute Priority
- A rule that stipulates the order of payment - creditors before shareholders - in the event of liquidation. The absolute priority rule is used in bankruptcies to decide what portion of payment will be received by which participants. Debts to creditors will be paid first and shareholders (partial owners) divide what remains.
Regarding the estate of a deceased person, the absolute priority rule will ensure payment of outstanding debts before the distribution to beneficiaries.
Also known as "liquidation preference".
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Absolute Rate
- The fixed portion of an interest-rate swap, expressed as a percentage rather than as a premium or a discount to a reference rate.
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Absolute Return
- The return that an asset achieves over a certain period of time. This measure looks at the appreciation or depreciation (expressed as a percentage) that an asset - usually a stock or a mutual fund - achieves over a given period of time.
Absolute return differs from relative return because it is concerned with the return of a particular asset and does not compare it to any other measure or benchmark.
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Absorbed
- 1. In a general business sense, when a cost is treated as an expense instead of being passed on to the customer in the form of higher prices.
2. In underwriting, when an issue has been completely sold to the public.
3. In mergers, when an acquired firm is folded into the acquiring company.
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Absorption Costing
- A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption costing uses the total direct costs and overhead costs associated with manufacturing a product as the cost base. Generally accepted accounting principles (GAAP) require absorption costing for external reporting.
Absorption costing is also known as "full absorption costing".
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Abusive Tax Shelter
- An investment scheme that claims to reduce income tax without changing the value of the user's income or assets. Abusive tax shelters serve no economic purpose other than lowering the federal or state tax owed when filing. Often, these schemes channel funds through trusts or partnerships to avoid taxation.
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Academy Of Financial Divorce Practitioners
- An organization dedicated to the development of financial expertise with respect to divorce. The Academy of Financial Divorce Practitioners trains its members in the financial aspects of divorce, such as alimony, property settlements, child support and retirement assets. Members of the academy, known as certified financial divorce practitioners (CFDPs), supply unbiased financial expertise to facilitate equitable divorce proceedings.
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Accelerated Bookbuild
- A form of offering in the equity capital markets. It involves offering shares in a short time period, with little to no marketing. The bookbuild of the offering is done vey quickly in one or two days. Underwriters may sometimes guarantee a minimum price and proceeds to the firm.
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Accelerated Cost Recovery System - ACRS
- A system of depreciation introduced by the Economic Recovery Tax Act of 1981. ACRS depreciation is based on recovery periods instead of useful life. These periods were predetermined by the IRS.
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Accelerated Death Benefit - ADB
- A benefit that can be attached to a life insurance policy that enables the policy holder to receive cash advances against the death benefit in the case of being diagnosed with a terminal illness. Many individuals who choose the accelerated death benefit have less than one year to live and use the money for treatments and other costs needed to stay alive.
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Accelerated Depreciation
- Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset.
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Accelerated Option
- This term refers to an option in an insurance contract, usually in the form of a rider, that allows for accelerated benefits or partial benefits sooner than they would otherwise be payable. Alternatively, in life insurance contracts, an accelerated option can refer to the option that allows the policy holder to apply the accumulated cash value to pay off the policy.
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Accelerated Payments
- A term associated with making additional unscheduled payments on a loan at predetermined, or random intervals. Making additional unscheduled payments reduces the principal balance of the loan, meaning that more principal and less interest is paid off in subsequent payments. Making accelerated payments will lead to the early pay-off of a loan.
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Accelerated Vesting
- A form of vesting that takes place at a faster rate than the initial vesting schedule in a company's stock option plan. This allows the option holder to receive the monetary benefit from the option much sooner. If a company decides to undertake accelerated vesting, then it may expense the costs associated with the stock options sooner.
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Acceleration Covenant
- A clause included in certain debt securities and swap agreements stating that the immediate collection of payment and termination of contract will take place should any number of clauses being violated by the borrower including default or a downgrade of debt.
Also referred to as "Acceleration Clause."
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Accelerative Endowment
- An option in a whole life insurance policy to use accumulated dividends to convert the policy into an endowment policy prior to its normal maturity date. An endowment policy provides for a lump sum payment to the insured after a certain period.
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Accelerator Theory
- An economic theory that suggests that as demand or income increases in an economy, so does the investment made by firms. Furthermore, accelerator theory suggests that when demand levels result in an excess in demand, firms have two choices of how to meet demand.
- Raise prices to cause demand to drop.
- Increase investment to match demand.
The accelerator theory proposes that most companies choose to increase production thus increase their profits. The theory further explains how this growth attracts more investors, which accelerates growth.
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Acceptance
- A contractual agreement on a time draft or sight draft to pay the amount due at a specified date. The party who is expected to pay the draft writes "accepted", or similar wording indicating acceptance, next to his or her signature along with the date. This person then becomes the acceptor, and is obligated to make the payment by the maturity date.
A banker's acceptance is a time draft honored by a bank, and is typically used in international trade. A trade acceptance is a time draft drawn by the seller of goods on a buyer. In a trade acceptance, the buyer is the acceptor.
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Acceptor
- The acceptor is the third party who accepts responsibility for payment in a bill of exchange drawn upon it. The bill of exchange will generally have three parties: the drawor, the drawee and the acceptor.
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Accident And Health Benefits
- Fringe benefits provided to employees for sickness, accidental injury, or accidental death. These benefits include payment of hospital and medical expenses as well as income payments.
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Accident and Sickness Insurance Act
- This is a Canadian government statute that defines the acceptable terms and conditions of health insurance coverage and sets out guidelines to which these policies must conform. It is now known as the Uniform Accident and Sickness Insurance Act, which is the model law adopted by the Canadian Council of Insurance Regulators (CCIR). The model legislation has been enacted, with minor variations, by all Canadian provinces.
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Accident-Year Statistics
- A statistic used by insurance companies to gauge what percentage of the premiums received are being paid out in claims. Accident-year statistics are a measure of the total losses against the total revenue (both deductibles and premiums).
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Accidental Death And Dismemberment Insurance - AD&D
- A rider attached to a life or health insurance policy. AD&D covers death by accidental means (rather than natural causes) and dismemberment, which includes loss of the use of certain body parts (including limbs or eyesight.)
These riders are usually written in such a way that the insurer must pay double the amount payable otherwise, or a specific amount of continous income payments, and are sometimes called double indemnity riders. AD&D insurance is often offered by employers as an extra option on group health plans.
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Accidental Death Benefit
- The payment due to the beneficiary of an accidental death insurance policy, which is often a clause or a rider connected to a life insurance policy. The accidental death benefit is usually an amount paid in addition to the standard benefit payable if the insured died of natural causes.
Depending on the issuer of the policy, the accidental death benefit may extend up to a year after the initial accident occurred, so long as the accident led to the insured's death.
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Accommodation Endorsement
- A written agreement from one entity to back the credit liability of another. This insurance is made without consideration, and adds strength to the creditworthiness of the insured entity. This would usually be made by a parent company to a subsidiary, and allows the subsidiary to take on the parent's credit standing. An accommodation endorsement is similar to a government guaranteeing a third party's debt with its full faith and credit.
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Accommodation Endorser
- An entity or person who agrees to back the credit obligations of another party in order to allow that party to obtain credit for which they would not otherwise qualify. It is the equivalent of a payment guarantee.
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Accommodation Line
- An addition or change to a standard insurance contract. The change is suggested, or requested, by either the broker or the insured as an addition to the plan to fit their individual needs. In this type of agreement, the broker usually receives a higher commission (or bonus), the client receives greater coverage and the insurer maintains the business of a valued customer.
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Accommodation Paper
- A negotiable instrument that provides a third-party promise of payment in the case that the original borrower does not live up to the terms of the original transaction. Accommodation papers are usually used to support one party's creditworthiness through endorsement by a second party with a better credit rating.
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Accommodation Trading
- A type of trading in which a trader accommodates another by entering into a non-competitive purchase or sale order. An accommodation trade is often executed when two traders are participating in illegal trading.
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Accommodative Monetary Policy
- When a central bank (such as the Federal Reserve) attempts to expand the overall money supply to boost the economy when growth is slowing (as measured by GDP). This is done to encourage more spending from consumers and businesses by making money less expensive to borrow by lowering the interest rate. Furthermore, the Federal Reserve also has the authority to purchase Treasuries on the open market to infuse capital into a weakening economy.
Also known as an "easy monetary policy".
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Accord And Satisfaction
- A legal contract whereby two parties agree to discharge a tort claim, contract or other liability for an amount or based on terms that differ from the original amount of the contract or claim. Accord and satisfaction is also used to settle legal claims prior to bringing them to court.
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Accordion Feature
- A type of option that a company can buy that gives it the right to increase its line of credit or similar type of liability with a lender. Companies typically purchase an accordion feature in anticipation of the need for more working capital for possible expansion opportunities.
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Account
- 1. An arrangement by which an organization accepts a customer's financial assets and holds them on behalf of the customer at his or her discretion.
2. A statement summarizing the record of transactions in the form of credits, debits, accruals and adjustments that have occurred and have an affect on an asset, equity, liability or past, present or future revenue.
3. A relaying of happenings from one party to another.
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Account Activity
- A banking term that refers to any activity that creates a debit or credit in an account. In a bank account, this would include deposits and withdrawals. In a brokerage account, it would include buy and sell transactions, dividends, interest, etc. Account activity can also refer to debits and credits in a company or organization's accounting records.
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Account Aggregation
- A process by which accounts are linked for the purpose of combining fees or to ease access for account holders. One form of account aggregation is householding, whereby all the savings, checking and brokerage accounts of a household are linked. In householded accounts, statements and online summaries display all accounts within the household.
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Account Analysis
- 1. In cost accounting, this is a way for an accountant to analyze and measure the cost behavior of a firm. The process involves examining cost drivers and classifying them as either fixed or variable costs. The cost accountant then uses the company’s data to figure out the estimated variable cost per cost-driver unit or fixed cost per period.
2. In banking, it is a periodic statement outlining the banking services provided to a firm. The statement is usually provided monthly and involves displaying all pertinent data, including the company’s average daily balance and charges that the company incurs from the bank.
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Account Balance
- The net of debits and credits for an account at the end of a reporting period.
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Account Current
- A summary of the performance of each individual insurance agent in the company. The account current is written and issued by the insurance company each year so the agents can see their total commissions earned, policy cancellations and premiums paid.
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Account Executive
- This term refers a person who has primary responsibility for an account, whether it be for an individual or corporate client. It is used often in the advertising and public relations business, but can also be used in financial services businesses.
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Account Freeze
- An action taken by a bank or brokerage that prevents any transactions from occurring in the account. Typically, any open transactions will be cancelled, and checks presented on a frozen account will not be honored.
Account freezes can be initiated by either the account holder or a third party.
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Account History
- All activity within an account, usually since inception. In a bank account, the account history includes all transactions initiated by the account holder as well as passive entries (such as interest on balances, which are credited to the account). The account history is also called a "ledger", depending on where the account is held.
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Account Hold
- Deposits that are delayed before being credited to an account, such as deposited checks that are drawn on foreign or out-of-state banks. A hold can also be placed on an entire account if there has been a transaction that must be or has been reported to the authorities as a suspicious transaction under the anti-money laundering regulations, or if there is a suspicion or report of identity theft.
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Account In Trust
- An account that is managed by one party for the benefit of another. It is sometimes called an account held in trust, and the trust relationship can be either explicit or implied. Accounts-in-trust are typically set up for minors, and transfer of ownership will occur when the minor reaches legal age.
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Account Inquiry
- Any inquiry into an account, whether it be a depositary account or credit account. The inquiry can refer to past records, payments or other specific transactions, or any other entries relating to the account.
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Account Number
- The primary identifier for ownership of an account, whether a vendor account, a checking or brokerage account, or a loan account. An account number is used whether or not the identifier uses letters or numbers.
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Account Reconcilement
- The process of confirming that two separate records of transactions in an account are equal. This can happen internally with a bank or broker, such as between general ledger entries and individual account records. Reconcilement also occurs when a customer of a bank or broker confirms that his or her personal records match what is reported on periodic statements. Ther term can also refer to balancing the books and records of a business with software programs and data entries.
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Account Settlement
- The summary of business operations and performance for a fiscal period. This statement often includes financial results of the company's main operations along with key performance metrics, which help to give investors and other users an idea of the company's fiscal year operating performance.
Also referred to as "settlement of account".
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Account Statement
- A periodic summary of account activity with a beginning date and an ending date. The most commonly known are checking account statements, usually provided monthly, and brokerage account statements, which are provided monthly or quarterly. Monthly credit card bills are also considered account statements.
