Financial Glossary
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D
- A Nasdaq stock symbol specifying that the stock is a new issue.
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Daily Average Revenue Trades - DARTs
- A common metric used in the investment brokerage industry that represents the number of trades from which a given broker can expect to generate revenue through commissions or fees on any given day.
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Daily Chart
- A line graph that displays the intraday movements of a given security. This contrasts to longer term charts, such as those that show a security's movement over a period of days, months or even years.
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Daily Cut-Off
- In the forex market, a particular point in time specified by a forex dealer to stand as the end of the current trading day and the beginning of a new trading day. This is done for primarily administrative and logistical reasons, because although the forex market trades 24 hours a day, the market and its intermediaries require a specified beginning and end to each trading day in order to record trade dates and define settlement periods.
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Daily Factor
- A decimal representing the portion of an annual yield earned in one day. Daily factors are often reported alongside current annualized yield figures, and can be translated back to the current yield by multiplying the number by 365.
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Daily Money Manager - DMM
- A person who takes over the day-to-day financial tasks for those who are unable to perform these tasks on their own. A variety of people employ daily money managers, (DMM's) ranging from elderly clients to those simply too busy to maintain total control and accuracy of their financial needs. Some tasks performed by DMM's include bill payments, preparing tax documents, wire transfers, monthly paperwork and balancing, security checks, and basic deposits/withdrawls.
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Daily Trading Limit
- The maximum gain or loss on a derivative contract, such as options and futures contracts, that is allowed in any one trading session. The limits are imposed by the exchanges in order to protect against extreme volatility or manipulation within the markets.
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Daisy Chain
- A group of unscrupulous investors who, practicing a kind of fictitious trading or wash selling, artificially inflate the price of a security so that they sell it at a profit.
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Dalal Street
- A term that refers to the Bombay Stock Exchange, the major stock exchange in India. The street is home not only the Bombay Stock Exchange but also a large number of other financial institutions.
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Dangerous Asset
- An asset which, by its nature, creates a substantial risk of liability to the asset owner. Dangerous assets include commercial real estate, motor vehicles and construction equipment.
Risk of personal injury and/or property damage is higher with dangerous assets. For example, a truck, by its mere use, has the potential to cause physical harm to its occupant as well as bystanders.
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Dark Cloud Cover
- In candlestick charting, a pattern where a black candlestick follows a long white candlestick. It can be an indication of a future bearish trend.
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Dark Pool Liquidity
- A slang term that refers to the trading volume created from institutional orders, which are unavailable to the public. The bulk of dark pool liquidity is represented by block trades facilitated away from the central exchanges.
Also referred to as the "upstairs market", or "dark liquidity", or just "dark pool."
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Darvas Box Theory
- A trading strategy that was developed in 1956 by former ballroom dancer Nicolas Darvas. Darvas' trading technique involved buying into stocks that were trading at new 52-week highs with correspondingly high volumes.
A Darvas box is created when the price of a stock rises above the previous 52-week high, but then falls back to a price not far from that high. If the price falls too much, it can be a signal of a false breakout, otherwise the lower price is used as the bottom of the box and the high as the top.
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Dash To Trash
- A term relating to when investors flock to a class of securities or other assets, bidding up prices to beyond what can be justified by valuation or other fundamental measures. While the dash-to-trash effect can occur within any type of security, the phrase is typically used to describe low-quality stocks and high-yield bonds, both of which can be subject to periods of overbuying in the markets.
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Data Mining
- A type of database application that looks for hidden patterns in large groups of data.
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Date Certain
- A term identifying the date on/by which the specified actions of a contract can be reasonably completed. This date is important, as it is generally considered legally binding.
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Dated Date
- The date at which interest begins to accrue on a fixed-income security. Investors who purchase a fixed-income security between interest payment dates must also pay the seller or issuer any interest that has accrued from the dated date to the purchase date, or settlement date, in addition to the face value.
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David Hasselhoff Index
- A stock index comprised of companies associated with actor David Hasselhoff. Investors might correlate the popularity of David with increased sales surrounding his related products. Firms involved with Hasselhoff endorsements, advertising, movies or productions are included in the index.
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Dawn Raid
- The action of a firm or investor buying a substantial amount of shares in a company (making it a target firm) first thing in the morning when the stock markets open. This is done by a stock broker acting on behalf of a company. Because the bidding company builds a substantial stake in its target at the prevailing stock market price, the takeover costs are likely to be significantly lower than they would be had the acquiring company first made a formal takeover bid.
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DAX
- A stock index that represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange. The prices used to calculate the DAX Index come through Xetra, an electronic trading system. A free-float methodology is used to calculate the index weightings along with a measure of average trading volume.
The DAX was created in 1988 with a base index value of 1,000. DAX member companies represent roughly 75% of the aggregate market cap that trades on the Frankfurt Exchange.
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Day Cycle
- The time period alloted for the delivery of Automated Clearing House debits and credits from an originator to its processor. Typical hours are between 8:00am and 1:00pm eastern standard time (EST).
Also referred to as daytime window.
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Day Order
- Any order to buy or sell a security that automatically expires if not executed on the day the order is placed.
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Day Rate
- The price/cost of a particular service for a day's period. In some markets it is referred to as "per diem" (cost that an organization will pay for one days' work) and often translates to a 7.5 hour work day. Some purchasing organizations prefer a quoted day rate instead of an hourly rate for services.
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Day Trader
- A stock trader who holds positions for a very short time (from minutes to hours) and makes numerous trades each day. Most trades are entered and closed out within the same day.
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Day-Around Order
- An order that cancels and replaces a previously submitted day order, producing a new request with an adjusted volume or price limit. The term is primarily used by traders in the general equities market. As with a day order, the day-around will expire by the end of the business day.
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Day-Count Convention
- A system used to determine the number of days between two coupon dates, which is important in calculating accrued interest and present value when the next coupon payment is less than a full coupon period away. Each bond market has its own day-count convention.
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Daylight Overdraft
- Occurs when a clearinghouse bank issues a payment during the day that is in excess of the originator's reserve account balance. Daylight overdrafts must be covered by the end of the business day.
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Dayrate Volatility
- The intraday volatility of an exchange rate (or price of a good or service), that changes due to imbalances in supply and demand. Price levels of various goods or services can change very quickly depending on the current market condition.
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Days Payable Outstanding - DPO
- A company's average payable period. Calculated as:
Notice that the formula may also be written as: accounts payable / (cost of sales/number of days).
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Days Sales Of Inventory - DSI
- A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory (including goods that are work in progress, if applicable) into sales. Generally, the lower (shorter) the DSI the better, but it is important to note that the average DSI varies from one industry to another.
Here is how the DSI is calculated:
Also known as days inventory outstanding (DIO).
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Days Sales Outstanding - DSO
- A measure of the average number of days that a company takes to collect revenue after a sale has been made. A low DSO number means that it takes a company fewer days to collect its accounts receivable. A high DSO number shows that a company is selling its product to customers on credit and taking longer to collect money.
Days sales outstanding is calculated as:
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Days To Cover
- A measurement of a company's issued shares that are currently shorted, expressed as the number of days required to close out all of the short positions. For example, if a company has average daily volume of 1 million shares and 2 million shares are currently short sold, the shares have a cover rate of 2 days (2M/1M).
Also referred to as the "short-interest ratio".
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Days Working Capital
- An accounting and finance term used to describe how many days it will take for a company to convert its working capital into revenue. The faster a company does this, the better.
To calculate days working capital, the following formula can be used:
Days working capital can be used in ratio and fundamental analysis.
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De Minimis Tax Rule
- A rule that states that capital gains tax must be paid on a bond if the bond was purchased at a discount to the face value in excess of a quarter point per year between the time of acquisition and maturity. The reason for the capital gains tax is that the bondholder gains on the difference between the price paid and the price received at maturity, which is considered a capital gain.
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De-hedge
- The process of closing out positions that were originally put in place to act as a hedge in one's portfolio. De-hedging involves going back into the marketplace and closing out hedged positions, which were previously taken to limit an investor's risk of price fluctuations in relation to their underlying asset.
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De-merger
- A corporate strategy to sell off subsidiaries or divisions of a company.
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Dead Cat Bounce
- A temporary recovery from a prolonged decline or bear market, after which the market continues to fall.
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Dead Hand Provision
- A stipulation on a defense mechanism (or poison pill) used by companies in order to protect against a merger or takeover by another company. The dead hand provision prevents the removal of the poison pill, a strategy used to discourage a hostile takeover, even if shareholders of the target company favor the takeover.
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Dead Money
- A slang term for money invested in a security with minor hopes of appreciation or earning a return. The stock may also be referred as dead money by analysts, as a warning to investors who might purchase the shares.
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Deadweight Loss
- The costs to society created by an inefficiency in the market.
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Deal Flow
- The rate at which new proposals are flowing to the underwriters of an investment bank.
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Deal Ticket
- A ticket that records all the terms, conditions and basic information of a trade agreement. A deal ticket is created after the transaction of shares, futures contracts or other derivatives.
Also referred to as a "trading ticket".
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Dealer
- 1. An individual or firm willing to buy or sell securities for their own account.
2. One who purchases goods or services for resale to consumers.
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Dealer Bank
- A commercial bank authorized to buy and sell government debt securities including federal and municipal bonds. This debt is usually issued to fund large government projects such as road and bridge construction. Dealer banks are registered with the Municipal Securities Rulemaking Board.
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Dealer Financing
- Loans that are originated by a retailer to its customers and are then sold to a bank or other third-party financial institution. The bank purchases these loans at a discount and then collects principle and interest payments from the borrower. Also called an indirect loan.
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Dealer Market
- A market where dealers are assigned for specific securities. The dealers create liquid markets by purchasing and selling against personal inventory.
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Dealer Option
- An option created upon physical commodities, outside of regular exchange regulations.
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Dealer-Median Prepayment Speed
- The median value of all Wall Street securities dealers’ prepayment speed estimates for the underlying mortgages used to form mortgage-backed securities. The prepayment speed estimates used by banks and other regulated financial enterprises to value and manage mortgage-backed security portfolios are a concern to regulators. To that end, dealer-median speeds are widely used as conservative estimates.
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Dear Money
- A situation in which money or loans are very difficult to obtain in a given country. If you do have the opportunity to secure a loan, then interest rates are usually extremely high. Also known as "tight money".
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Death Benefit
- The amount on a life insurance policy or pension that is payable to the beneficiary when the annuitant passes away.
Also known as "survivor benefit".
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Death Bond
- A security backed by life insurance which is derived by pooling together a number of transferable life insurance policies. Similar to mortgage-backed securities, the life insurance policies are pooled together and then repackaged into bonds to be sold to investors.
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Death By A Thousand Cuts
- A failure that occurs as a result of many smaller problems. Death by a thousand cuts could refer to the termination of a proposed deal as a result several small issues, rather than one major cause. It could also apply to a product or idea that is destroyed by too many minor changes or the failure of any other plan as a result of a cumulative chain of events.
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Death Cross
- A crossover resulting from a security's long-term moving average breaking above its short-term moving average or support level.
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Death Put
- An optional redemption feature on a debt instrument allowing the beneficiary of the estate of the deceased to put (sell) the bond (back to the issuer) in the event of the beneficiary's death or legal incapacitation. Also known as a "survivor's option".
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Death Spiral
- A type of loan investors give to a company in exchange for convertible debt, which, like convertible bonds, typically has provisions that allow investors to convert the bonds into stock at below-market prices. This can cause the original shareholders to lose control of the company.
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Death Taxes
- Taxes imposed by the federal and/or state government on someone's estate upon their death. These taxes are levied on the beneficiary that receives the property in the deceased's will; the tax amount is based on the property's value at the time of the owner's death. Also called death duties or inheritance tax.
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Death Valley Curve
- A slang phrase used in venture capital to refer to the period of time from when a startup firm receives an initial capital contribution to when it begins generating revenues. During the death valley curve, additional financing is usually scarce, leaving the firm vulnerable to cash flow requirements.
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Debasement
- 1. To lower the value, quality or status of something or someone.
2. To lower the value (of a coin) by adding metal of inferior value.
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Debenture
- A type of debt instrument that is not secured by physical asset or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are documented in an indenture.
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Debenture Redemption Reserve
- A provision that was added to the Indian Companies Act of 1956 during an amendment in the year 2000. The provision states that any Indian company that issues debentures must create a debenture redemption service to protect investors against the possibility of default by the company.
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Debit
- An accounting entry which results in either an increase in assets or a decrease in liabilities on a company's balance sheet or in your bank account.
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Debit Balance
- In a margin account, money owed by the customer to the broker for funds advanced to purchase securities. The debit balance is the amount of funds the customer must put into his or her margin account, following the successful execution of a security purchase order, in order to properly settle the transaction.
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Debit Card
- An electronic card issued by a bank which allows bank clients access to their account to withdraw cash or pay for goods and services. This removes the need for bank clients to go to the bank to remove cash from their account as they can now just go to an ATM or pay electronically at merchant locations. This type of card, as a form of payment, also removes the need for checks as the debit card immediately transfers money from the client's account to the business account.
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Debit Spread
- Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction.
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Debit Ticket
- An accounting entry recorded as a debit that acknowledges money owed. When payment is received a corresponding credit is entered to cancel the debit.
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Debt
- An amount of money borrowed by one party from another. Many corporations/individuals use debt as a method for making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.
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Debt Accordions
- A loan provision which allows the borrower to add additional investors to the loan subsequent to the initial loan date. This provision helps the borrower if they are struggling to make payments, and in turn, helps the lender receive the full payments.
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Debt Assignment
- A transfer of debt from a creditor to a third party.
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Debt Bomb
- This occurs when a major financial institution, such as a multinational bank, defaults on its obligations that causes disruption not only in the financial system of the institution's home country, but also in the global financial system as a whole.
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Debt Cancellation Contract
- A contract in which a bank agrees to cancel all or part of a customer's obligation to repay a loan due to an event such as death, disability or involuntary loss of employment. A debt cancellation contract is an alternative to a life insurance plan.
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Debt Consolidation
- The act of combining several loans or liabilities into one loan. Debt consolidation involves taking out a new loan to pay off a number of other debts. Most people who consolidate their debt usually do it to attain a lower interest rate, or the simplicity of a single loan.
Also known as a "consolidation loan".
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Debt Deflation
- A situation in which the collateral used to secure a loan (or another form of debt) decreases in value. This can be detrimental because it may lead to a restructuring of the loan agreement or the loan itself.
Also known as "worst deflation" and "collateral deflation".
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Debt Exchangeable for Common Stock - DECS
- A debt instrument that provides the holder with coupon payments in addition to an embedded short put option and a long call on the issuing company's stock.
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Debt Fatigue
- When a debtor stops making payments on his or her debts and starts spending again after being overwhelmed by the amount of debt incurred and the seeming futility of the debt repayment process (the overall amount of debt owed does not appear to dramatically lessen as payments are made). Experiencing debt fatigue may eventually cause the debtor to declare bankruptcy as a last-ditch effort to resolve the situation.
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Debt Financing
- When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt will be repaid.
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Debt For Bond Swap
- A debt swap involving the exchange of a new bond issue for similar outstanding debt or vice versa. Debt for bond swap transactions are usually executed to take advantage of an interest rate change and/or for tax write-off purposes.
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Debt Fund
- An investment pool, such as a mutual fund or exchange-traded fund, in which core holdings are fixed income investments. A debt fund may invest in short-term or long-term bonds, securitized products, money market instruments or floating rate debt. The fee ratios on debt funds are lower, on average, than equity funds because the overall management costs are lower.
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Debt Instrument
- A paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract. Types of debt instruments include notes, bonds, certificates, mortgages, leases or other agreements between a lender and a borrower.
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Debt Limitation
- A bond covenant that limits or restricts any additional debt that may be incurred by the issuer. Debt limitations look to protect the current lenders by maintaining the firm's degree of leverage.
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Debt Load
- The amount of debt or leverage that a company is carrying on its books. The amount of debt a firm is carrying can be found in the company's balance sheet, which most firms provide on a quarterly basis. Companies may incur this debt for numerous reasons such as expanding their business or making an acquisition.
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Debt Loading
- A practice employed by unscrupulous entrepreneurs and businesses who anticipate filing for bankruptcy. Debt loading works by taking on a debt load by spending all cash reserves, maxing out lines of credit and credit cards, and failing to pay bills in anticipation of bankruptcy protection.
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Debt Overhang
- A situation where the debt stock of a country exceeds the country's future capacity to repay it.
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Debt Ratio
- A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load.
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Debt Rescheduling
- A practice that involves restructuring the terms of an existing loan in order to extend the repayment period. Debt rescheduling may mean a delay in the due date(s) of required payments or reducing payment amounts by extending the payment period and increasing the number of payments.
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Debt Restructuring
- A method used by companies with outstanding debt obligations to alter the terms of the debt agreements in order to achieve some advantage.
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Debt Security
- Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount borrowed), interest rate and maturity/renewal date. Debt securities include government bonds, corporate bonds, CDs, municipal bonds, preferred stock, collateralized securities (such as CDOs, CMOs, GNMAs) and zero-coupon securities.
The interest rate on a debt security is largely determined by the perceived repayment ability of the borrower; higher risks of payment default almost always lead to higher interest rates to borrow capital.
Also known as "fixed-income securities."
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Debt Service
- Cash required over a given period for the repayment of interest and principal on a debt.
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Debt Signaling
- A theory that states that an announcement regarding a firm's debt can be used as a signal of the stock's future performance. A company announcement regarding the issuance of debt is said to signal positive news, while an announcement that states that debt will be taken on at a future date is said to be a negative signal about the company.
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Debt Tender Offer
- When a firm retires all or a portion of its debt securities by making an offer to its debtholders to repurchase a predetermined number of bonds at a specified price and during a set period of time. Firms may use a debt tender offer as a mechanism for capital restructuring or refinancing.