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Accountable Plan
- A plan for reimbursing employees for business expenses. Under this plan, the reimbursement that the employee receives for the expenses is not included in his/her income. Employees are required to account adequately for expenses with records and return any excess reimbursement within a reasonable period of time.
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Accountant
- A professional person who performs accounting functions.
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Accountant Responsibility
- The ethical responsibility that an accountant has to those who rely on his/her work. An accountant has a responsibility to the company’s management, investors, creditors, outside regulatory bodies, and the integrity of the financial markets.
Accountants are responsible for the validity of the financial statements they work on, and must perform their duties in accordance with all applicable principles, standards and laws.
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Accountant's Letter
- A letter that usually precedes a financial report. An accountant's letter is produced by a company's independent auditors. It summarizes the scope of the accountant's audit and its results in very general terms. The term is frequently used interchangeably with the term "auditor's opinion".
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Accountant's Opinion
- A statement signed by an independent accountant outlining his or her opinion regarding the quality of information contained in a company's financial reports and records.
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Accounting
- To provide a record such as funds paid or received for a person or business. Accounting summarizes and submits this information in reports and statements. The reports are intended both for the firm itself and for outside parties.
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Accounting and Auditing Organization for Islamic Financial Institutions - AAOIFI
- A not-for-profit organization that was established to maintain and promote Shariah standards for Islamic financial institutions, participants and the overall industry. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) was created on February 26, 1990 to ensure that participants conform to the regulations set out in Islamic finance.
The founding and associate members, as well as the regulatory and supervisory authorities of the AAOIFI, define the acceptable standards for various functions. This includes areas such as accounting, governance, ethics, transactions and investment.
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Accounting Change
- A change in accounting principles, accounting estimates, or the reporting entity. A change in an accounting principle is a change in a method used, such as using a different depreciation method or switching from LIFO to FIFO. An example of an accounting estimate change could be the recalculation of machine’s estimated life due to wear and tear. The reporting entity could change due to a merger or a break up of a company.
Accounting changes require full disclosure in the footnotes of the financial statements to describe the justification and financial effects of the change. This allows readers of the statements to analyze the changes appropriately.
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Accounting Conservatism
- A branch of accounting that requires a high degree of verification before making a legal claim to any profit. Accounting conservatism will recognize all probable losses as they are discovered and most expenditures as they are incurred. Revenue will be deferred until it is verified. Having strict revenue-recognition criteria is one of the most common forms of accounting conservatism.
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Accounting Control
- Methods and procedures that are implemented by a firm to help ensure the validity and accuracy of its own financial statements. The accounting controls do not ensure compliance with laws and regulations, but rather are designed to help a company comply.
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Accounting Cushion
- The overstatement of a company’s expense provision, in order to create a cushion for future results. A company can use this to artificially understate income in the current period by overstating liability or allowance accounts. This will give the company the ability to overstate income in a later period. An accounting cushion can be achieved by increasing allowances for bad debts in the current period, without any indication that bad debts will actually rise. This would understate accounts receivable in the current period, and the company could make up for it in the next period by overstating accounts receivable. This is a method of income smoothing, and if discovered an auditor or analyst should adjust these back to their proper levels.
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Accounting Cycle
- The name given to the collective process of recording and processing the accounting events of a company. The series of steps begin when a transaction occurs and end with its inclusion in the financial statements. The nine steps of the accounting cycle are:
- Collecting and analyzing data from transactions and events.
- Putting transactions into the general journal.
- Posting entries to the general ledger.
- Preparing an unadjusted trial balance.
- Adjusting entries appropriately.
- Preparing an adjusted trial balance.
- Organizing the accounts into the financial statements.
- Closing the books.
- Preparing a post-closing trial balance to check the accounts.
Also known as “bookkeeping cycle”.
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Accounting Earnings
- A company's earnings as reported in the income statement.
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Accounting Entity
- A clearly defined economics unit that is accounted for separately. An accounting entity can be either a business or subdivision of a business that engages in economic activities, has economic assets and resources that must be accounted, and is separate from the personal dealings of its owners. Once an accounting entity is determined, transactions within the specific unit are accounted. The entity should not be flexible or regularly changed, in order to insure the accuracy of accounting.
Also known as a “reporting entity”.
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Accounting Equation
- The equation that is the foundation of double entry accounting. The accounting equation displays that all assets are either financed by borrowing money or paying with the money of the company’s shareholders. Thus, the accounting equation is: Assets = Liabilities + Shareholder Equity. The balance sheet is a complex display of this equation, showing that the total assets of a company are equal to the total of liabilities and shareholder equity. Any purchase or sale by an accounting equity has an equal effect on both sides of the equation, or offsetting effects on the same side of the equation. The accounting equation is also written as Liabilities = Assets – Shareholder Equity and Shareholder Equity = Assets – Liabilities.
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Accounting Error
- An error in an accounting item that was not caused intentionally. An accounting error can include discrepancies in dollar figures, or might be an error in using accounting policy incorrectly (i.e., a compliance error).
Accounting error should not be confused with fraud, which is an intentional error in an accounting item, usually to hide or alter data for personal gain.
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Accounting Event
- A transaction or change recognized on the financial statements of an accounting entity. Accounting events can be either external or internal. An external transaction would occur with an outside party, such as the purchase or sales of a good. An internal transaction would involve changes in the accounting entity's records, such as adjusting an account on the financial statements.
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Accounting Insolvency
- A situation where the value of a company's liabilities exceeds its assets. Accounting insolvency looks only at the firm's balance sheet, deeming a company "insolvent on the books" when its net worth appears negative.
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Accounting Method
- In terms of taxation, the method by which income and expenses are determined for taxation purposes.
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Accounting Noise
- The distortion that is caused in a company’s financial statements due to accounting rules and regulations that must be followed. Accounting noise makes it difficult for investors to easily ascertain a company’s true financial condition. Accounting noise can make a company's financial reports look better or worse.
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Accounting Period
- 1. In general, the time period reflected by a set of financial statements.
2. In terms of taxation, it is the 12-month period a taxpayer uses to determine his or her income tax.
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Accounting Policies
- The specific policies and procedures used by a company to prepare its financial statements. These include any methods, measurement systems and procedures for presenting disclosures. Accounting policies differ from accounting principles in that the principles are the rules and the policies are a company's way of adhering to the rules.
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Accounting Principles
- The rules and guidelines that companies must follow when reporting financial data. The common set of accounting principles is the generally accepted accounting principles (GAAP). To remain listed on many major stock exchanges in the U.S., companies must file regular financial statements reported according to GAAP. Accounting principles differ around the world, and countries usually have their own, slightly different, versions of GAAP.
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Accounting Profit
- A company's total earnings, calculated according to Generally Accepted Accounting Principles (GAAP), and includes the explicit costs of doing business, such as depreciation, interest and taxes.
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Accounting Rate of Return - ARR
- ARR provides a quick estimate of a project's worth over its useful life. ARR is derived by finding profits before taxes and interest.
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Accounting Records
- All of the documentation and books involved in the preparation of financial statements or records relevant to audits and financial reviews. Accounting records include records of assets and liabilities, monetary transactions, ledgers, journals, and any supporting documents such as checks and invoices.
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Accounting Research Bulletins - ARB
- Bulletins containing recommended accounting procedures for the accounting community. The publications are written and issued by the accounting principles board (APB), and were issued by the committee on accounting procedure of the American Institute of Certified Public Accountants (AICPA) prior to 1959. While the recommendations are not binding in themselves, the Securities and Exchange Commission (SEC) usually imposes the recommendations on firms over which it has jurisdiction.
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Accounting Valuation
- The process of valuing a company’s assets for financial-reporting purposes. Several accounting-valuation methods are used while preparing financial statements in order to value assets. Many valuation methods are stipulated by accounting rules, such as the need to use an accepted options model to value the options that a company grants to employees. Other assets are valued simply by the price paid, such as real estate.
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Accounts Payable - AP
- An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable entry is found on a balance sheet under the heading current liabilities.
Accounts payable are often referred to as "payables".
Another common usage of AP refers to a business department or division that is responsible for making payments owed by the company to suppliers and other creditors.
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Accounts Payable Turnover Ratio
- A short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period.
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Accounts Receivable - AR
- Money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for. Receivables usually come in the form of operating lines of credit and are usually due within a relatively short time period, ranging from a few days to a year.
On a public company's balance sheet, accounts receivable is often recorded as an asset because this represents a legal obligation for the customer to remit cash for its short-term debts
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Accounts Receivable Aging
- A periodic report that categorizes a company's accounts receivable according to the length of time an invoice has been outstanding. Accounts receivable aging is a critical management tool as well as an analytic tool that helps determine the financial health of a company's customers, and therefore the health of their business.
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Accounts Receivable Conversion - ARC
- A process that allows paper checks received in payment for an account receivable to be electronically scanned and converted into an electronic payment through the Automated Clearing House. ARC saves time and the expense of actually processing the check. Both the vendor and the bank on which the payment was drawn receive only an electronic image of the check.
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Accounts Receivable Financing
- A type of asset-financing arrangement in which a company uses its receivables - which is money owed by customers - as collateral in a financing agreement. The company receives an amount that is equal to a reduced value of the receivables pledged. The age of the receivables have a large effect on the amount a company will receive. The older the receivables, the less the company can expect. Also referred to as "factoring".
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Accounts Receivable Insurance
- A form of credit insurance offered by commercial insurers to businesses. Accounts receivable insurance can take the form of multi-buyer insurance (a pool of receivables) or key buyer insurance.
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Accounts Uncollectible
- Loans, receivables or other debts that have virtually no chance of being paid. An account may become uncollectible for many reasons, including the debtor's bankruptcy, an inability to find the debtor, lack of proper documentation, etc.
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Accredited Advisor In Insurance - AAI
- An advanced professional designation earned by insurance producers who complete a course of study and successfully take a series of three national examinations. AAI demonstrates a level of knowledge that is well above that of an insurance producer or agent, and confers on the holder a level of expertise that is very useful when marketing to sophisticated clients.
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Accredited Investor
- A term used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings.
Also known as "qualified purchaser".
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Accredited Personal Financial Planning Specialist - ABO
- A professional designation for Certified Public Accountants who have completed the required coursework and passed an examination administered by the Certified Financial Planner Board of Standards. The Accredited Personal Financial Planning Specialist designation enables the accountant to offer personal financial-planning services separate from similar services that may be offered as an adjunct to accounting services.
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Accreted Value
- The value, at any given time, of a multi-year instrument that accrues interest but does not pay that interest until maturity. The most well-known applications include zero-coupon bonds or cumulative preferred stock.
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Accreting Principal Swap
- A swap whereby the notional value is increasing over time.
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Accretion
- 1. Asset growth through addition or expansion.
2. In reference to discount bonds, it describes the accumulation of value until maturity.
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Accretion of Discount
- The increase in the value of a discounted instrument as time passes and it approaches maturity. The value of the instrument will accrete (grow) at the interest rate implied by the discounted issuance price, the value at maturity and the term to maturity.
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Accretive
- The process of accretion, which is the growth or increase by gradual addition, in finance and general nomenclature. An acquisition is considered accretive if it adds to earnings per share.
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Accretive Acquisition
- An acquisition that will increase the acquiring company's earnings per share (EPS). These acquisitions tend to be favorable for the company's market price because the price paid by the acquiring firm is lower than the boost the new acquisition will provide to the acquiring company's EPS.
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Accrual Accounting
- An accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company's current financial condition.
Accrual accounting is considered to be the standard accounting practice for most companies, with the exception of very small operations. This method provides a more accurate picture of the company's current condition, but its relative complexity makes it more expensive to implement. This is the opposite of cash accounting, which recognizes transactions only when there is an exchange of cash.
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Accrual Bond
- A bond that does not pay periodic interest payments. Instead, interest is added to the principal balance of the bond and is either paid at maturity or, at some point, the bond begins to pay both principal and interest based on the accrued principal and interest to that point.
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Accrual Rate
- The rate of interest that is added to the principal of a financial instrument between cash payments of that interest. For example, a six-month bond with interest payable semiannually will accrue daily interest during the six-month term until it is paid in full on the date it becomes due.
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Accruals
- Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense.
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Accrue
- The ability for something to accumulate over time. In finance, "accrue" is most commonly used when referring to interest, income and expenses of an individual or business. Interest in your savings account accrues so that over time the total amount in your account grows.
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Accrued Dividend
- An accounting term referring to the balance sheet item that accounts for dividends that have been declared but not yet paid to shareholders. Accrued dividends are booked as a liability from the declaration date and remain as such until the dividend payment date.
Accrued dividends should not be confused with accumulated dividends, which refer to dividends due to holders of cumulative preferred stock.