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Debt-Adjusted Cash Flow - DACF
- A financial ratio commonly used in the analysis of oil companies, representing the after-tax operating cash flow, excluding financial expenses after taxes.
Debt-adjusted cash flow (DACF) is calculated as follows:
DACF = cash flow from operations + financing costs (after tax) + exploration expenses (before tax) +/- working capital adjustment
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Debt-Service Coverage Ratio - DSCR
- 1. In corporate finance, it is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments.
2. In government finance, it is the amount of export earnings needed to meet annual interest and principal payments on a country's external debts.
3. In personal finance, it is a ratio used by bank loan officers in determining income property loans. This ratio should ideally be over 1. That would mean the property is generating enough income to pay its debt obligations.
In general, it is calculated by:
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Debt-To-Capital Ratio
- A measurement of a company's financial leverage, calculated as the company's debt divided by its total capital. Debt includes all short-term and long-term obligations. Total capital includes the company's debt and shareholders' equity, which includes common stock, preferred stock, minority interest and net debt.
Calculated as:
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Debt-To-GDP Ratio
- A measure of a country's federal debt in relation to its gross domestic product (GDP). By comparing what a country owes and what it produces, the debt-to-GDP ratio indicates the country's ability to pay back its debt. The ratio is a coverage ratio on a national level.
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Debt-To-Income Ratio - DTI
- A personal-finance measure that compares an individual's debt payments to the income he or she generates. This measure is important in the lending industry as it gives lenders an idea of how likely they will receive payments from the borrower.
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Debt/EBITDA
- A measure of a company's ability to pay off its incurred debt. This ratio gives the investor the approximate amount of time that would be needed to pay off all debt, ignoring the factors of interest, taxes, depreciation and amortization.
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Debt/Equity Ratio
- A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.
Note: Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the calculation.
Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well as companies'.
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Debt/Equity Swap
- A refinancing deal in which a debt holder gets an equity position in exchange for cancellation of the debt.
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Debtor
- A company or individual who owes money. If the debt is in the form of a loan from a financial institution, the debtor is referred to as a borrower. If the debt is in the form of securities, such as bonds, the debtor is referred to as an issuer.
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Debtor In Possession - DIP
- A company that continues to operate while under the Chapter 11 bankruptcy process.
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Debtor Nation
- A nation with a cumulative balance of payments deficit. A debtor nation has negative net investment after recording all of the financial transactions it has completed worldwide.
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Debtor-In-Possession Financing - DIP Financing
- Financing arranged by a company while under the Chapter 11 bankruptcy process. DIP financing is unique from other financing methods in that it usually has priority over existing debt, equity and other claims.
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Deceased Account
- A bank account, such as a savings or checking account, owned by a deceased person. When a bank receives notice that a customer has died, it will freeze his/her account(s) while waiting for direction from the authorized court regarding payment to heirs and creditors.
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Deceased Alert
- A notification on a person's credit report that alerts credit agencies that the person is deceased and should not be issued credit in the future. Upon a person's death, a family member or friend must request the credit reporting agencies to send out the deceased alert. The purpose of the deceased alert is to prevent identity thieves from stealing and abusing the name of the deceased person.
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Decedent (IRD) Deduction
- The decedent or IRD deduction stands for Income in Respect of a Decedent deduction. It is an IRS term that refers to inherited income that is subject to federal income tax. It refers to income which was earned by the decedent during his or her lifetime, but the tax was not yet paid on the funds at the time of death. This income is subject to be being taxed as income for the beneficiary.
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Decentralized Market
- A market structure that consists of a network of various technical devices that enable investors to create a marketplace without a centralized location. In a decentralized market, technology provides investors with access to various bids/ask prices and makes it possible for them to deal directly with other investors/dealers rather than with a given exchange.
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Decile
- A method of splitting up a set of ranked data into 10 equally large subsections. This type of data ranking is performed as part of many academic and statistical studies in the finance field. The data may be ranked from largest to smallest values, or vice versa.
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Decimalization
- The process of changing the prices that securities trade at from fractions to decimals.
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Deck
- A term used to refer to the open orders held by floor brokers on futures exchanges.
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Declaration Date
- 1. The date on which the next dividend payment is announced by the directors of a company. This statement includes the dividend's size, ex-dividend date and payment date. It is also referred to as the "announcement date".
2. The last day on which the holder of an option must indicate whether he or she will exercise the option. Also known as the "expiration date".
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Decline
- When a security's price falls in value over a given trading day and subsequently closes at a lower value than its opening price. A decline can happen for any number of reasons, including a reduction in the firm's intrinsic value, or as a result of the security's price dropping below its support level.
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Declining Balance Method
- A common depreciation-calculation system that involves applying the depreciation rate against the non-depreciated balance. Instead of spreading the cost of the asset evenly over its life, this system expenses the asset at a constant rate, which results in declining depreciation charges each successive period.
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Declining Industry
- An industry where growth is either negative or is not growing at the broader rate of economic growth. There are many reasons for a declining industry: consumer demand may be steadily evaporating, the depletion of a natural resource may be occurring, or there may be the emergent substitutes because of technological innovation.
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Decoupling
- The occurrence of returns on asset classes diverging from their normal pattern of correlation.
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Decreasing Term Insurance
- A type of annual renewable term life insurance that provides a death benefit that decreases at a predetermined rate over the life of the policy. Premiums are usually constant throughout the contract, and reductions in policy payout will typically occur monthly or annually. Term lengths can range anywhere between one and 30 years.
May also be called "mortgage life insurance".
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Dedicated Portfolio
- A passive form of portfolio management that involves the matching of future cash inflows with future liabilities. The process of dedicating a portfolio may be used as an alternative to multiperiod immunization, which reduces the level of interest rate risk to which a portfolio is exposed.
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Dedicated Short Bias
- A hedge fund strategy with which the fund manager takes more short positions than long positions.
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Deductible
- 1. The amount you have to pay out-of-pocket for expenses before the insurance company will cover the remaining costs.
2. An amount subtracted from an individual's adjusted gross income to reduce the amount of taxable income.
Also known as "tax deductible".
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Deduction
- Any item or expenditure subtracted from gross income to reduce the amount of income subject to tax.
Also referred to as "allowable deduction".
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Deed
- A legal document that grants the bearer a right or privilege, provided that he or she meets a number of conditions. In order to receive the privilege - usually ownership, the bearer must be able to do so without causing others undue hardship. A person who poses a risk to society as a result of holding a deed may be restricted in his or her ability to use the property.
Deeds are most known for being used to transfer the ownership of automobiles or land between two parties.
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Deed In Lieu Of Foreclosure
- A potential option taken by a mortgagor (a borrower) to avoid foreclosure under which the mortgagor deeds the collateral property (the home) back to the mortgagee (the lender) in exchange for the release of all obligations under the mortgage. Both sides must enter into the agreement voluntarily and in good faith.
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Deed Of Release
- A legal document that removes a previous claim or lien on an asset. A deed of release is usually issued once a mortgage or other type of debt, previously secured against the asset, has been paid in full. After the deed of release is written, the asset is owned free and clear by the owner, and any previous claims against the asset that the lender may have had are dissolved.
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Deep In The Money
- An option with an exercise price, or strike price, significantly below (for a call option) or above (for a put option) the market price of the underlying asset. Significantly, below/above is considered one strike price below/above the market price of the underlying asset. For example, if the current price of the underlying stock was $10, a call option with a strike price of $5 would be considered deep in the money.
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Deep Out Of The Money
- An option with a strike price that is significantly above (for a call option) or below (for a put option) the market price of the underlying asset. To be deemed deep out of the money, an option's strike price should be at least one strike price below/above the market price of the underlying asset's option chain.
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Deep-Discount Bond
- 1. A bond that sells at a significant discount from par value.
2. A bond that is selling at a discount from par value and has a coupon rate significantly less than the prevailing rates of fixed-income securities with a similar risk profile.
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Deer Market
- A flat market. Neither a bull or bear market, a deer market is characterized by low activity, with timid investors waiting for a sign of which way the market is going to end up moving.
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Defalcation
- 1. Combining two or more debts to create one total debt. Defalcation can be legally carried out upon request or in death of one of the parties.
2. Theft or misuse of funds which were under the control of the defalcator but not owned by them. Defalcation is a form of embezzlement through the allocation of funds, or failure to account for received funds.
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Default
- 1. The failure to promptly pay interest or principal when due. Default occurs when a debtor is unable to meet the legal obligation of debt repayment. Borrowers may default when they are unable to make the required payment or are unwilling to honor the debt.
2. The failure to perform on a futures contract as required by an exchange.
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Default Model
- A type of model used by financial institutions to determine the likelihood of a default on credit obligations by a corporation or sovereign entity. These statistical models often use regression analysis (analyzing changes to certain market variables that are pertinent to a company's financial situation) to identify credit risk.
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Default Premium
- The additional amount a borrower must pay to compensate the lender for assuming default risk.
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Default Probability
- The degree of likelihood that the borrower of a loan or debt will not be able to make the necessary scheduled repayments. Should the borrower be unable to pay, they are then said to be in default of the debt, at which point the lenders of the debt have legal avenues to attempt obtaining at least partial repayment. Generally speaking, the higher the default probability a lender estimates a borrower to have, the higher the interest rate the lender will charge the borrower (as compensation for bearing higher default risk).
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Default Rate
- This rate can be used in reference to two main things:
1. The rate of borrowers who fail to remain current on their loans. It is a critical piece of information used by lenders to determine their risk exposure and economists to evaluate the health of the overall economy.
2. The interest rate charged to a borrower when payments on a revolving line of credit are overdue. This higher rate is applied to outstanding balances in arrears in addition to the regular interest charges for the debt.
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Default Risk
- The risk that companies or individuals will be unable to pay the contractual interest or principal on their debt obligations.
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Defeasance
- A provision that voids a bond or loan when the borrower sets aside cash or bonds sufficient enough to service the borrower's debt.
Also referred to as "defease."
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Defeasance Process
- A process to substitute collateral when looking to sell or refinance an existing property which was acquired through a real-estate loan. Plainly speaking, the defeasement process involves the remainder of the amount owing on the loan being used to purchase government securities which are then given to the lender in exchange for releasing the property for refinance or sale by the borrower. It is a complicated process involving many outside parties such as lawyers and accountants, and takes on average 30-45 days to complete. If a quick sale is necessary, the process can often be sped up, however, a premium is paid for this expediation.
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Defeased Securities
- Securities that have been secured by another asset, such as cash or a cash equivalent, by the debt-issuing firm. Firms that have created defeased securities, which are typically bonds, will have sufficient cash set aside for retirement of the debt upon maturity.
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Defensive Acquisition
- The act of firms acquiring other firms and assets as a defense against market downturns or possible takeovers. A defensive acquisition contrasts with the normal impetus for an acquisition, which is usually increased market share or revenue.
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Defensive Buy
- An investment that is an attractive buy because it is low risk, not because of its return potential.
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Defensive Company
- A company whose sales and earnings remain relatively stable during both economic upturns and downturns.
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Defensive Interval Ratio
- An efficiency ratio that measures how many days a company can operate without having to access non-current (long-term) assets.
The defensive interval ratio (DIR) is calculated as:
DIR = Current Assets / Daily Operational Expenses
Also known as the "Defensive Interval Period".
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Defensive Investment Strategy
- A method of portfolio allocation and management aimed at minimizing the risk of losing principal. Defensive investors place a high percentage of their investable assets in bonds, cash equivalents, and stocks that are less volatile than average.
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Defensive Stock
- A stock that provides a constant dividend and stable earnings regardless of the state of the overall stock market.
This is not to be confused with a "defense stock", which refers to stock in companies which manufacture things like weapons, ammunition and fighter jets.
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Deferment Period
- The period after the issue of callable security during which it cannot be called by the issuer.
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Deferred Account
- An account that postpones tax liabilities until a later date. Deferred accounts are usually retirement accounts
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Deferred Acquisition Costs - DAC
- Typically used in the insurance industry, this is when a company defers the sales costs that are associated with acquiring a new customer over the term of the insurance contract.
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Deferred Annuity
- A type of annuity contract that delays payments of income, installments or a lump sum until the investor elects to receive them. This type of annuity has two main phases, the savings phase in which you invest money into the account, and the income phase in which the plan is converted into an annuity and payments are received.
A deferred annuity can be either variable or fixed.
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Deferred Availability
- A delay in the availability of funds to the holder of a commercial bank account upon depositing a check as his/her bank awaits payment from the paying bank. Regulations require banks to limit the hold to no more than two days for local checks and no more than five days for out of town checks. There is an exception for new accounts where regulations allow banks to delay the availability of funds for up to 30 days.
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Deferred Charge
- A prepaid expense that is recognized on the balance sheet as an asset until it is used.
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Deferred Compensation
- An amount of earned income that is payable at a later date. Most deferred-compensation plans allow the wage earner to defer tax now so that the funds can be withdrawn and taxed at some point in the future.
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Deferred Income Tax
- A liability recorded on the balance sheet that results from income already earned and recognized for accounting, but not tax, purposes. Also, differences between tax laws and accounting methods can result in a temporary difference in the amount of income tax payable by a company. This difference is recorded as deferred income tax.
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Deferred Interest
- The amount of interest that is added to the principal balance of a loan when the contractual terms of that loan allow for a scheduled payment to be made that is less than the interest due. When a loan's principal balance increases because of deferred interest, it is known as negative amortization.
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Deferred Interest Bond
- A debt instrument that pays no interest until a date specified in the future.
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Deferred Load
- A sales charge or fee that is assessed when an investor sells certain classes of fund shares before a specified date. Deferred loads usually run on a flat or sliding scale for one and seven years after purchase, with the load/fee eventually dropping off to zero. Deferred loads are most often assessed as a percentage of assets.
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Deferred Long-Term Liability Charges
- A collection of future company liabilities that will typically be summed up and shown as one line item on the balance sheet. The charges are most often made up of deferred-tax liabilities that are to be paid more than one year in the future; depending on the company, they can also be comprised of forward contract obligations (like, swap contracts or derivative products).
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Deferred Payment Option
- An option with all the characteristics of an American vanilla option, with one exception: payment is deferred until the original expiration date.
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Deferred Profit Sharing Plan - DPSP
- An employer-sponsored Canadian profit sharing plan that is registered with the Canadian Revenue Agency. On a periodic basis, the employer shares the profits made from the business with all employees or a designated group of employees. Employees receiving a share of the profits paid out by the employer do not have to pay federal taxes on the money received from the DPSP until it is withdrawn.
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Deferred Revenue
- A liability account used to collect deposits and other cash receipts prior to the completion of the sale.
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Deferred Share
- 1. A share that does not have any rights to the assets of a company undergoing bankruptcy until all common and preferred shareholders are paid.
2. A method of stock payment to directors and executives of a company through the deposit of shares into a locked account. The value of these shares fluctuate with the market and cannot be accessed by the beneficiary for the purpose of liquidation until they are no longer employees of the company.
3. A share generally issued to company founders that restricts their receipt of dividends until dividends have been distributed to all other classes of shareholders.
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Deferred Tax Asset
- An asset on a company's balance sheet that may be used to reduce any subsequent period's income tax expense. Deferred tax assets can arise due to net loss carryovers, which are only recorded as assets if it is deemed more likely than not that the asset will be used in future fiscal periods.
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Deferred Tax Liability
- An account on a company's balance sheet that is a result of temporary differences between the company's accounting and tax carrying values, the anticipated and enacted income tax rate, and estimated taxes payable for the current year. This liability may or may not be realized during any given year, which makes the deferred status appropriate.
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Deficiency Agreement
- An arrangement in which a party provides a firm with funds to cover any shortfalls arising from capital or cash flow restraints, allowing the company to service its debt. A deficiency agreement will usually have a cumulative limit specified by the lending party.
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Deficiency Letter
- A letter, issued by the Securities and Exchange Commission (SEC) indicating a significant deficiency or omission in a registered statement or prospectus. A deficiency letter should be dealt with promptly, and the SEC should be alerted of any actions taken to remedy the situation.
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Deficit
- A situation in which liabilities exceed assets, expenditures exceed income, imports exceed exports, or losses exceed profits.
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Deficit Spending
- When a government's expenditures exceed its revenues, causing or deepening a deficit. This excess spending needs to be financed through borrowing, likely from foreign governments. The increased government spending can help stimulate the economy as more money flows in, but the jump in borrowing can have an adverse effect by raising interest rates.
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Deficit Spending Unit
- A economic term used to describe how an economy or economic unit within an economy has spent more than it has earned over a period of time. To raise the necessary funds to finance a deficit, the economic unit may sell debt (or equity if the entity is a corporation).
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Defined Portfolio
- An investment trust that invests in a predefined portfolio of bonds and/or stocks that have been professionally selected by the company. Similar to some classes of mutual funds, these trusts are closed-ended and are not actively managed. The securities in the portfolio are fixed, and units can only be sold after the initial buying phase. These units tend to have a predefined life of a handful of years, after which they are liquidated and the proceeds are returned to the investors.
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Defined-Benefit Plan
- An employer-sponsored retirement plan where employee benefits are sorted out based on a formula using factors such as salary history and duration of employment. Investment risk and portfolio management are entirely under the control of the company. There are also restrictions on when and how you can withdraw these funds without penalties.
Also known as "qualified benefit plan" or "non-qualified benefit plan".
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Defined-Contribution Plan
- A retirement plan in which a certain amount or percentage of money is set aside each year by a company for the benefit of the employee. There are restrictions as to when and how you can withdraw these funds without penalties.
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Definitive Securities
- Securities that are issued in the form of a paper certificate as opposed to book-entry securities which are electronic entries into a computer. Examples of definitive securities include bearer and registered bonds.