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Accrued Expense
- An accounting expense recognized in the books before it is paid for. It is a liability, and is usually current. These expenses are typically periodic and documented on a company's balance sheet due to the high probability that they will be collected.
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Accrued Income
- Income that is earned in a fund or by company by providing a service or selling a product, but has yet to be received. Mutual funds or other pooled assets that accumulate income over a period of time but only pay it out to shareholders once a year are, by definition, accruing their income. Individual companies can also accrue income without actually receiving it, which is the basis of the accrual accounting system.
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Accrued Interest
- 1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, but not yet paid or received. Accrued interest occurs as a result of the difference in timing of cash flows and the measurement of these cash flows.
2. The interest that has accumulated on a bond since the last interest payment up to, but not including, the settlement date.
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Accrued Market Discount
- The gain in the value of a discount bond expected from holding it for any duration until its maturity.
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Accumulated Benefit Obligation
- An approximate measure of a company's pension plan liability. The accumulated benefit obligation (ABO) is estimated based on the assumption that the pension plan is to be terminated immediately; it does not consider any future salary increases. This differs from the projected benefit obligation, which assumes that the pension plan is ongoing, and thus accounts for future salary increases.
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Accumulated Depreciation
- The cumulative depreciation of an asset up to a single point in its life. Regardless of the method used to calculate it, the depreciation of an asset during a single period is added to the previous period’s accumulated depreciation to get the current accumulated depreciation.
An asset’s carrying value on the balance sheet is the difference between its purchase price and accumulated depreciation.
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Accumulated Earnings and Profits
- An accounting term applicable to stockholders of closely held businesses. Accumulated earnings and profits are a company's net profits after deducting distributions to the stockholders. This is calculated as of the beginning of the year.
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Accumulated Earnings Tax
- A tax imposed by the federal government upon companies with retained earnings deemed to be unreasonable and in excess of what is considered ordinary.
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Accumulated Other Comprehensive Income
- An entry that is generally found in the equity section of a corporation's balance sheet. Accumulated other comprehensive income measures gains and losses of a business that have yet to be realized.
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Accumulation
- 1. An individual investor's cash contributions to invest in securities over a period of time in order to build a portfolio of desired value. Dividends and capital gains are also reinvested during this process.
2. An institutional investor's purchase of a large number of shares in a public company over an extended period of time.
3. The retention of company profits in corporate finance for reinvestment in business operations, as opposed to the payout of earnings as dividends to shareholders.
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Accumulation Bond
- A bond issued at an original issue discount (OID). This means that the interest accumulates but is not paid until maturity; there are no semi-annual coupon payments as with most bonds.
These bonds are also referred to as "accrual bonds."
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Accumulation Period
- 1. The phase in an investor's life when he/she builds up his/her savings and the value of his/her investment portfolio with the intention of having a nest egg for retirement.
2. In the context of a deferred annuity, the period of time when the annuitant is making contributions to the annuity and building up the value of his/her annuity account. This is usually followed by the annuitization phase, when guaranteed payments are paid out to the annuitant for a specified period of time (usually the rest of his/her life).
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Accumulation Phase
- 1. A period of time when an annuity investor is in the early stages of building up the cash value of the annuity. This is followed by the annuitization phase where payments are paid out to the annuitant.
2. The period of time when an investor builds up the value of their investment through savings.
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Accumulation Plan
- 1. A general financial strategy in which an investor attempts to build the value of his or her portfolio to a desired size.
2. In the context of mutual funds, a formal arrangement in which an investor contributes a specified amount of money to the fund on a periodic basis. By doing so, the investor accumulates a larger and larger investment in the fund through his or her contributions and the increase in value of the fund's portfolio.
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Accumulation Unit
- 1) In the case of a variable annuity, a measurement of the value invested in the account during the accumulation period of the contract. The more funds you contribute to your annuity account, the more accumulation units you will build.
2) In the case of a unit trust, a type of investment structure where the trust's income is directly reinvested into the trust, instead of being paid out as cash to the investor.
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Accumulation/Distribution
- A momentum indicator that attempts to gauge supply and demand by determining whether investors are generally "accumulating" (buying) or "distributing" (selling) a certain stock by identifying divergences between stock price and volume flow. It is calculated using the following formula:
Acc/Dist = ((Close – Low) – (High – Close)) / (High – Low) * Period's volume
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Accumulative Swing Index - ASI
- A indicator used by traders to gauge a security's long-term trend by comparing bars which contain its opening, closing, high and low prices throughout a specific period of time. When the ASI is positive, it suggests that the long-term trend will be higher, and when the ASI is negative, it suggests that the long-term trend will be lower.
The ASI is often cited as being developed by Welles Wilder.
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Acid-Test Ratio
- A stringent test that indicates whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets.
Calculated by:
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Acquired Fund Fees And Expenses - AFFE
- A line item in a fund-of-funds' prospectus that shows the operating expenses of the underlying funds. This became a requirement as of January 2007 and this information is found beneath the "Fees and Expenses" heading.
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Acquiree
- The company that is being acquired or purchased in a merger or acquisition. The acquiree is also known as the “target firm”.
Usually the acquiree will see a short-term movement in the price of its shares to resemble the price per share that was paid by the acquirer. This can be a positive or negative amount.
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Acquirer
- 1. The firm which is purchasing a company in an acquisition. The acquirer is also known as a bidder.
2. A financial institution or merchant bank (a merchant acquirer) which is contacted to authorize a credit card or debit purchase. The acquirer will either approve or decline the debit or credit card purchase amount. If approved the acquirer will then settle the transaction by placing the funds into the seller's account.
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Acquisition
- A corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company's stock or a combination of both.
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Acquisition Cost
- 1. The cost that a company recognizes on its books for property or equipment after adjusting for discounts, incentives, closing costs and other necessary expenditures, but before sales taxes.
2. The cost of a business to acquire a new customer. The company recognizes costs, including marketing and incentives, to introduce new customers to the company's products and services. The customer acquisition cost is calculated by dividing total acquisition costs by total new customers over a set period of time.
Also known as "cost of acquisition."
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Acquisition Debt
- Debt incurred to construct, improve or acquire a principal or secondary residence.
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Acquisition Fee
- Charges and commissions paid out for the selection or purchase of property. Some examples include real estate commission, acquisition expense and development/construction fees.
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Acquisition Financing
- The capital that is obtained for the purpose of buying another business. Acquisition financing allows the user to meet their current acquisition aspirations by providing immediate resources that can be applied toward the transaction.
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Acquisition Indigestion
- A slang term describing an acquisition or merger in which the companies involved have trouble integrating with one another. Acquisition indigestion may also describe a situation in which the purchasing company has difficulty making the most of a takeover.
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Acquisition Loan
- A loan given to a company to purchase a specific asset or to be used for purposes that are laid out before the loan is granted. The acquisition loan is typically only able to be used for a short window of time, and only for specific purposes.
Once repaid, funds available through an acquisition loan cannot be reborrowed as with a revolving line of credit at a bank.
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Acquisition Premium
- The difference between the actual cost for acquiring a target firm versus the estimate made of its value before the acquisition.
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Across The Board
- A market-wide directional movement, or a market condition in which most stocks and sectors are moving in the same direction. These movements are usually caused by market-wide events.
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Act Of God Bond
- A bond issued by an insurance company, linking principal and interest to the company's losses due to natural disasters.
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Acting In Concert
- A slang term for when parties undertake identical investment actions to achieve the same goal. Acting in concert requires the cooperation of people or corporations to make the same transactions based on a previous arrangement.
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Actionable
- A business directive or investment strategy that can feasibly be accomplished in the near future. Company managers and investors try to identify things that are currently actionable, as they may be prerequisites toward accomplishing future goals and higher level directives.
This usage is different from the standard legal definition of actionable, which means that something has provided sufficient grounds to file a lawsuit.
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Active Asset
- An asset that is used by a business in its daily or routine operations. Active assets can be tangible, such as buildings or equipment, or intangible, such as patents or copyrights. Active assets are listed as assets on the business's balance sheet.
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Active Bond
- A term used to describe fixed-income securities that trade frequently on the floor of the NYSE.
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Active Bond Crowd
- The name given to members of the NYSE and their specific bond trading departments that are acknowledged as frequent traders in active bonds.
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Active Box
- This refers to the physical location in a brokerage where securities are kept.
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Active Income
- Income for which services have been performed. This includes wages, tips, salaries, commissions and income from businesses in which there is material participation.
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Active Index Fund
- A type of index fund where a fund manager bases the fund's initial investment proportions according to the benchmark index in which the manager is attempting to track, and then proceeds to add what he/she believes to be higher performing stocks that are unrelated to underlying index. The fund manager will then actively manage the composition of these non-benchmark stocks in order to earn yields that exceed the benchmark index.
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Active Investing
- An investment strategy involving ongoing buying and selling actions by the investor. Active investors purchase investments and continuously monitor their activity in order to exploit profitable conditions.
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Active Management
- The use of a human element, such as a single manager, co-managers or a team of managers, to actively manage a fund's portfolio. Active managers rely on analytical research, forecasts, and their own judgment and experience in making investment decisions on what securities to buy, hold and sell. The opposite of active management is called passive management, better known as "indexing".
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Active Participant Status
- Active-participant status is a reference to an individual's participation in an employer sponsored retirement plan. The plans which qualify include:
1. Qualified plans, such as profit sharing plans, defined benefit plans, money purchase pension or target benefit plans and 401(k) plans
2. SEP IRAs
3. SIMPLE IRAs
4. 403(b) plans
5. Qualified annuity plans
6. Employee Funded Pension Trusts (created before June 25, 1959)
7. A plan established for its employees by the United States, by a State or political subdivision of the United States, or by an agency or instrumentality of the United States or any of its subdivisions
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Active Retention
- The practice of protecting against a loss via the designation of specific funds to pay for the expected amount of the loss. This contrasts to passive retention, in which no money is set aside to cover expected losses.
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Active Risk
- A type of risk that a fund or managed portfolio creates as it attempts to beat the returns of the benchmark against which it is compared. In theory, to generate a higher return than the benchmark, the manager is required to take on more risk. This risk is referred to as active risk.
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Active-Share Study
- An academic study conducted by researchers from Yale in 2006. The active-share study examined the proportion of stock holdings in a mutual fund's composition that was different from the composition found in its benchmark. The greater the difference between the asset composition of the fund and its benchmark, the greater the active share.
According to the active-share study, there was a positive correlation between a fund's active-share value and the fund's performance against its benchmark.
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Actively Managed ETF
- An exchange-traded fund that has a manager or team making decisions on the underlying portfolio allocation or otherwise not following a passive investment strategy. An actively managed ETF will have a benchmark index, but managers may change sector allocations, market-time trades or deviate from the index as they see fit. This produces investment returns that will not perfectly mirror the underlying index.
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Activities of Daily Living - ADL
- Routine activities that people tend do everyday without needing assistance. There are six basic ADLs: eating, bathing, dressing, toileting, transferring (walking) and continence. An individual's ability to perform ADLs is important for determining what type of long-term care (e.g. nursing-home care or home care) and coverage the individual needs (i.e. Medicare, Medicaid or long-term care insurance).
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Activity Based Budgeting - ABB
- A method of budgeting in which the activities that incur costs in every functional area of an organization are recorded and their relationships are defined and analyzed. Activities are then tied to strategic goals, after which the costs of the activities needed are used to create the budget.
Activity based budgeting stands in contrast to traditional, cost-based budgeting practices in which a prior period's budget is simply adjusted to account for inflation or revenue growth. As such, ABB provides opportunities to align activities with objectives, streamline costs and improve business practices.
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Activity Based Costing - ABC
- An accounting method that identifies the activities that a firm performs, and then assigns indirect costs to products. An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional methods.
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Activity Based Management - ABM
- Using an activity-based costing system to improve the operations of an organization.
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Activity Ratio
- Accounting ratios that measure a firm's ability to convert different accounts within their balance sheets into cash or sales.
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Actual Authority
- Specific powers, expressly conferred by a principal (often an insurance company) to an agent to act on the principal's behalf. This power may be broad, general power or it may be limited, special power.
Also known as "express authority."
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Actual Cash Value
- The amount equal to the replacement cost minus depreciation of a damaged or stolen property at the time of the loss. It is the actual value for which the property could be sold, which is always less than what it would cost to replace it.
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Actual Return
- The actual gain or loss of an investor. This can be expressed in the following formula: expected return (ex-ante) plus the effect of firm-specific and economy-wide news.
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Actual Total Loss
- A loss that occurs when the insured property is totally destroyed or is damaged in such a way that it can be neither recovered nor repaired for further use, or the insured is irretrievably deprived of it. Usually, this indicates the maximum settlement possible according to the terms of the policy.