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Deflation
- A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Central banks attempt to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum.
The decline in prices of assets, is often known as Asset Deflation.
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Defunct
- The condition of a company, whether publicly traded or private, that has gone bankrupt and ceased to exist. If the company was publicly traded, it will be delisted from the exchange where it was listed, and its stock will be worth nothing.
This term also applies to currencies that are no longer in circulation.
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Degearing
- The action of a company altering its capital structure by replacing long-term debt with equity, thereby easing the burden of interest payments and also increasing management's flexibility.
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Degree Of Combined Leverage - DCL
- A leverage ratio that summarizes the combined effect the degree of operating leverage (DOL), and the degree of financial leverage has on earnings per share (EPS), given a particular change in sales. This ratio can be used to help determine the most optimal level of financial and operating leverage to use in any firm. For illustration, the formula is:
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Degree Of Financial Leverage - DFL
- A leverage ratio summarizing the affect a particular amount of financial leverage has on a company's earnings per share (EPS). Financial leverage involves using fixed costs to finance the firm, and will include higher expenses before interest and taxes (EBIT). The higher the degree of financial leverage, the more volatile EPS will be, all other things remaining the same. The formula is as follows:
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Degree Of Operating Leverage - DOL
- A type of leverage ratio summarizing the effect a particular amount of operating leverage has on a company's earnings before interest and taxes (EBIT). Operating leverage involves using a large proportion of fixed costs to variable costs in the operations of the firm. The higher the degree of operating leverage, the more volatile the EBIT figure will be relative to a given change in sales, all other things remaining the same. The formula is as follows:
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Degree Of Relative Liquidity - DRL
- A liquidity metric that looks at a company's ability to support short-term expenditures. Degree of relative liquidity is determined by looking at the total percentage of cash that a company has available on hand. The cash must be earned through regular operations and be able to be spent on expenditures and short-term debt obligations through a specific period.
Companies that possess a higher degree of relative liquidity will probably have less difficulty in retrieving funds for payment purposes.
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Delaware Corporation
- A corporation that is legally registered in the state of Delaware, but may conduct business in any state. Delaware first began to adapt its laws in the late 19th century, making changes that would attract businesses away from neighboring New York State. Over time, Delaware became a respected state in which to incorporate, even if the majority of a company’s business was conducted outside the state.
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Delayed Disbursement
- A cash management technique that involves a company paying vendors and/or other creditors by checks drawn on banks located in remote areas. Commercial banks will typically delay the availability of funds to the depositor of such checks for up to five days as they await payment from the paying bank.
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Delayed Draw Term Loan
- A special feature in a term loan that stipulates that the borrower can withdraw predefined amounts of the total pre-approved amount of a term loan at contractual times. This special type of term loan is only offered to individuals and firms that meet and maintain certain contractual requirements and have outstanding credit ratings.
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Deleted
- A security that is no longer included on a specified market. Sometimes referred to as "delisted".
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Deleverage
- A company's attempt to decrease its financial leverage. The best way for a company to delever is to immediately pay off any existing debt on its balance sheet. If it is unable to do this, the company will be in significant risk of defaulting.
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Deleveraged Floater
- A fixed-income investment with a floating rate tied to a specific index with less than a one for one payback ratio.
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Delinquency Rate
- The percentage of loans within a loan portfolio that have delinquent payments. The delinquency rate is simply the number of loans that have delinquent payments divided by the total number of loans an institution holds. Typically, delinquency rates on loans are affected by the credit quality of the borrower and macroeconomic factors such as unemployment.
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Delinquent
- A term describing the failure to meet required obligations according to schedule.
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Delinquent Mortgage
- A mortgage for which the borrower has failed to make payments as required in the loan documents. If the borrower can't bring the payments current within a certain time period, the lender may initialize foreclosure proceedings.
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Delisting
- The removal of a listed security from the exchange on which it trades. Stock is removed from an exchange because the company for which the stock is issued, whether voluntarily or involuntarily, is not in compliance with the listing requirements of the exchange.
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Deliverables
- A project management term for the quantifiable goods or services that will be provided upon the completion of a project. Deliverables can be tangible or intangible parts of the development process, and are often specified functions or characteristics of the project.
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Delivered At Frontier - DAF
- In international trade, a contract specification requiring the seller to deliver goods to a named destination, usually a border location, by a predetermined time. Up to the border, the seller is responsible for all risks and expenses associated with the delivery.
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Delivered Duty Paid - DDP
- A transaction in which the seller must pay for all of the costs related to transporting the goods and is responsible in full for the goods until they have been received and transfered to the buyer. This includes paying for the shipping, the duties and any other expenses incurred while shipping the goods.
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Delivered Duty Unpaid - DDU
- A transaction in international trade where the seller is responsible for making a safe delivery of goods to a named destination, paying all transportation expenses but not the duty. The seller bears the risks and costs associated with supplying the good to the delivery location, where the buyer becomes responsible for paying the duty and other customers clearing expenses.
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Delivered Ex Quay - DEQ
- In international trade, a contract specification where the seller must deliver the goods to the wharf at the destination port. Delivered ex quay may be noted as having duty paid or unpaid. If it is marked as paid, the seller is responsible for any costs, such as duty, and risks associated with the delivery. The buyer must pay the costs and duty when the DEQ is marked as "duty unpaid."
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Delivered Ex Ship - DES
- A trade term requiring the seller to deliver goods to a buyer at an agreed port of arrival. The seller remains responsible for the goods until they are delivered.
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Delivery
- The action by which an underlying commodity, security, cash value, or delivery instrument covering a contract is tendered and received by the contract holder.
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Delivery Date
- 1. The final date by which the underlying commodity for a futures contract must be delivered in order for the terms of the contract to be fulfilled.
2. The maturity date of a currency forward contract.
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Delivery Instrument
- A document that, during the delivery of the futures contract, stands in lieu of the physical asset underlying the contract.
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Delivery Month
- The month in which a contract expires and delivery of the underlying asset or cash is required.
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Delivery Notice
- A notice written by the holder of the short position in a futures contract informing the clearing house of the intent and details of delivering a commodity for settlement.
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Delivery Option
- A feature added to some futures contracts permitting the short position to determine the combination of timing, location, quantity, and quality of the underlying commodity stated in the delivery notice.
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Delivery Price
- The price for the delivery of underlying commodities occurring upon the expiration of a futures contract.
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Delivery Versus Payment - DVP
- A securities industry procedure in which the buyer's payment for securities is due at the time of delivery. Security delivery and payment are simultaneous.
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Delta
- The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative. Sometimes referred to as the "hedge ratio".
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Delta Hedging
- An options strategy that aims to reduce (hedge) the risk associated with price movements in the underlying asset by offsetting long and short positions. For example, a long call position may be delta hedged by shorting the underlying stock. This strategy is based on the change in premium (price of option) caused by a change in the price of the underlying security. The change in premium for each basis-point change in price of the underlying is the delta and the relationship between the two movements is the hedge ratio.
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Delta Neutral
- A portfolio consisting of positions with offsetting positive and negative deltas. The deltas balance out to bring the net change of the position to zero.
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Demand
- An economic principle that describes a consumer’s desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa.
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Demand Deposit
- An account from which deposited funds can be withdrawn at any time without any notice to the depository institution.
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Demand Draft
- A method used by individuals to make transfer payments from one bank account to another. Demand drafts are marketed as a relatively secure method for cashing checks. The major difference between demand drafts and normal checks is that demand drafts do not require a signature in order to be cashed.
Also known as "remotely created checks".
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Demand For Labor
- A concept that describes the amount of demand for labor that an economy or firm is willing to employ at a given point in time. This demand may not necessarily be in long-run equilibrium, and is determined by the real wage, firms are willing to pay for this labor, and the amount of labor workers are willing to supply at that wage.
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Demand Guarantee
- A type of protection that one party in a transaction can impose on another party in the event that the second party does not perform according to predefined specifications. In the event that the second party does not perform as promised, the first party will receive a predefined amount of compensation by the guarantor, which the second party will be required to repay.
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Demand Note
- A loan with no fixed term or set duration of repayment. It can be recalled upon the lenders request, assuming the notice required by the provisions of the loan are met.
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Demand Shock
- A sudden surprise event that temporarily increases or decreases demand for goods or services. A positive demand shock increases demand, while a negative demand shock decreases demand. Both positive and negative demand shock have an effect on the prices of goods and services.
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Demand Theory
- A theory relating to the relationship between consumer demand for goods and services and their prices. Demand theory forms the basis for the demand curve, which relates consumer desire to the amount of goods available. As more of a good or service is available, demand drops and therefore so does the equilibrium price.
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Demand-Pull Inflation
- A term used in Keynesian economics to describe the scenario that occurs when price levels rise because of an imbalance in the aggregate supply and demand. When the aggregate demand in an economy strongly outweighs the aggregate supply, prices increase. Economists will often say that demand-pull inflation is a result of too many dollars chasing too few goods.
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Demarker Indicator
- An indicator used in technical analysis that compares the most recent price action to the previous period's price in an attempt to measure the demand of the underlying asset. This indicator is generally used to identify price exhaustion and can also be used to identify market tops and bottoms. This oscillator is bounded between -100 and +100 and, unlike many other oscillators, it does not use smoothed data.
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Dematerialization - DEMAT
- The move from physical certificates to electronic book keeping. Actual stock certificates are slowly being removed and retired from circulation in exchange for electronic recording.
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Demographics
- Studies of a population based on factors such as age, race, sex, economic status, level of education, income level and employment, among others. Demographics are used by governments, corporations and non-government organizations to learn more about a population's characteristics for many purposes, including policy development and economic market research.
Demographic trends are also important, as the size of different demographic groups will change over time as a result of economic, cultural and political circumstances.
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Demutualization
- When a mutual company owned by its users/members converts into a company owned by shareholders. In effect, the users/members exchange their rights of use for shares in the demutualized company.
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Denomination
- The stated value found on financial instruments.
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Department of Commerce
- The cabinet department in the U.S. Government that deals with business, trade and commerce. Its objective is to foment higher standards of living for Americans through the creation of jobs. It aims to achieve this by promoting an infrastructure of monetary and economic growth, competitive technology and favorable international trade.
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Department Of Labor - DOL
- A U.S government cabinet body responsible for standards in occupational safety, wages and number of hours worked, unemployment insurance benefits, re-employment services and a portion of the country's economic statistics.
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Dependency Ratio
- A measure showing the number of dependents (aged 0-14 and over the age of 65) to the total population (aged 15-64). Also referred to as the "total dependency ratio".
Calculated by:
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Dependent
- A person who relies on someone else for financial support. The taxpayer supporting the dependent is allowed to claim dependency exemptions.
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Dependent Care Benefits
- Benefits provided by an employer to an employee for use in caring for dependents such as newborns or disabled persons. Dependent care benefits are part of the overall employee benefits plan and can be found in box 10 of the employee's W-2 form.
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Depletion
- An accounting term describing the amortization of assets that can be physically reduced.
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Deposit
- 1. A transaction involving a transfer of funds to another party for safekeeping.
2. A portion of funds that is used as security or collateral for the delivery of a good.
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Deposit Broker
- An individual or firm that facilitates the placement of investors' deposits with insured depository institutions. Deposit brokers offer investors an assortment of fixed-term investment products, which earn low-risk returns.
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Deposit Insurance Fund - DIF
- A fund that is devoted to insuring the deposits of individuals by the Federal Deposit Insurance Corporation (FDIC). The Deposit Insurance Fund (DIF) is set aside to pay back the money lost due to the failure of a financial institution. The DIF is funded by insurance payments made by the banks.
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Deposit Interest Rate
- The interest rate paid by financial institutions to deposit account holders. Deposit accounts include certificates of deposit, savings accounts and self-directed deposit retirement accounts.
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Deposit Multiplier
- A function that describes the amount of money created in a bank's money supply. This money is created by lending money that is in excess of its required reserve to borrowers.
Calculated as:
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Deposit Slip
- A small written form that is sometimes used to deposit funds into your account. A deposit slip indicates the date, the name of the depositor, the depositor's account number and the amounts of checks, cash, and coin being deposited. The bank clerk typically verifies the funds received against the amounts listed on the deposit slip. The deposit slip is processed to indicate it was received and hands any requested cash to the customer.
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Deposit/Withdrawal at Custodian - DWAC
- The automated system for deposits and withdrawals of securities from the Depository Trust Company (DTC).
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Depositary Receipt
- A negotiable financial instrument issued by a bank to represent a foreign company's publicly traded securities. The depositary receipt trades on a local stock exchange.
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Depository Institutions Act of 1982
- A law passed by Congress with the intent of making savings and loan institutions more competitive. The best known of its many provisions was a section that enabled these so-called thrifts to offer money market deposit accounts with no interest rate ceiling, allowing them to compete more effectively with money market mutual funds for capital.
The Act also raised the ceiling on their direct investments in nonresidential real estate from 20-40% of assets, and their consumer lending from 20-30% of assets. The Act is more formally known as the Garn-St. Germain Depository Institutions Act after its sponsors, Congressman Fernand St. Germain and Senator Jake Garn.
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Depository Institutions Deregulation Committee ? DIDC
- A six-member committee established by the Depository Institutions Deregulation and Monetary Control Act of 1980, which had the primary purpose of phasing out interest rate ceilings on deposit accounts by 1986.
The six members of the Committee were the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve System, the Chairman of the FDIC, the Chairman of the Federal Home Loan Bank Board (FHLBB), and the Chairman of the National Credit Union Administration Board (NCUAB) as voting members, and the Comptroller of the Currency as a non-voting member.
Besides the phase out of interest rate ceilings, the Committee's other tasks included devising new financial products that would allow thrifts to compete with with money funds and to eliminate ceilings on time deposits. But its overall purpose was to deregulate bank interest rates.
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Depository Transfer Check - DTC
- A check used by a designated collection bank for depositing the daily receipts of a corporation from multiple locations. Depository transfer checks are one method of ensuring better cash management for companies that collect cash at multiple locations.
A third-party information service first transfers data on the day's receipts from the facility manager at each location to a concentration bank. Based on that data, the concentration bank then creates DTCs for each deposit location and enters them into the check-processing system.
A DTC is also known as a "depository transfer draft."
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Depository Trust & Clearing Corporation - DTCC
- Established in 1999, the DTCC is a holding company consisting of 5 clearing corporations and 1 depository, making it the world's largest financial services corporation dealing in post trade transactions.
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Depository Trust Company - DTC
- One of the world's largest securities depositories, it holds in excess of US$10 trillion worth of securities in custody. The DTC acts like a clearinghouse to settle trades in corporate and municipal securities.
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Depository Trust Company Tracking - DTCT
- A service, used by underwriting firms, that provides a method of tracking the exact path of purchases and sales of newly issued securities.
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Depreciated Cost
- 1. The value of an asset net of all accumulated depreciation that has been recorded against it. It follows the formula of:
Depreciated Cost = Purchase Price (or cost basis) – {Cumulative Depreciation}
Depreciated cost is also known as the "net book value" or "adjusted cost basis".
2. In a broader economic sense, the depreciated cost for industry is the aggregate amount of capital that is "used up" in a given period, such as a fiscal year. This value can be examined for trends in capital spending and accounting aggressiveness.
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Depreciation
- 1. In accounting, an expense recorded to allocate a tangible asset's cost over its useful life. Because depreciation is a non-cash expense, it increases free cash flow while decreasing reported earnings.
2. A decrease in the value of a particular currency relative to other currencies.
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Depreciation Recapture
- The gain received from the sale of depreciable capital property that must be reported as income. Depreciation recapture is assessed when the tax basis of an asset exceeds the sale price. The difference between these figures is thus "recaptured" by being reported as income.
Depreciation recapture is reported on Form 4797.
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Depressed
- A description of a market, security, or product that is experiencing weak demand and lowering prices.
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Depression
- A severe and prolonged recession characterized by inefficient economic productivity, high unemployment and falling price levels.
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Deprivatization
- The act of transferring ownership from the private sector to the public sector. Deprivatization often occurs when a government attempts to maintain the stability of its critical infrastructure during periods of economic distress. This can occur in various segments of the economy.
Also known as "nationalization".
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Depth
- The ability of a security to absorb buy and sell orders without the stock price dramatically moving in either direction.
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Deregulation
- The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry.
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Derivative
- A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
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Derivative Product Company - DPC
- A special-purpose entity created to be a counter-party to financial derivate transactions. A derivative product company will often originate the derivative product to be sold; as well, they may guarantee an existing derivative product or be an intermediary between two other parties in a derivatives transaction.
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Derivatives Time Bomb
- A possibile situation where the financial markets plunge into chaos if the massive derivatives positions owned by hedge funds and the large banks were to move against those parties.
Institutional investors have increasingly used derivatives to either hedge their existing positions, or to speculate on given markets or commodities. The growing popularity of these instruments is both good and bad because although derivatives can be used to mitigate portfolio risk. Institutions that are highly leveraged can suffer huge losses if their positions move against them.
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Derivatives Transaction Execution Facility - DTEF
- A market that supports the transaction of derivatives on which the underlying commodities are limited to excluded commodities or assets with an inexhaustible, deliverable supply. A derivatives transaction execution facility allows for the transaction of commodities with no cash market; however, all products listed on the exchange must not be susceptible to manipulation. DTEFs must be registered with the Commodity Futures Trading Commission, which grants them fewer regulatory requirements than other contract markets.
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Derived Demand
- A term used in economic analysis that describes the demand placed on one good or service as a result of changes in the price for some other related good or service. It is a demand for some physical or intangible thing where a market exists for both related goods and services in question. The derived demand can have a significant impact on the derived good's market price.
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Derogatory Information
- Information on a person's credit report that can be legally used to turn down a loan application; it includes late payments, charge-offs and bankruptcies. As a general rule, derogatory information remains on a person's credit report for seven years; but there are exceptions, including bankruptcies, which can remain for 10 years.