Also known as "total loss."
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Actuals
- The physical commodity that underlies a futures contract or is traded in the physical market. This is the homogeneous commodity that is the basis for trade, either through the physical market or a derivative contract such as oil, corn or gold.
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Actuarial Adjustment
- A revision made to reserves, premiums and other values based on a company's actual loss experience as well as expenses and expected benefits to be paid.
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Actuarial Analysis
- The analysis of an investment's risk done by an actuary.
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Actuarial Basis Of Accounting
- A method used in computing the periodic payments that a company must make to fund its employee pension benefits. The actuarial basis stipulates that total contributions from the company plus investment returns on pension assets must match the required annual contribution from the pension fund. Assumptions must be made for the length of workers' careers, the rate of return on plan assets, the rate of salary increases and the discount rate used for future benefits.
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Actuarial Consultant
- A professional who advises clients on which methods, processes, policies, plans, etc. they should consider when making financial, insurance- or pension-related decisions. Actuarial consultants calculate and analyze statistics, make forecasts, provide the most accurate information to clients and help them realize what their best options are.
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Actuarial Cost Method
- A method used by actuaries to calculate the amount a company must pay periodically to cover its pension expenses. The two main methods used are the cost approach and the benefit approach.
The cost approach calculates total final benefits based on several assumptions, including the rate of wage increases and when employees will retire. The amount of funding that will be needed to meet those future benefits is then determined. The benefit approach finds the present value of future benefits by discounting them.
Also known as an actuarial funding method.
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Actuarial Gain Or Loss
- Gain or loss arising from the difference between estimates and actual experience in a company’s pension plan. Actuarial gains and losses are used when accounting for pension plans because of the need to make assumptions about the future rate of salary increases, the length of employee tenure, an appropriate discount rate for the plan obligations and the expected rate of return on plan assets.
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Actuarial Risk
- The risk that the assumptions that actuaries implement into a model to price a specific insurance policy may turn out wrong or somewhat inaccurate.
Possible assumptions include the frequency of losses, severity of losses and the correlation of losses between contracts.
Also known as "insurance risk".
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Actuary
- A professional statistician working for an insurance company. They evaluate your application and medical records to project how long you will live.
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Ad Infinitum
- A Latin phrase meaning "to infinity" - in other words, forever. In finance, the term is associated with a perpetuity, in which the payments derived from an asset at fixed intervals are assumed to go on forever and ever, or ad infinitum.
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Ad Valorem Tax
- A tax based on the assessed value of real estate or personal property. Ad valorem taxes can be property tax or even duty on imported items. Property ad valorem taxes are the major source of revenue for state and municipal governments.
Municipal property ad valorem taxes are also known as "property taxes".
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Adaptive Expectations Hypothesis
- A hypothesis stating that individuals make investment decisions based on the direction of recent historical data, such as past inflation rates, and adjust the data (based on their expectations) to predict future rates.
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Add-On Certificate of Deposit
- A certificate of deposit that allows the bearer to deposit additional funds, after the initial purchase date, that will bear the same rate of interest.
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Add-On Interest
- A method of calculating interest whereby the interest payable is determined at the beginning of a loan and added onto the principal. The sum of the interest and principal is the amount repayable upon maturity.
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Adding To A Loser
- The action of a trader/investor increasing a position in an asset when its price is heading in the direction that's opposite to what the investor/trader desires. This is generally not a wise investment decision because unless the asset begins to move in the desired direction, the investor's losses will increase.
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Addition Rule For Probabilities
- A statistical property that states the probability of one and/or two events occurring at the same time is equal to the probability of the first event occurring, plus the probability of the second event occurring, minus the probability that both events occur at the same time.
Mathematically, this property is denoted by:
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Additional Child Tax Credit
- A refundable credit that can be claimed by taxpayers who are ineligible to claim the full non-refundable child tax credit, because it exceeds their total tax liability. The additional child tax credit was created to reimburse taxpayers for the non-refundable portion of their child tax credit.
The additional child tax credit is available to families with three or more qualified children.
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Additional Collateral
- Additional assets put up as collateral by a borrower against debt obligations. Additional collateral is used to lessen the risk to the lender. Creditors might require extra collateral in order for a given loan to remain at a constant interest level, or to appease investors or a credit committee. Such collateral might include cash, certificates of deposit, equipment, stock or letters of credit.
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Additional Death Benefit
- An amount that is paid to the beneficiary of a life insurance contract that is separate from the original death benefit. The additional death benefit acts as an extra layer of payment in the event that a predefined situation occurs.
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Additional Living Expense Insurance
- Coverage under a homeowner's, condominium owner's or renter's insurance policy that covers the additional costs of living that are incurred by the policy holder should the policy holder be temporarily displaced from their place of residence. Such coverage is usually at about 10% to 20% of the insurance that covers the dwelling.
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Additional Paid In Capital
- A value that is often included in the contributed surplus account in the shareholders' equity section of a company's balance sheet. The account represent the excess paid by an investor over the par-value price of a stock issue. Additional paid-in-capital can arise from issuing either preferred or common stock.
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Adequate Notice
- A written document that specifies in detail the terms and conditions of a loan or extension of credit to a consumer. Adequate notice requires the consumer to be informed of key details of the credit arrangement, such as the annual percentage rate, grace period, annual fee, etc.
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ADF (Andorran Franc)
- The currency abbreviation or currency symbol for the Andorran franc (ADF). The Andorran franc was replaced as the national currency of Andorra by the euro (EUR) in 1999.
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Adjustable Life Insurance
- A type of life insurance that combines features of term and whole life coverage, giving holders the option to change the characteristics of their policies as their needs change over time. Adjustable life insurance policies allow holders to manipulate the period of protection, increase or decrease the face amount, raise or lower the premium amount, and change the length of the premium payment period. These policies also incorporate an interest bearing side fund (cash value).
Adjustable life insurance is also known as "flexible premium adjustable life insurance".
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Adjustable Premium
- An insurance premium that can move up or down over time based on a policy that is agreed to at the outset of an insurance contract. There are several factors that may cause your adjustable premiums to change, including the varying costs of maintaining the contracts.
Also known as a "variable premium."
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Adjustable-Rate Mortgage - ARM
- A type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month. The interest rate paid by the borrower will be based on a benchmark plus an additional spread, called an ARM margin.
An adjustable rate mortgage is also known as a "variable-rate mortgage" or a "floating-rate mortgage".
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Adjustable-Rate Preferred Stock - ARPS
- A type of preferred stock where the dividends issued will vary with a benchmark, most often a T-bill rate. The value of the dividend from the preferred share is set by a predetermined formula to move with rates, and because of this flexibility preferred prices are often more stable then fixed-rate preferred stocks.
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Adjusted Balance Method
- A finance/accounting method where costs are based on the amount(s) owing at the end of the current time period (once credits and payments are posted).
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Adjusted Basis
- The proportionate value of an asset or security that reflects any deductions taken on, or capital improvements to the asset or security.
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Adjusted Closing Price
- A stock's closing price on any given day of trading that has been amended to include any distributions and corporate actions that occurred at any time prior to the next day's open. The adjusted closing price is often used when examining historical returns or performing a detailed analysis on historical returns.
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Adjusted Cost Base - ACB
- An income tax term that refers to the change in an asset's book value resulting from improvements, new purchases, sales, payouts or other factors. An adjusted cost base can be calculated on a single or a per unit basis.
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Adjusted Debit Balance
- The amount of money owed by a customer to his/her broker after paper profits and losses are taken into consideration.
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Adjusted Exercise Price
- 1. An option's strike price after adjustments have been made for stock splits to its underlying security.
2. A term used to describe the strike prices for options written on Ginnie Mae pass through certificates.
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Adjusted Funds From Operations - AFFO
A financial performance measure primarily used in the analysis of real-estate income trusts (REITs). The AFFO of a REIT, though subject to varying methods of computation, is generally equal to the trust's funds from operations (FFO) with adjustments made for recurring capital expenditures used to maintain the quality of the REIT's underlying assets. The calculation takes in the adjustment to GAAP straight-lining of rent, leasing costs and other material factors.
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Adjusted Gross Income - AGI
- A measure of income used to determine how much of your income is taxable. Adjusted gross income (AGI) is calculated as your gross income from taxable sources minus allowable deductions, such as unreimbursed business expenses, medical expenses, alimony and deductible retirement plan contributions.
Also referred to as "net income".
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Adjusted Present Value - APV
- The Net Present Value (NPV) of a project if financed solely by equity plus the Present Value (PV) of any financing benefits (the additional effects of debt).
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Adjuster
- An insurance claims agent. A claims adjuster is charged with evaluating an insurance claim to determine the insurance company's liability under the terms of an owner's policy.
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Adjustment Bond
- Issued by a corporation during a restructuring phase, an adjustment bond is given to the bondholders of an outstanding bond issue prior to the restructuring. The debt obligation is consolidated and transferred from the outstanding bond issue to the adjustment bond. This is effectively a recapitalization of the company's outstanding debt obligations, which is accomplished by adjusting the terms (such as interest rates and lengths to maturity) to increase the likelihood that the company will be able to meet its obligations.
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Adjustment Credit
- A short-term loan made by a Federal Reserve Bank to a smaller commercial bank as needed to maintain reserve requirements and support short-term lending. These advances are a very common form of borrowing from a Federal Reserve Bank and are most often used when interest rates are high and money supply is short.
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Adjustment Frequency
- The frequency at which interest rate changes or resets on an adjustable-rate mortgage occur. Different adjustable-rate mortgages have different adjustment frequencies. Typically, the adjustment frequency is once a year, but it can be as often as once a month or as infrequent as once every five years.
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Adjustment in Conversion Terms
- A term used to describe the adjustment made to a convertible securities' conversion factor when the exchangeable stock underlying the convertible undergoes a split.
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Adjustment Income
- Income paid to the dependent(s) of a primary wage earner in the event of his or her death. These funds, usually provided through life insurance policies, are intended to provide financial support as the beneficiary adjusts to becoming self-sufficient.
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Adjustment Index
- A modification made to a piece of numerical data, or a set of numerical data, by a product of some type of a mathematical formula. There are a number of different types of adjustment indices, ranging in scale and purpose from mortgage rate adjustment to handicapping a golfer's score.
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Adjustment Interval
- The amount of time between interest rate changes to an adjustable rate mortgage (ARM). Most ARMs have two adjustment intervals. The first interval is typically longer (usually 3,5,7 or 10 years) during which there is a fixed rate of interest and payment. This initial interval is followed by periodic adjustments to the interest rate (usually every 6 months or year) throughout the remainder of the loan.
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Adjustment Provision
- A provision in a life insurance policy that allows the policy to be changed in one or more ways. This may involve increases or decreases to either the policy's premium or face amount, changes to the length of protection or period of premium payments.
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Administration Bond
- A bond that is posted on behalf of an administrator of an estate to assure that he or she conducts their duties according to the provisions of the will and/or the legal requirements of the jurisdiction. The bond covers any financial losses to the estate due to dishonest or improper acts by the administrator.
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Administrative Charge
- A fee charged by an insurer or other agency responsible for administering a group employee benefit plan to cover expenses related to record keeping and/or other administrative costs; also referred to an an "administrative fee".
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Administrative Expenses
- The expenses that an organization incurs not directly tied to a specific function such as manufacturing/production or sales. These expenses are related to the organization as a whole as opposed to an individual department; also referred to as "administrative cost".
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Administrative Law
- The body of law that governs the administration and regulation of government agencies (both federal and state). Created by Congress (or the state legislature) it encompasses the procedures under which these agencies operate as well as external constraints upon them. Administrative law is considered a branch of public law and is often referred to as regulatory law.
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Administrative Services Only - ASO
- An arrangement in which an organization funds its own employee benefit plan such as a pension plan or health insurance program but hires an outside firm to perform specific administrative services. For example, an organization may hire an insurance company to evaluate and process claims under its employee health plan while maintaining the responsibility to pay the claims itself.
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Administrator
- 1. A person empowered by a court to act for another person who is deemed incapable of acting for himself/herself.
2. Under the Uniform Securities Act, an entity that enforces the rules and regulations, including registration requirements and post-registration requirements, of investment advisory professionals.
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Admiralty Liability
- A risk, event or conduct that would run afoul of admiralty (maritime) laws, thereby putting the matter under the jurisdiction of an admiralty court. Most notably, matters subject to admiralty law do not require trial by jury.
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Admitted Assets
- Assets of an insurance company that are permitted by state law to be included in the company's financial statements. Although each state has discretion over its own insurance laws, there is a general consensus over which assets are suitable to use when determining the insurance company's solvency.