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Descending Channel
- A descending channel or downtrend is the price action contained between two downward sloping parallel lines. Lower pivot highs and lower pivot lows are a bearish signal. In a downtrend, a trade might be entered at the trendline and exited at the channel line. A lower low below a descending channel can signal continuation. A higher high above the low of an ascending channel can signal trend change.
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Descending Tops
- A pattern in charts where each peak in price is lower then the previous peak in price. The pattern signals a bearish trend in the security.
The above is an example of descending tops.
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Descending Triangle
- A bearish chart pattern used in technical analysis that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support. Traders watch for a move below support, as it suggests that downward momentum is building. Once the breakdown occurs, traders enter into short positions and aggressively push the price of the asset lower. The chart below is an example of a descending triangle:
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Descriptive Billing
- A type of credit card billing that includes the date, merchant's name, contact, telephone number etc. of each transaction. Descriptive billing replaced country club billing, which existed in the 1970s, where the actual credit card slips were physically included in the bill. Country club billing is obviously more expensive for the credit card companies, and descriptive billing has become the norm.
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Descriptive Statement
- A bank statement that lists deposits, withdrawals, fees, etc. in chronological order. The term "descriptive statement" sometimes refers specifically to information on a statement for which no physical item (such as a check) is enclosed.
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Descriptive Statistics
- A set of brief descriptive coefficients that summarizes a given data set, which can either be a representation of the entire population or a sample. The measures used to describe the data set are measures of central tendency and measures of variability or dispersion.
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Designated Beneficiary
- The person who determines how long the retirement plan will survive as a tax-deferred vehicle under the laws governing certain retirement plans. The designated beneficiary must be a person, or in certain situations, a trust for designated individuals.
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Designated Order Turnaround - DOT (SuperDOT)
- An electronic system that increases order efficiency by routing orders for listed securities directly to a specialist on the trading floor, instead of through a broker.
Also known as "SuperDOT."
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Desk Trader
- A trader who is restricted to instituting trades for a firm's clients and who is unable to trade with his/her firm's own accounts.
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Detachable Warrant
- A derivative that is attached to a security and gives the holder the right to purchase an underlying security at a specific price within a certain time frame. A detachable warrant is often combined with various forms of debt offerings and can be removed by the holder and sold in the secondary market separately.
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Detariffing
- The act of removing the pricing regulations of an industry, set forth by tariffs created by a regulatory body. Detariffing allows an industry to price its goods or services at market value, as regulation is discontinued to promote market equilibrium.
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Detrend
- In forecasting models, the process of removing the effects of accumulating data sets from a trend to show only the absolute changes in values and to allow potential cyclical patterns to be identified. This is done using regression and other statistical techniques.
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Devaluation
- A deliberate downward adjustment to a country's official exchange rate relative to other currencies. In a fixed exchange rate regime, only a decision by a country's government (i.e central bank) can alter the official value of the currency. Contrast to "revaluation".
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Development Stage
- A company that is focusing a majority of its attention on research & development.
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Devolvement
- When the undersubscription of a security issue forces the underwriting investment bank to purchase unsold securities during an offering. Devolvement is often an indication that the market currently has negative sentiments toward the issue. This negative sentiment can have a significant impact on subsequent demand.
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Dhaka Stock Exchange - DSE
- The stock exchange headquartered in Dhaka, Bangladesh.
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Diagonal Spread
- An options strategy established by simultaneously entering into a long and short position in two options of the same type (two call options or two put options) but with different strike prices and expiration dates.
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Dialing and Smiling
- A slang term for the practice of cold calling.
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Diamond Top Formation
- A technical analysis reversal pattern that is used to signal the end of an uptrend. This relatively uncommon pattern is found by identifying a period in which the price trend of an asset starts to widen and then starts to narrow. This pattern is called a diamond because of the shape it creates on a chart.
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Diamonds
- 1. An extremely hard gemstone used mainly for jewelry, tools and as an investment in precious stones.
2. The informal term for an index-based unit investment trust, known formally as Diamonds Trust Series 1.
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Differential
- The amount of adjustment of the delivery location and grade of deliverables that a futures contract permits. Also known as "allowance. "
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Diffusion Index
- 1. A measure of the percentage of stocks that have advanced in price or are showing a positive momentum over a defined period. It is used in the technical analysis of stocks.
2. A measure of the breadth of a move in any of the Conference Boards Business Cycle Indicators (BCI), showing how many of an indicators components are moving together with the overall indicator index.
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Digital Option
- An option whose payout is fixed after the underlying stock exceeds the predetermined threshold or strike price.
Also referred to as "binary" or "all-or-nothing option."
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Digits Deleted
- A designation on an exchange's ticker tape that refers to the absence of one or more price digits caused by tape delay. Digits deleted comes into effect when the tape announcements start falling too far behind trading activity. Only the last digit and fraction are reported until the tape catches up.
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Diluted Earnings Per Share - Diluted EPS
- A performance metric used to gauge the quality of a company's earnings per share (EPS) if all convertible securities were exercised. Convertible securities refers to all outstanding convertible preferred shares, convertible debentures, stock options (primarily employee based) and warrants. Unless the company has no additional potential shares outstanding (a relatively rare circumstance) the diluted EPS will always be lower than the simple EPS.
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Diluted Founders
- A slang term often used by venture capitalists to describe the process by which the founders of a startup gradually lose ownership of the company they founded. As a startup that is using venture capital for funding progresses through multiple rounds of financing, the venture capitalists providing the financing will often want more and more ownership of the company.
In other words, the founders dilute their ownership in the company in exchange for capital to grow their business.
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Dilution
- A reduction in earnings per share of common stock that occurs through the issuance of additional shares or the conversion of convertible securities.
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Dilutive Acquisition
- An acquisition that will decrease the acquiring company's EPS.
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Direct Access Trading - DAT
- A system that allows a client to trade directly with another client, a market maker on Nasdaq, or a specialist on the floor of an exchange without broker interference.
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Direct Cost
- A cost that can be directly traced to producing specific goods or services.
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Direct Deposit
- Electronic funds that are deposited directly into your bank account rather than through a paper check. Common uses of a direct deposit include income tax refunds and pay checks.
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Direct Market Access - DMA
- This refers to electronic facilities, often supplied by independent firms, that allow buy side firms to access liquidity for securities they may wish to buy or sell. Buy side firms are customers of sell side firms - brokerages and banks which may act as market makers in a security. Buy side firms will still use the trading infrastructure of sell side firms, but have more control over how the trade is executed.
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Direct Method
- A method of creating a statement of cash flows during a given reporting period. The method uses actual cash flow information from the company's operations segment, instead of using accrual accounting values.
Under both the direct and indirect method, the presentation of the cash flow from investing and financing activities will be identical.
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Direct Participation Program - DPP
- A business venture designed to let investors participate directly in the cash flow and tax benefits of the underlying investment. DPPs are generally passive investments that invest in real estate or energy-related ventures.
Also known as a "direct participation plan".
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Direct Public Offering - DPO
- When a company raises capital by marketing its shares directly to its own customers, employees, suppliers, distributors and friends in the community. DPOs are an alternative to underwritten public offerings by securities broker-dealer firms where a company's shares are sold to the broker's customers and prospects.
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Direct Quote
- A foreign exchange rate quoted as the domestic currency per unit of the foreign currency. In other words, it involves quoting in fixed units of foreign currency against variable amounts of the domestic currency.
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Direct Repurchase
- A company's plan to buy back its own shares from the marketplace, thereby reducing the number of outstanding shares.
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Direct Rollover
- A distribution of eligible rollover assets from a qualified plan, 403(b) plan, or a governmental 457 plan to a Traditional IRA, qualified plan, 403(b) plan, or a governmental 457 plan; or a distribution from an IRA to a qualified plan, 403(b) plan or a governmental 457 plan.
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Direct Stock Purchase Plan - DSPP
- An investment service that allows individuals to purchase a stock directly from a company or through a transfer agent. Not all companies offer DSPPs and the plans often have restrictions on when an individual can purchase shares.
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Direct Tax
- A tax that cannot be shifted onto others.
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Direct-Access Broker
- A stockbroker that concentrates on speed and order execution - unlike a full-service broker that focuses on research and advice. Direct-access brokers usually use complicated computer software that allows clients to trade directly with an exchange or with other individuals via electronic communication networks (ECN).
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Directed Order
- A customer order where the customer gives specific instructions to the broker concerning the orders routing destination.
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Directional Movement Index - DMI
- An indicator developed by J. Welles Wilder for identifying when a definable trend is present in an instrument. That is, the DMI tells whether an instrument is trending or not.
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Directional Trading
- A general term referring to the strategy used by investors that open positions, either long or short, on the belief that they are able to correctly predict the movement of price in a security.
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Dirty Float
- A system of floating exchange rates in which the government or the country's central bank occasionally intervenes to change the direction of the value of the country's currency. In most instances, the intervention aspect of a dirty float system is meant to act as a buffer against an external economic shock before its effects become truly disruptive to the domestic economy.