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Admitted Company
- An insurance company that is domiciled in one state but is admitted by another state to transact insurance business. Because insurance licenses are governed by the states, an insurance company must be licensed by each state where it intends to conduct business, and must comply with each state's insurance codes, including financial requirements.
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Admitted Insurance
- Insurance purchased from a company that is admitted (or licensed) in the state in which the policy was sold. Admitted insurance must also be sold by an agent who is licensed in that state.
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Adoption Credit
- A per-child tax credit for adopting a child under 18.
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ADV Form
- A required submission to the Securities and Exchange Commission (SEC) by a professional investment advisor that specifies the investment style, assets under management and key officers of the firm. The form must be updated annually and be made available as public record for companies managing in excess of $25 million.
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Advance Commitment
- A promise or agreement to take some future action. For example, a promise by a buyer to purchase goods at a price set beforehand is an advance commitment.
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Advance Directive
- A document expressing a person's wishes about critical care when he or she is unable to decide for him or herself. However, it does not authorize anyone to act on a person's behalf or make decisions the way a power of attorney would.
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Advance Funding
- This refers to any advance made on a future commitment or payment. The term, advance funding, is used very broadly, ranging from personal or project loans, future contractual payments like annuities or royalties and government appropriations.
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Advance Premium
- The initial premium paid to bind an insurance policy for a given period of time. The most commonly known use of the term "advance premium", is with respect to fluctuating insurance payments, such as payroll-based policies, where the actual amount due is not known until after the fact.
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Advance Premium Fund
- Insurance companies who receive advance premiums must account for the unearned portion of these premiums as a separate liablity item on their balance sheets. This item is commonly referred to as the advance premium fund or account. As the premium is earned, it is run through the income statement.
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Advance Premium Mutual
- A mutual insurance company that operates as an advance premium insurer rather than an assessment insurer. Advance premium mutual insurers assess premiums in advance and they do not change for some period of time. An assessment insurer assesses policyholders their premiums based on actual experience of the company.
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Advance Rate
- A percentage of collateral that determines the loan amount that a lender will issue a company.
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Advance Refunding
- 1. A bond issuance used to pay off another outstanding bond. The new bond will often be issued at a lower rate than the older outstanding bond.
2. A bond issuance in which new bonds are sold at a lower rate than outstanding ones. The proceeds are then invested, and when the older bonds become callable they are paid off with the invested proceeds.
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Advance/Decline Index
- A technical analysis tool that represents the total difference between the number of advancing and declining security prices. This index is considered one of the best indicators of market movements as a whole. Stock indexes such as the Dow Jones Industrial Average only tell us the strength of 30 stocks, whereas the advance/decline index can provide much more insight into the movements of the market.
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Advance/Decline Line - A/D
- A technical indicator that plots changes in the value of the advance-decline index over a certain time period. Each point on the chart is calculated by taking the difference between the number of advancing/declining issues and adding the result to the previous period's value, as shown by the following formula:
A/D Line = (# of Advancing Stocks - # of Declining Stocks) + Previous Period's A/D Line Value
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Advanced Funded Pension Plan
- A pension plan that is funded concurrently with the employee's accrued benefits, such that the funds are set aside well before the employee's retirement. Advanced funded pension plans are generally defined contribution plans, and are fully funded. They can be funded by the employer alone, or by some combination of the employer and the employee.
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Advanced Internal Rating-Based - AIRB
- An approach that requests that all risk components be calculated internally within a financial institution. The advanced internal rating-based (AIRB) approach helps an institution reduce its capital requirements and credit risk.
In addition to the basic internal rating-based (IRB) approach estimations, the AIRB approach allows banks to estimate more risk components themselves, such as loss given default (LGD) and exposure at default (EAD). These would normally be estimated by supervisory authorities.
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Advanced Life Underwriting
- The process of integrating the complex insurance issues of estate planning, taxation, business insurance and employee benefit plans. Advanced life underwriting can involve the sale and service of large volumes of life insurance or underwriting for a complex business or complex personal cases.
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Adverse Action
- An action that denies an individual or business credit, employment, insurance or other benefits. An adverse action is generally taken by a business or government based on a criminal past or information found in credit reports.
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Adverse Opinion
- A professional opinion made by an auditor indicating that a company's financial statements are misrepresented, misstated, and do not accurately reflect its financial performance and health. Adverse opinions are usually given after an auditor's report, which can be internal or independent of the company.
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Adverse Selection
- 1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance.
2. A situation where sellers have information that buyers don't (or vice versa) about some aspect of product quality.
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Adversely Classified Asset
- A type of loan classification in which the loan or other asset is considered, to some degree, to be impaired. It is an asset that is considered by bank examiners to be of substandard credit quality and whose full repayment of principal and accrued interest is questionable.
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Advisor
- 1. The person or company responsible for making investments on behalf of, and/or providing advice to, investors.
2. In the context of the mutual fund business, an advisor, also known as an investment advisor, is an organization employed by an investment company to manage a particular fund's portfolio. A fund's advisor assigns a manager(s) to make the day-to-day decisions involved in the purchase and sale of a fund's securities according to stated strategies and investment objectives.
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Advisor Account
- A type of investment account where an investment advisor works closely with a client in formulating and implementing investment purchases and strategies. In most cases, the client has the final say on all investment decisions.
The fee structure of an advisor account is typically asset-based, in which the annual fee paid by the client is based on a percent of the assets held in the account. There are no trading commission fees.
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Advisor Fee
- The fee that is paid to a financial advisor for recommending a load mutual fund based on the needs and time-frame of an investor. Fees differ according to the class of mutual fund shares, and are paid to the advisor for recommending a fund that suits an investor's time and goals. Depending on the share class, advisor's can either receive a one-time fee up-front or an annual fee as long as the investor holds the asset.
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AED (United Arab Emirates Dirham)
- The currency abbreviation for the United Arab Emirates dirham (AED), the currency of Dubai and other Emirates. The United Arab Emirates dirham is made up of 100 fuloos, which is plural for fils. It is often presented with the symbol Dhs or DH.
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AFA (Afghanistan Afghani)
- The currency abbreviation or currency symbol for the Afghanistan afghani (AFA). The Afghanistan afghani is made up of 100 pul. The new afghani replaced the prior currency in early 2003, due to the low relative value of the nation's currency.
The currency symbol that the Afgahanistan Afghani is represented by is:
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Affidavit Of Loss
- A written statement declaring the physical loss of a security - usually through theft or destruction by fire/flood. The affidavit contains all details regarding the loss, the owner's name and any information pertaining to the security, such as serial number or date of issue. Once the statement has been made, one can issue a letter of indemnity, requesting the replacement of the security.
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Affiliate
- A type of inter-company relationship in which one of the companies owns less than a majority of the other company's stock, or a type of inter-company relationship in which at least two different companies are subsidiaries of a larger company.
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Affiliated Companies
- A situation that occurs when one company owns a minority interest (less than 50%) in another company.
Also refers to companies that are related to each other in some way.
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Affiliated Person
- An individual who is in a position to influence the actions of a corporation. This includes people such as directors, executives, and owners.
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Affinity Card
- A type of credit card issued by a bank and a charitable organization whose logo appears on the card. Each time the card is used, a percentage of the transaction is donated to the organization.
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Affinity Fraud
- A type of investment scam in which a con artist targets members of an identifiable group based on things such as race, age, religion, etc. The fraudster either is, or pretends to be, a member of the group. Often the fraudster will be promoting a ponzi or pyramid scheme.
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Affirmative Covenant
- A type of promise or contract which requires a party to do something. For example, a bond covenant that provides that the issuer will maintain adequate levels of insurance or deliver audited financial statements is an affirmative covenant.
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Affirmative Obligation
- An obligation of NYSE specialists to enter the market on a particular security (either by posting or bidding and ask) when there is not sufficient market demand and supply to efficiently match orders.
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Affluenza
- A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses". Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements. People said to be affected by affluenza typically find that the very economic success they have been so vigorously chasing ends up leaving them feeling unfulfilled, and wishing for yet more wealth.
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African Development Bank - ADB
- A financial institution comprising 53 African and 24 non-African countries which promotes economic and social progress in Africa through loans, equity investments and technical assistance. Structurally, the ADB Group includes the African Development Bank, the African Development Fund and the Nigeria Trust Fund. Established in 1964 and headquartered in Tunisia, the Bank has provided a cumulative $55 billion in loans and grants in the region.
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After Reimbursement Expense Ratio
- The actual expense paid by mutual fund investors. The after reimbursement expense ratio is calculated by subtracting any reimbursements made to the fund by the management and contractual fee waivers from the gross expense ratio.
Also known as the "net expense ratio".
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After Tax Operating Income - ATOI
- A company's total operating income after taxes. This non-GAAP measure excludes any after-tax benefits or charges such as effects from accounting changes.
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After The Bell
- After the close of the stock market.
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After-Acquired Clause
- A provision included in legal contracts ensuring that subsequent acquisitions of assets will be included in the debtors liability to the lender.
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After-Hours Market Close
- The last transaction and final price of a security that is traded in the after-hours market. The after-hours market is generally more volatile than the regular market, but it can give investors an idea of what to expect at the start of trading the next day.
Also referred to as "after-hours close".
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After-Hours Trading - AHT
- Trading after regular trading hours on the major exchanges.
Also known as the "after-hours market".
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After-Market Performance
- The price level performance of a newly issued stock after its IPO. There is no standard ending time period that is considered, but after-market performance begins on the first day of trading on the exchange. Typically after-market performance will be measured through the lock-up period, anywhere from three to nine months after the IPO date. This allows for the market to "digest" the insider shares that might be sold quickly after the lock-up period ends. By looking at the after-market performance of all IPOs over a certain time period (as in a calendar year), analysts and investment bankers can determine the overall market demand for new issues, and possibly move up or delay a schedule IPO as a result.
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After-Tax Contribution
- A contribution made to any designated retirement or any other account after taxes has been deducted from an individual's or companies taxable income. After-tax contributions can be made on a tax deferral, and on a non tax deferral basis, pending on the type of account the entity is making contributions to.
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After-Tax Income
- The amount of money that an individual or company has left over after all federal, state and withholding taxes have been deducted from taxable income. After-tax income represents the amount of disposable income that a consumer or firm has to spend on future investments or on present consumption.
Also known as "income after taxes".
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After-Tax Profit Margin
- A financial performance ratio, calculated by dividing net income after taxes by net sales. A company's after-tax profit margin is important because it tells investors the percentage of money a company actually earns per dollar of sales. This ratio is interpreted in the same way as profit margin - the after-tax profit margin is simply more stringent because it takes taxes into account.
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After-Tax Return
- The return on an investment including all income received and capital gains, calculated by taking expected or paid income taxes into account. Generally reserved for returns on positions that have been closed out or sold, after-tax returns are also used to evaluate the after-tax yields of municipal versus corporate and government bonds because municipals are free from federal income taxes.
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Against Actual
- A transaction generally used by two hedgers who want to exchange futures for cash positions.
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Aged Fail
- A fail that has occurred between two or more parties to a securities transactions and has lasted for over 30 days.
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Agency Automatic Contributions
- A benefit that federal government employees receive for participating in the thrift savings plan. More specifically, this benefit refers to how the government agency in which the individual works will automatically make contributions that equal 1% of the individual's pay, regardless of whether the individual elects to make his or her own contribution.
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Agency Bond
- A bond issued by a government agency. These bonds are not fully guaranteed in the same way as U.S. Treasury and municipal bonds.
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Agency Broker
- A broker that acts as an agent to its clients. When acting as the agent, the agency broker must look after its clients' best interests, which involves attempting to fill client orders at the lowest price and in the fastest way possible. Common clients of an agency broker include large institutional funds that place large block orders.
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Agency Costs
- A type of internal cost that arises from, or must be paid to, an agent acting on behalf of a principal. Agency costs arise because of core problems such as conflicts of interest between shareholders and management. Shareholders wish for management to run the company in a way that increases shareholder value. But management may wish to grow the company in ways that maximize their personal power and wealth that may not be in the best interests of shareholders.
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Agency Cross
- A trade that has only one agent acting for the buyer and seller.
Also known as Dual Agency.
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Agency Debentures
- Debt issued by a Federal Agency or a government-sponsored enterprise (GSE) for financing purposes. These types of debentures are not backed by collateral, but by the integrity and credit worthiness of the issuer. Officially, agency debentures issued by a Federal Agency, such as the Tennessee Valley Authority, are backed by the full faith and credit of the Untied States government. Agency debentures issued by a GSE are backed only by that GSE's ability to pay.
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Agency Matching Contributions
- A benefit that federal government employees receive under the thrift savings plan. More specifically, this refers to how the agency for which the individual is working will match 100% of the individual's contributions up to the initial 3% of his or her pay and a contribution of $0.50 for every dollar from the next subsequent 2% of pay used toward contributing to the thrift savings plan.
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Agency Problem
- A conflict of interest arising between creditors, shareholders and management because of differing goals.
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Agency Security
- Low risk debt obligations issued by enterprises that the U.S. Government sponsors.
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Agency Theory
- A theory concerning the relationship between a principal (shareholder) and an agent of the principal (company's managers).
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Agent
- 1. An individual or firm that places securities transactions for clients.
2. A person licensed by a state to sell insurance.
3. A securities salesperson who represents a broker-dealer or issuer when selling or trying to sell securities to the investing public.
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Agent Bank
- A bank that acts in some capacity on behalf of another bank. It can mean any of three types of bank:
(1) The bank in a loan syndicate that advises other participating banks of advances taken and changes in interest rates for a foreign or domestic borrower
(2) A bank that participates in the credit card program of another bank by issuing credit cards and performing other duties (excluding financing card receivables)
(3) A foreign bank doing business in the U.S. on behalf of its parent bank, performing such tasks as issuing international letters of credit, but not accepting deposits
Also known as an "agency bank."
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Agflation
- An increase in the price of food that occurs as a result of increased demand from human consumption and use as an alternative energy resource. While the competitive nature of retail supermarkets allows some of the effects of agflation to be absorbed, the price increases that agflation causes are largely passed on to the end consumer. The term is derived from a combination of the words "agriculture" and "inflation".
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Aggregate Demand
- The total amount of goods and services demanded in the economy at a given overall price level and in a given time period. It is represented by the aggregate-demand curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally there is a negative relationship between aggregate demand and the price level. Also known as "total spending".
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Aggregate Exercise Price
- The strike price of a put or call option multiplied by its contract size. Aggregate exercise prices are used to determine the dollar amount required should the option be exercised.
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Aggregate Hours
- The sum of the hours worked by all employed people, either full or part time, during the course of a year. Aggregate hours can also refer to the total hours worked by one sector or group of workers.
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Aggregate Level Cost Method
- An acturial cost method that tries to match and allocate the cost and benefit of a pension plan over the span of the plan's life. The Aggregate Level Cost Method typically takes the present value of benefits minus asset value and spreads the excess amount over the future payroll of the participants.
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Aggregate Limit
- A contract provision used in insurance to limit the amount that can be paid in the policy period. An aggregate limit is the maximum dollar amount your insurer will pay to settle your claims. Often the limit is referred to as an annual aggregate limit, which is just the total amount your insurer will pay in a single year.
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Aggregate Mortality Table
- Data on the death rate of everyone who has purchased life insurance, without categorization based on age or time of purchase. This calculation includes combined statistics of mortality tables.
In order to price insurance products and ensure the solvency of insurance companies through adequate reserves, actuaries must develop projections of future insured events (such as death, sickness, disability, etc.). To do this, actuaries develop mathematical models of the amount and timing of the events.
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Aggregate Product Liability Limit
- The maximum sum of money that an insurance company will pay during the time interval that the product liability insurance coverage is in effect. The aggregate product liability limit remains unchanged no matter how many claims are made per period.
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Aggregate Stop-Loss Insurance
- A policy designed to limit claim coverage (losses) to a specific amount. This type of coverage is to ensure that catastrophic claims (specific stop-loss) or numerous claims (aggregate stop-loss), do not upset the financial reserves of a self-funded plan. Aggregate stop-loss protects the employer against higher-than-expected claims. If total claims exceed the aggregate limit, the stop-loss insurance carrier reimburses the employer.
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Aggregate Supply
- The total supply of goods and services produced within an economy at a given overall price level in a given time period. It is represented by the aggregate-supply curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally, there is a positive relationship between aggregate supply and the price level. Rising prices are usually signals for businesses to expand production to meet a higher level of aggregate demand.
Also known as "total output".
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Aggregation
- 1. Used in corporate financial planning, aggregation is a process whereby a number of a firm's smaller projects are combined and treated as an individual project.
2. Used in futures markets, aggregation is a principal involving the combination of all future positions owned or controlled by a single trader or group of traders.
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Aggregator
- A party involved within the secondary mortgage market that purchases mortgages from financial institutions and then securitizes them into mortgage-backed securities (MBS). Aggregators earn profit by purchasing individual mortgages at lower prices and then selling the pooled MBS at a higher premium.
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Aggressive Accounting
- The practice of inappropriately misconstruing income statements for the purpose of pleasing investors and inflating stock prices.
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Aggressive Growth Fund
- A mutual fund that attempts to achieve the highest capital gains. Investments held in these funds are companies that demonstrate high growth potential, usually accompanied by a lot of share price volatility. These funds are only for non risk-averse investors willing to accept a high risk-return trade-off.
Also commonly referred to as a "capital appreciation fund" or "maximum capital gains fund".
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Aggressive Investment Strategy
- A method of portfolio management and asset allocation that attempts to achieve maximum return.
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Aging
- A method used by accountants and investors to evaluate and identify any irregularities within a company's account receivables. Aging is achieved by sorting and inspecting the accounts according to their length outstanding.
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Agio
- A description of the bond premium when the bond market value is greater than the par value. In international markets, agio can also sometimes refer to the fee paid for undertaking a transaction. Because these bonds are often traded on international markets, the agio premium is also used to describe the premium to exchange currencies.
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Agreed Amount Clause
- A property insurance provision in which the insurer agrees to waive the co-insurance requirement. To obtain an agreed amount clause, insurers require a statement of property values signed by the insured as a condition of activating or including an agreed value provision in a commercial property policy, otherwise known as an agreed amount clause.
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Agreement Corporation
- A type of bank chartered by a state to engage in international banking. The bank “agrees” with the Federal Reserve Board (FRB) to limit its activities to those allowed an Edge Act corporation.
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Agricultural Credit
- Any of several credit vehicles used to finance agricultural transactions, including loans, notes, bills of exchange and banker's acceptances. These types of financing are adapted to the specific financial needs of farmers, which are determined by planting, harvesting and marketing cycles.
Short-term credit finances operating expenses, intermediate-term credit is used for farm machinery, and long-term credit is used for real-estate financing.
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Agricultural Sector Investment Program - ASIP
- A World Bank program focused on agricultural development in Africa. The Agricultural Sector Investment Program's four primary goals are:
- Policy and institutional improvements to reform key areas of marketing, trade and pricing, food security and land use and tenure.
- Public investment to complement policy and institutional improvements.
- Private sector development to attract private dollars.
- The creation of a rural investment fund for small-scale capital investments in rural areas on a matching grant basis to support privatization of government farms.
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Agroforestry
- The integration of agriculture and/or farming with forestry so the land can simultaneously be used for more than one purpose. This practice is meant to have both environmental and financial benefits. The presence of trees can provide benefits such as sheltering livestock from the elements and improving the soil so that crops will be more productive. The agroforestry system can also provide a more even income for landowners since all of their income is not tied to a few crops or a single season. Agroforestry can also make it easier for farmers to transition from one type of crop to another as market demand for their products changes.
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Air Pocket Stock
- A stock that experiences a sudden drop, similar to a plane hitting an air pocket. Air pocket stocks are usually the result of investors reacting to negative news.
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Airbag Swap
- An interest rate swap whose notional value adjusts according to rising interest rates by indexing the floating portion to a constant maturity swap (CMS).
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Alan Greenspan
- The former chairman of the Board of Governors of the Federal Reserve System as well as the Federal Open Market Committee (FOMC), the Fed's principal monetary policymaking body. His tenure at the helm of the Fed lasted 18 years from 1987 until early 2006, when Ben Bernanke replaced him. He was first appointed to the post by then-president Ronald Reagan and kept at the Fed's helm by successors George H.W. Bush, Bill Clinton and President George W. Bush.
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Alaska Trust Act
- Provides protection against creditors for irrevocable trusts provided that the trust has a grantor who is a discretionary beneficiary. In order for the statute to be applicable, the following requirements must be met:
1. At least one of the trustees must reside in Alaska or have a principal place of business in Alaska.
2. A percentage of the assets of the trust is required to be on deposit in a checking account, brokerage account or other similar account.
3. The records of the trust must be physically located in Alaska, and a percentage of the administration of the trust must take place in Alaska.
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Algorithm
- A set of rules for accomplishing a task in a certain number of steps. One common example is a recipe, which is an algorithm for preparing a meal. Algorithms are essential for computers to process information. As such, they have become central to our daily lives, whether ordering a book online, making an airline reservation or using a search engine.
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Algorithmic Trading
- A trading system that utilizes very advanced mathematical models for making transaction decisions in the financial markets. The strict rules built into the model attempt to determine the optimal time for an order to be placed that will cause the least amount of impact on a stock's price. Large blocks of shares are usually purchased by dividing the large share block into smaller lots and allowing the complex algorithms to decide when the smaller blocks are to be purchased.
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Alien
- Any person who is not a citizen of the country in which he or she lives.
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Alienation Clause
- A clause in a mortgage contract that requires full payment of the balance of a mortgage at the lender's discretion if the property is sold or the title to the property changes to another person. Nearly all mortgages have an alienation clause.
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Alimony
- Payments made to a spouse or former spouse under a separation or divorce agreement.
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ALL (Albanian Lek)
- The currency abbreviation symbol for the Albanian lek (plural lekë), the currency for Albania. The Albanian lek is made up of 100 qindarka and is often presented with the symbol "lekë". The Albanian qindarka is no longer issued but is still accepted as currency. In 1992, the new "lek valuta" was introduced, which is equal to 50 lekë.
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All Or None - AON
- A condition used on a buy or sell order to instruct the broker to fill the order completely or not at all. If there is insufficient supply to meet the quantity requested by the order then it is canceled at the close of the market.
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All Risks
- A type of insurance coverage that can exclude only risks that have been specifically outlined in the contract. "All risks" means that any risk that the contract does not specifically omit is automatically covered. For example, if an all-risks homeowner's policy does not expressly exclude flood coverage, then the house will be covered in the event of flood damage.
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All Savers Certificate
- A type of nontaxable certificate of deposit account with a duration of one year that was used primarily by thrift institutions to build funds for mortgage lending. All Savers Certificates were authorized by the Economic Recovery Tax Act of 1981.
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All Weather Fund
- A mutual fund that tends to perform reasonably well during both favorable and unfavorable economic and market conditions. This type of investment result is accomplished, in most cases, through portfolio diversification, by employing a combination of asset classes, and/or using a variety of hedging strategies.
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All-Cap Fund
- A stock mutual fund that invests in equity securities without regard to whether a company is characterized as small, medium or large.
The term "cap" is shorthand for capitalization. The investment community measures a company's size by its market capitalization, which is calculated by multiplying the number of a company's outstanding shares by its current stock price.
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All-Holders Rule
- An SEC regulation that requires tender offers to be available to all holders of the identical class of the security.
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All-In Cost
- Shorthand for "all-included" costs, which are expressed as the interest paid or received for total costs of a financial transaction.
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All-Ordinaries Stock Index
- A stock index comprised of common shares from the Australian Stock Exchange. The All-Ordinaries Index is the most quoted benchmark for Australian equities. The ASX is responsible for calculating and distributing the index and its returns.
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Alliance Of American Insurers - AAI
- A coalition consisting primarily of property-casualty insurance carriers. The Alliance of American Insurers was formed in order to provide political clout for the property-casualty insurance industry. It pursues various activities directed toward promoting its objectives to both politicians and the public.
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Allied Lines
- Any type of property-casualty insurance that is closely related to fire insurance coverage. Allied lines coverage is almost always taken out along with a standard fire insurance policy. Allied lines insurance can include coverage for such things as accounts receivable, data-processing equipment, water damage and vandalism.
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Allied Member
- A person who is not a member of the New York Stock Exchange (NYSE) but is an officer or voting shareholder of a firm with a membership. Allied members can complete transactions on the NYSE and are granted access to the trading floor.
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Alligator Property
- In real estate, when the cost of mortgage payments, property taxes, insurance and maintenance on a rental property is greater than the income it brings in. If this situation is not corrected, it will eat up all of the owner's profit, leaving him or her with negative cash flow.
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Alligator Spread
- An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market movements. An alligator spread is usually used in the options market to describe a collection of put and call options that may not be profitable.
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Allocated Benefits
- A type of payment that comes from a defined-benefit retirement plan. Allocated benefits are passed on (allocated) to the plan participants once the insurance company has received its premiums. Allocated benefits provide guaranteed retirement income to plan participants that is ultimately backed by the insurance carrier (and the PBGC).
This term can also refer to the maximum amount that can be paid for a given service that is itemized in a contract.
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Allocated Funding Instrument
- A specific type of insurance or annuity contract that pension plans use to purchase retirement benefits incrementally. The allocated funding instrument is funded with employer contributions that are paid into the plan. The benefits that are purchased by the funding instrument are guaranteed to employees at retirement.
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Allocation Notice
- An official notification from an options clearing firm to the writer of an option that the current option holder has exercised and, therefore, the writer must produce the underlying security. This may require the option's writer to purchase or sell securities on the open market to fulfill the contractual obligation.
Allocation notice can also refer to how a broker or advisor would inform a client who has shown interest in an IPO whether his or her requested allocation of IPO shares is available in full, or if only a fraction of the requested total is available for purchase.
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Allocation Of Plan Assets On Termination
- The procedure that occurs upon the termination of any kind of pension plan. The allocation of plan assets on termination can occur in one of two ways: either each employee is repaid his or her contributions plus interest, or else the employees are categorized based on their entitlement to benefits.
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Allocation Rate
- The percentage of an investor's initial cash or capital outlay that actually goes toward the final investment. This amount is net of any fees that may be incurred upon initial investment and is effectively the amount that is exposed to the investment.
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Allocational Efficiency
- A characteristic of an efficient market in which capital is allocated in a way that benefits all participants. Allocational efficiency occurs when organizations in the public and private sectors can obtain funding for the projects that will be the most profitable, thereby promoting economic growth.
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Allonge
- A sheet of paper attached to a bill of exchange for the purpose of documenting endorsements. The need for an allonge arises as a result of a lack of space on the bill itself.
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Allotment
- During an IPO, this is the number of shares granted to each participating underwriting firm that they are permitted to sell. Remaining surpluses are then given to other firms which have won the bid for the right to sell the IPO.
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Allowance For Bad Debt
- A valuation account used to estimate the portion of a bank’s loan portfolio that will ultimately be uncollectible. When a loan goes bad, the asset is removed from the books and the allowance for bad debt is charged for the book value of the loan.
Also known as "loan-loss reserve."
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Allowance For Doubtful Accounts
- An estimation made by a company and documented on its balance sheet for receivables that might go uncollected.
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Allowances
- A deviation from the basis grade or location allowable when delivering commodities under the terms of a futures contract. Allowances represent a premium or discount to the standards outlined in the futures agreement.
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Alpha
- 1. A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.
2. The abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the capital asset pricing model (CAPM).
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Alpha Generator
- Any security that, when added to an existing portfolio of assets, generates excess returns or returns higher than a pre-selected benchmark without additional risk. An alpha generator can be any security; this includes government bonds, foreign stocks, or derivative products such as stock options and futures.
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Alphabet Rounds
- The early rounds of funding for a startup company, which get their name because the first is known as Series A financing, followed by Series B financing, and so on. Alphabet rounds of financing are provided by early investors and venture capital (VC) firms, which are willing to invest in companies with limited operational histories on the hope of larger future gains. These investors will typically wait until the startup has shown some basic signs of maturity and has exhausted its initial seed capital.
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Alt-A
- A classification of mortgages where the risk profile falls between prime and subprime. The borrowers behind these mortgages will typically have clean credit histories, but the mortgage itself will generally have some issues that increase its risk profile. These issues include higher loan-to-value and debt-to-income ratios or inadequate documentation of the borrower's income.
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Altered Check
- A check or another negotiable instrument that has been materially and maliciously altered to effect a fraud. Usually either the name of the payee or the amount of the check is changed.
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Alternate Beneficiary
- In a will, an alternate beneficiary is usually named in case a person who is the named beneficiary refuses or disclaims the inheritance. In an insurance policy, an alternate beneficiary is usually a secondary or contingent beneficiary who receives the proceeds if the primary beneficiary has died.
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Alternative Asset
- A term referring to any non-traditional asset with potential economic value that would not be found in a standard investment portfolio. Due to the unconventional nature of some of these investment assets, valuation may be a problem.
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Alternative Depreciation System - ADS
- A depreciation schedule with a straight-line recovery period that generally mirrors the class life of the asset's depreciation. Taxpayers who elect to use the alternative depreciation system feel that the alternative schedule will allow for a better match of depreciation deductions against income than the regular recovery period. Once they have switched from an alternative such as the modified acceleration cost replacement system (MACRS), the taxpayer can not switch back.
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Alternative Dispute Resolution
- In an insurance sense, a number of disparate processes used by insurance companies to resolve claim and contractual disputes. Insured clients who are denied a claim are offered this course of action as a form of recourse. Alternative dispute resolution is employed to avoid expensive and time-consuming litigation and arbitration.
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Alternative Documentation
- A documentation process designed to expedite loan approval where the lender accepts from the borrower documents such as W-2s, paycheck stubs and bank statements as verification of income made on the loan application. Confirming a borrower's information in this manner is considerably quicker than the traditional method of verifying such information with third parties.
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Alternative Energy ETF
- An exchange-traded fund that invests in companies engaged in industries serving alternative energy production and research. Some companies found within alternative energy ETFs may only receive a portion of their revenues from alternative energy goods and services, while other (typically smaller) companies are wholly engaged in alternative or clean energy production. The underlying group of securities used to passively invest assets within these funds varies widely depending on the issuer. Some include many stocks while others have a narrower focus and are thus less diversified.
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Alternative Fuels Tax Credit
- A non-refundable tax credit awarded to taxpayers who use non-alcohol alternative fuels that are either sold commercially by the taxpayer or used in the taxpayer's vehicles for business. The alternative fuels tax credit is computed by multiplying the number of gallons of alternative fuel or gas by 50 cents (as of 2008).
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Alternative Investment
- An investment that is not one of the three traditional asset types (stocks, bonds and cash). Most alternative investment assets are held by institutional investors or accredited, high-net-worth individuals because of their complex nature, limited regulations and relative lack of liquidity. Alternative investments include hedge funds, managed futures, real estate, commodities and derivatives contracts.
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Alternative Minimum Cost Method
- An ERISA approved method of funding pension plans. Pension plan administrators have two choices available to them when it comes to plan funding. The plan can be funded according to either the actuarial cost method or the accrued benefit cost method, which does not use benefit projections.
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Alternative Minimum Tax - AMT
- A tax calculation that adds certain tax preference items back into adjusted gross income. Alternative minimum tax (AMT) uses a separate set of rules to calculate taxable income after allowed deductions. Preferential deductions are added back, and then the AMT exemption is subtracted to get the AMT taxable income (AMTI). AMTI is then taxed at the current rate schedule to get tentative minimum tax (TMT). If TMT is higher than the regular tax liability for the year, the regular tax and the amount by which the TMT exceeds the regular tax are paid (i.e. the taxpayer pays the full TMT).
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Alternative Mortgage Instrument
- A broad category of mortgages that vary from fixed-rate, fully amortizing mortgages in terms of amortization schedules, interest rate structure and payment options. These mortgages often make it easier for individuals to purchase real estate by reducing monthly payment amounts and increasing the amount the borrowers are able to finance.
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Alternative Mortgage Transaction Parity Act - AMTPA
- An act from 1982 that over-rode many state laws that prevented banks from using mortgages other than conventional fixed-rate mortgages. This act allowed for the total costs of loans to become obscured, and led to the availability of various new mortgages such as adjustable rate mortgages (ARMs), interest only mortgages, and ballon payment mortgages.
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Alternative Motor Vehicle Credit
- A tax credit given to individuals who purchase vehicles that derive their power from alternative energy sources. Taxpayers are eligible to receive this nonrefundable alternative motor vehicle tax credit if they are the original purchasers of a vehicle after January 1, 2006. The vehicle must also qualify and the resulting tax credit will vary depending on the model.
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Alternative Order
- A combination order whereby two separate orders are entered on the same security. The execution of one order cancels the other.
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Alternative Risk Financing Facilities
- A type of private insurer that offers various types of coverage to both individuals and institutions. These insurers were originally created by groups of people or organizations that had a common need for a type of coverage that was not available commercially. In most cases, these same parties supplied the initial start-up capital to fund these facilities.
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Alternative Trading System - ATS
- A trading system that is not regulated as an exchange, but is a venue for matching the buy and sell orders of its subscribers. Alternative trading systems are gaining popularity around the world and account for much of the liquidity found in publicly traded issues.
Regulation ATS was introduced by the SEC in 1998 and is designed to protect investors and resolve any concerns arising from this type of trading system. Regulation ATS requires stricter record keeping and demands more intensive reporting on issues such as transparency once the system reaches more than 5% of the trading volume for any given security.
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Altman Z-Score
- A predictive model created by Edward Altman in the 1960s. This model combines five different financial ratios to determine the likelihood of bankruptcy amongst companies.
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Amended Return
- A return filed in order to make corrections to a tax return from a previous year. It can be used to correct errors and claim a more advantageous filing.
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American Bankers Association - ABA
- The American Bankers Association (ABA) is the largest banking trade association in the United States. Founded in 1875, the ABA represents banks of all sizes. The ABA offers a wide range of products and services to its members, in fields such as staff training, insurance, capital management, asset management, risk/compliance and consulting.
The nine-digit routing numbers seen on every check originate in a system of bank transit numbers developed by the ABA in 1910.
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American Callable Bond
- A bond that can be redeemed by the issuer at any time prior to its maturity. Usually a premium is paid to the bondholder when the bond is called.
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American Clean Energy And Security Act Of 2009
- A piece of legislation that was created in an attempt to establish an economy-wide climate and energy policy to help address the issue of climate change. The U.S House of Representatives passed the act on June 26, 2009, by a vote of 219 to 212.
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American Currency Quotation
- A direct quotation in the foreign exchange markets whereby the value of the American dollar is stated as a per-unit measure of a foreign currency. This type of quotation shows how much U.S. currency it takes to purchase one unit of foreign currency.
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American Depositary Receipt - ADR
- A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to reduce administration and duty costs that would otherwise be levied on each transaction.
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American Depositary Share - ADS
- A U.S. dollar-denominated equity share of a foreign-based company available for purchase on an American stock exchange. American Depositary Shares (ADSs) are issued by depository banks in the U.S. under agreement with the issuing foreign company; the entire issuance is called an American Depositary Receipt (ADR) and the individual shares are referred to as ADSs.
Depending on the level of compliance with U.S. securities regulations the foreign company wishes to follow, the company may either list its shares over-the-counter (OTC) with low reporting requirements or on a major exchange like the NYSE or Nasdaq. Listings on the latter exchanges generally require the same level of reporting as domestic companies, and also require adherence to GAAP accounting rules.
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American Institute Of Banking - AIB
- Founded in 1907, the American Institute of Banking (AIB) is a provider of education and training to the banking industry. More than 150,000 bankers participate in its programs each year.
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American Insurance Association - AIA
- A property-casualty trade organization, representing primarily property and casualty insurers. The American Insurance Association (AIA) has roots dating back to the late 1800s in the form of the National Board of Fire Underwriters. Property and casualty insurance includes personal and commercial auto insurance, commercial property and liability coverage for small businesses, workers' compensation, homeowners' insurance, medical malpractice coverage and product liability insurance.
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American Jobs Creation Act Of 2004
- Legislation that became effective in October of 2004, which is designed to benefit domestic manufacturers, multinational corporations and other entities, as well as agriculture and the energy sector. The American Jobs Creation Act of 2004 has over 270 provisions that provide tax cuts in many areas but are also designed to raise substantial revenue over time.
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American Municipal Bond Assurance Corporation
- The first municipal bond insurance company, formed in 1971 as a subsidiary of MGIC Investment Corp. of Milwaukee; now more commonly known as Ambac Financial Group, Inc. The American Municipal Bond Assurance Corporation insures new municipal bond offerings worldwide and is one of the leading firms in its field. A municipal bond issuer may purchase insurance coverage in order to increase investor confidence that principal and interest payments will be made in full and on time if the issuer defaults.
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American National Standards Institute - ANSI
- An organization that oversees the creation and dissemination of norms and standards in almost every U.S. business sector. ANSI is also actively involved in the accreditation programs that oversee those standards, including ISO 9000 (quality) and ISO 14000 (environmental) management systems. It was founded in 1918 by five engineering societies and three government agencies; it is now a nonprofit organization.
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American Option
- An option that can be exercised anytime during its life. The majority of exchange-traded options are American.
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American Recovery And Reinvestment Act
- An act initiated and signed by U.S. President Barack Obama in February, 2009. The act was set into motion as a response to the weak economic state facing the country. The American Recovery and Reinvestment Act was created to stimulate the economy through individual and corporate tax cuts, leniency in unemployment benefits, increased domestic spending, and increased social welfare funding.
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American Rule
- A rule in law and economics that says attorney fees should be paid by each party involved in litigation - even the party that wins the case. An exception to the American rule can occur when the court awards the winning party compensation to cover fees against a losing party that has acted in bad faith.
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American Stock Exchange - AMEX
- The third-largest stock exchange by trading volume in the United States. In 2008 it was acquired by the NYSE Euronext and became the NYSE Amex Equities in 2009. The AMEX is located in New York City and handles about 10% of all securities traded in the U.S.
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Amortizable Bond Premium
- A tax term referring to the excess premium paid over and above the face value of a bond. Depending on the type of bond, the premium can be tax deductible and amortized over the life of the bond on a pro-rata basis.
A bond premium occurs when the price of the bond has increased in the secondary market due to a drop in market interest rates.
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Amortization
- 1. The paying off of debt in regular installments over a period of time.
2. The deduction of capital expenses over a specific period of time (usually over the asset's life). More specifically, this method measures the consumption of the value of intangible assets, such as a patent or a copyright.
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Amortization Of Intangibles
- A tax term relating to the practice of deducting the cost of an investment in a qualifying non-tangible asset over the projected life of the asset. The cost basis of the qualifying intangible asset is amortized over a 15-year period, irrespective of the actual useful life of the asset.
In the year the asset is acquired and sold, the amount of amortization deductible for tax purposes is prorated on a monthly basis. Intangible amortization is reported on Form 4562.
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Amortization Schedule
- A complete schedule of periodic blended loan payments, showing the amount of principal and the amount of interest that comprise each payment so that the loan will be paid off at the end of its term. Early in the schedule, the majority of each periodic payment is interest. Later in the schedule, the majority of each periodic payment is put toward the principal.
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Amortized Loan
- A loan with scheduled periodic payments of both principal and interest. This is opposed to loans with interest-only payment features, balloon payment features and even negatively amortizing payment features.
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Amortizing Security
- A class of debt security in which a portion of the underlying principal amount is paid in addition to periodic interest payments to the security's holder. The regular payment that the security holder receives is derived from the payments that the borrower makes in paying off the debt.
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Amount Financed
- The actual amount of credit made available to a borrower in a loan, as defined by Regulation Z disclosure requirements of the Truth In Lending Act. Specifically, it is the amount of the loan principal, less prepaid finance charges (loan origination fees, so-called points, adjusted interest, etc.) and any required deposit balance. The amount financed is used to calculate the annual percentage rate.
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Amount Realized
- The gain or loss resulting from a sale of an asset. The amount realized encompasses all forms of compensation, including cash, the value of any property received as payment and any liabilities that the purchaser assumes as a result of the transaction.
The amount realized does not include transaction costs such as commissions and other related fees.
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Amount Recognized
- The amount of capital gain/loss that must be reported on the taxpayer's tax return in any given year. The amount recognized refers to the tax implications of the sale of an asset or investment and will take into account any selling or brokerage fees.
The amount recognized may differ from the amount realized, since the amount realized is not typically used in a taxable situation.
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Amplitude
- The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
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Amsterdam Stock Exchange (AEX) .AS
- Founded in the early 1600s with the founding of the Dutch East India Company (VOC), whose shares are considered the oldest in the world. In September, 2000, the Amsterdam Stock Exchange merged with the Brussels Stock Exchange and the Paris Stock Exchange to form Euronext Amsterdam.
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Analysis Of Variance - ANOVA
- A statistical analysis tool that separates the total variability found within a dataset into two components, random and systematic factors. The random factors do not have any statistical influence on the given dataset, while the systematic factors do. The ANOVA test is used to determine the impact independent variables have on the dependent variable in a regression analysis.
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Analyst
- A financial professional who has expertise in evaluating investments and puts together "buy", "sell" and "hold" recommendations for securities. Also known as a "financial analyst" or a "security analyst".
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Anchoring
- The use of irrelevant information as a reference for evaluating or estimating some unknown value or information. When anchoring, people base decisions or estimates on events or values known to them, even though these facts may have no bearing on the actual event or value.
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Ancillary Revenue
- Revenue generated from goods or services that differ from or enhance the main services or product lines of a company. By introducing new products and services or using existing products to branch into new markets, companies create additional opportunities for growth.
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And Interest
- A slang phrase used when quoting the price of a fixed-income instrument with accruing interest. When revealing the sale price of a bond, a broker or salesman will often express the value as the clean price "and interest".
Also written as "and-interest".
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Andersen Effect
- A reference to auditors performing more careful due diligence when auditing companies, in order to prevent accounting errors. This extra level of accounting scrutiny often leads to companies restating earnings even though they have not necessarily intentionally misrepresented material accounting information.
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Andrew's Pitchfork
- A technical indicator that uses three parallel trendlines to identify possible levels of support and resistance. The trendlines are created by placing three points at the end of identified trends. This is usually achieved by placing the points in three consecutive peaks or troughs. Once the points have been placed, a straight line is drawn from the first point that intersects the midpoint of the other two.
Also known as "median line studies".
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ANG (Netherlands Antilles Guilder)
- The currency abbreviation or currency symbol for the Netherlands Antilles guilder (ANG), the currency for Netherlands Antilles, a Caribbean country of the Kindom of the Netherlands. The Netherlands Antilles guilder is made up of 100 cents.
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Angel Bond
- A slang term for investment-grade bonds which pay a lower interest rate, due to the higher credit rating of the issuing company. Angel bonds are the opposite of fallen angels, which are bonds that have a 'junk' rating, and are much more risky.
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Angel Investor
- An investor who provides financial backing for small startups or entrepreneurs. Angel investors are usually found among an entrepreneur’s family and friends. The capital they provide can be a one-time injection of seed money or ongoing support to carry the company through difficult times.
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Angelina Jolie Stock Index
- An index made up of a selection of stocks from companies associated with actress Angela Jolie. Seen as one of the world's most influential celebrities, some analysts believe that companies connected with Jolie will outperform their competition.
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Anglo-Saxon Capitalism
- A form of capitalism that is usually associated with the United Kingdom and the United States, but also characterizes the economies of such countries as Canada, Australia, New Zealand and Ireland. It traditionally has heightened free-market tendencies, characterized by less regulated financial and labor markets. It differs from its counterpart, continental capitalism, which is more state-controlled and focused on wealth redistribution. Most of the countries in continental Europe including France, Italy and Germany possess a form of the continental economic model.
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Ankle Biter
- Stock issues with a market capitalization of less than $500 million.
Also known as "small cap" stocks.
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Annapurna Option
- A form of option contract from the "mountain range" series of exotic options. Annapurna options offer a combination of a fixed coupon rate and participation in the equity gains of an underlying basket of securities. The coupon rate is dependent on when the worst-performing stock of the group falls below a prespecified level. The longer it takes for the worst-performing stock to reach the predetermined low point, the higher the coupon payment the investor will receive. The equity participation rate (in the underlying securities) also rises as the Annapurna option lasts longer before the payout phase.
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Announcement Date
- 1. The date at which a company will announce the details regarding an issue of debt or equity. The announcement date is the first day the public will receive information regarding a new security issue.
2. The day that coincides with the release of new financial news, such as interest rate changes or earnings reports.
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Announcement Effect
- The impact on markets from the news that a change will occur at some future date. It can be used as a general term for the reaction to any development that affects trading, such as a change in dividend policy or a stock split. It is most often used, however, to describe investor reactions to changes in monetary policy, such as a hike or cut in a key interest rate level.
Also known as a "signal effect."
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Annual
- An event that occurs once a year.
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Annual Addition
- The maximum dollar amount that may be contributed to a participant's retirement account under a defined-contribution plan.
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Annual Clean-Up
- A banking practice that requires a borrower to pay off all balances of any renewable lines of credit and keep them at zero for 30 to 60 days or so. Although the annual clean up is a long-time tradition, it's becoming less common nowadays. Clean-ups aren't usually required on secured credit lines.
Also known as the clean-up requirement.
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Annual Equivalent Rate - AER
- Interest that is calculated under the assumption that any interest paid is combined with the original balance and the next interest payment will be based on the slightly higher account balance. Overall, this means that interest can be compounded several times in a year depending on the number of times that interest payments are made.
In the United Kingdom, the amount of interest received from savings accounts is listed in AER form.
Calculated as:
Where:
n = number of times a year that interest is paid
r = gross interest rate
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Annual General Meeting - AGM
- A mandatory yearly meeting of shareholders that allows stakeholders to stay informed and involved with company decisions and workings.
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Annual Mortgage Statement
- An annual report sent to a mortgagor by the mortgagee's servicer detailing the amount of interest and points paid during the preceding year and the remaining principal balance of the mortgage. If taxes and/or insurance are escrowed, the amount of taxes paid during the preceding year on behalf of the mortgagor by the servicer will also be shown, as will an ending escrow balance.
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Annual Percentage Rate - APR
- The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.
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Annual Percentage Yield - APY
- The effective annual rate of return taking into account the effect of compounding interest. APY is calculated by:
The resultant percentage number assumes that funds will remain in the investment vehicle for a full 365 days.
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Annual Premium Equivalent - APE
- A common sales measure technique used by insurance companies in the United Kingdom where the sales of a given entity are estimated by taking the value of regular premiums, plus 10% of any new single premiums written for the fiscal year. The premiums earned by a firm can be extended to include all revenues of a given firm.
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Annual Renewable Term (ART) Insurance
- A form of term life insurance that offers a guarantee of future insurability for a set period of years, although premiums are paid every year on the basis of a one-year contract. As such, the premiums will rise over time as the insured person ages. This type of insurance is designed for short-term insurance needs.
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Annual Report
- 1. An annual publication that public corporations must provide to shareholders to describe their operations and financial conditions. The front part of the report often contains an impressive combination of graphics, photos and an accompanying narrative, all of which chronicle the company's activities over the past year. The back part of the report contains detailed financial and operational information.
2. In the case of mutual funds, an annual report is a required document that is made available to fund shareholders on a fiscal year basis. It discloses certain aspects of a fund's operations and financial condition. In contrast to corporate annual reports, mutual fund annual reports are best described as "plain vanilla" in terms of their presentation.
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Annual Return
- The return an investment provides over a period of time, expressed as a time-weighted annual percentage. Sources of returns can include dividends, returns of capital and capital appreciation. The rate of annual return is measured against the initial amount of the investment and represents a geometric mean rather than a simple arithmetic mean.
Annual return is the de facto method for comparing the performance of investments with liquidity, which includes stocks, bonds, funds, commodities and some types of derivatives. Different asset classes are considered to have different strata of annual returns.
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Annual Turnover
- The percentage rate at which a mutual fund or exchange-traded fund replaces its investment holdings on an annual basis. Turnover is meant to adjust for the inflows and outflows of cash and report on the level of trading activity in the fund.
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Annualize
- 1. To convert a rate of any length into a rate that reflects the rate on an annual (yearly) basis. This is most often done on rates of less than one year, and usually does not take into account the effects of compounding. The annualized rate is not a guarantee but only an estimate, and its accuracy depends on the variance of the rate. This rate is also known as "annualized return" and is similar to "run rate".
2. To convert a taxation period of less than one year to an annual (yearly) basis. This helps income earners to set out an effective tax plan and manage any tax implications.
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Annualized Income Installment Method
- A method through which a taxpayer may reduce or eliminate any estimated tax underpayment penalty owed. The annualized income installment method calculates the installment payment that would be due if the income minus deductions earned before the due date were annualized. This exception to the underpayment penalty gives some relief to taxpayers who receive unexpected or uneven income during the year and so cannot accurately estimate their tax liability.
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Annualized Rate
- A rate of return for a given period that is less than one year, but that is computed as if the rate were for a full year. The annualized rate is essentially an estimated rate of annual return that is extrapolated mathematically.
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Annuitant
- 1. A person who receives the benefits of an annuity or pension.
2. The person upon whom a life-insurance contract is based.
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Annuitization
- The process of converting an annuity investment into a series of periodic income payments. Annuities may be annuitized regularly, over a long or short time period, or in some cases, in one single payment.
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Annuitization Method
- A type of annuity distribution structure that gives the annuitant periodic income payments for the rest of his or her life, or a specified period of time. This is different than the systematic withdrawal method, with which the annuitant chooses the amount he or she would like to receive each month, which he or she receives until the amount in the account runs out.
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Annuitization Phase
- The period when the annuitant starts to receive payments from the annuity. This period is after the accumulation phase where money is invested into the annuity.
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Annuity
- A financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years.
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Annuity Contract
- The written agreement between an insurance company and a customer outlining each party's obligations in an annuity coverage agreement. This document will include