Also known as a "managed float".
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Dirty Price
- A bond pricing quote referring to the price of a coupon bond that includes the present value of all future cash flows, including interest accruing on the next coupon payment. The dirty price is how the bond is quoted in most European markets, and is the price an investor will pay to acquire the bond.
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Dirty Stock
- Stock that is not granted a good delivery status due to missing or incorrect transfer documentation or endorsements. Dirty stock will usually disrupt the transaction process.
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Disability-Income (DI) Insurance
- An insurance product that provides supplementary income in the event of an illness or accident resulting in a disability that prevents the insured from working at their regular employment. Benefits are usually provided on a monthly basis so that the individual can maintain their standard of living and continue to pay their regular expenses.
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Disaster Loss
- A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President. Disaster losses can arise from such phenomena as floods, forest fires and earthquakes.
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Discharge In Bankruptcy
- When a bankrupt person or company is legally free and clear of any obligation to repay certain debts.
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Disclaim
- To renounce an interest or obligation by way of a legal instrument - usually a written disclaimer, or a disclaiming trust. Property may be disclaimed for several reasons: because it is unwanted, because it carries heavy liabilities, because of tax reasons, or because the intended beneficiary wants to pass the property to another beneficiary. Liabilities, obligations, beneficial ownership, or rights may also be disclaimed.
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Disclaimer Trust
- A trust that has embedded provisions (usually contained in a will) which allow a surviving spouse to put specific assets under the trust by disclaiming ownership of a portion of the estate. Disclaimed property interests are transferred to the trust, without being taxed.
Provisions can be written into the trust that provide for regular payouts from the trust to support survivors. Surviving minor children can also be provided for, as long as the surviving spouse elects to disclaim inherited assets, passing them on to the trust.
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Disclosable Event
- A corporate event that is disclosed to shareholders. Securites law states that all material information be disclosed. When this occurs it is said to be a disclosable event. Non-disclosable events - in which material information is withheld from shareholders - go against securities law as enforced by the Securities and Exchange Commission (SEC).
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Disclosure
- The act of releasing all relevant information pertaining to a company that may influence an investment decision. In order to be listed on major U.S. stock exchanges, companies must follow all of the Securities and Exchange Commission's disclosure requirements and regulations.
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Disclosure Statement
- 1. A document explaining the rules of an IRA in plain, nontechnical language. This must be provided to the IRA owner at least seven days before the IRA is established, or it can be provided to the IRA owner at the time the IRA is being established providing the IRA owner is given seven days within which he/she may revoke the IRA.
2. A document outlining the specific terms and conditions of a loan, including the interest rate of the loan, any loan fees, the amount borrowed, insurance, prepayment rights and the responsibilities of the borrower.
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Discount
- The condition of the price of a bond that is lower than par. The discount equals the difference between the price paid for a security and the security's par value.
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Discount Bond
- A bond that is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the secondary market.
The "discount" in a discount bond doesn't necessarily mean that investors get a better yield than the market is offering, just a price below par. Depending on the length of time until maturity, zero-coupon bonds can be issued at very large discounts to par, sometimes 50% or more.
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Discount Broker
- A stockbroker who carries out buy and sell orders at a reduced commission compared to a full-service broker, but provides no investment advice.
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Discount Margin - DM
- The return earned in addition to the index underlying the floating rate security.
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Discount Note
- A short-term debt obligation issued at a discount to par. Discount notes are similar to zero-coupon bonds and Treasury bills and are typically issued by government-sponsored agencies or highly rated corporate borrowers. Discount notes do not make interest payments; instead the bond is matured at a par value above the purchase price, and the price appreciation is used to calculate the investment's yield.
Discount notes will have maturity dates of up to one year in length.
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Discount Points
- A type of prepaid interest mortgage borrowers can purchase that lowers the amount of interest they will have to pay on subsequent payments. Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of your interest rate. Discount points are tax deductible only for the year in which they were paid.
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Discount Rate
- 1. The interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal Reserve Bank.
2. The interest rate used in determining the present value of future cash flows.
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Discount To Net Asset Value
- A pricing situation that occurs with a closed-end mutual fund when its market price is currently lower than the net asset value of its components. Discounts can occur in times where the market has a pessimistic future outlook and fund investors have started to sell their holdings.
Also known as "discount to NAV".
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Discount Window
- Credit facilities in which financial institutions go to borrow funds from the Federal Reserve. These loans, which are priced at the discount rate, are often structured as secured loans to alleviate pressure in reserve markets. It helps to reduce liquidity problems for banks and assists in assuring the basic stability of financial markets.
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Discounted Cash Flow - DCF
- A valuation method used to estimate the attractiveness of an investment opportunity. Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.
Calculated as:
Also known as the Discounted Cash Flows Model.
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Discounting
- The process of determining the present value of a payment or a stream of payments that is to be received in the future. Given the time value of money, a dollar is worth more today than it would be worth tomorrow given its capacity to earn interest. Discounting is the method used to figure out how much these future payments are worth today.
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Discounts For Lack Of Marketability - DLOM
- A method used to help calculate the value of closely held and restricted shares. The theory behind DLOM is that a discount exists between the value of a company's stock that is and is not marketable. Various methods have been used to quantify the discount that can be applied including the restricted stock method, IPO method and the option pricing method.
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Discouraged Worker
- An economic term for a person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment in the last four weeks. Discouraged workers have usually given up on searching for a job because they found no suitable employment options and/or were met with lack of success when applying.
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Discretionary Account
- An account that allows a broker to buy and sell securities without the client's consent. The client must sign a discretionary disclosure with the broker as documentation of the clients consent.
This is sometimes referred to as a "managed account".
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Discretionary ARM
- An adjustable-rate mortgage on which the lender has the right to change the interest rate at any time, by any amount, subject only to the borrower being given a certain period advanced notice. This differs from a more structured adjustable-rate mortgage on which the interest rate consists of an index value plus a margin, adjusts only on predetermined dates and is limited by an interest rate cap structure.
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Discretionary Beneficiary
- Discretionary beneficiaries are those named in a trust or similar document to whom distributions may be made. While discretionary beneficiaries may apply for distributions, it is up to the trustees to determine whether the payment will be made. In the United States, a discretionary beneficiary has no legal proprietary interest in the trust.
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Discretionary Cash Flow
- Discretionary cash flow is any money left over once all possible capital projects with positive net present values have been financed, and all mandatory payments have been paid. The capital can be used to pay for other responsibilities such as giving out cash dividends to stockholders, buying back common stock and paying off any outstanding debt.
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Discretionary Income
- The amount of an individual's income that is left for spending, investing or saving after taxes and personal necessities (such as food, shelter, and clothing) have been paid. Discretionary income includes money spent on luxury items, vacations and non-essential goods and services.
Discretionary income is derived from disposable income, which equals gross income minus taxes.
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Discretionary Order
- An order giving a broker the ability to decide when to buy/sell securities at the best possible price for the customer. Some discretionary orders place restrictive terms to limit the amount of discretion the broker has.
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Diseconomies Of Scale
- An economic concept referring to a situation in which economies of scale no longer function for a firm. Rather than experiencing continued decreasing costs per increase in output, firms see an increase in marginal cost when output is increased.
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Disequilibrium
- A situation where internal and/or external forces prevent market equilibrium from being reached or cause the market to fall out of balance. This can be a short-term byproduct of a change in variable factors or a result of long-term structural imbalances.
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Disgorgement
- A repayment of ill-gotten gains that is imposed on wrong-doers by the courts. Funds that were received through illegal or unethical business transactions are disgorged, or paid back, with interest to those affected by the action. Disgorgement is a remedial civil action, rather than a punitive civil action.
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Dishonor
- The action of refusing to fulfill contractual obligations or pay a charge. Dishonoring a transaction can occur if a seller does not deliver the goods or when the buyer does not provide payment. In contracts, a party may dishonor the agreement by altering the specifications, delivering late payment or goods, or failing to act on their required duties.
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Disinflation
- A slowing in the rate of price inflation. Disinflation is used to describe instances when the inflation rate has reduced marginally over the short term. Although it is used to describe periods of slowing inflation, disinflation should not be confused with deflation.
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Disintermediation
- 1. In finance, withdrawal of funds from intermediary financial institutions, such as banks and savings and loan associations, in order to invest them directly.
2. Generally, removing the middleman or intermediary.
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Disinvestment
- 1. The action of an organization or government selling or liquidating an asset or subsidiary. Also known as "divestiture".
2. A reduction in capital expenditure, or the decision of a company not to replenish depleted capital goods.
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Dismal Science
- A slang term used to describe the discipline of economics. It was given this description by Thomas Carlyle, who was inspired to coin the phrase by T. R. Malthus's gloomy prediction that population would always grow faster than food, dooming mankind to unending poverty and hardship.
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Disparity Index
- A technical indicator that measures the relative position of the most recent closing price to a selected moving average and reports the value as a percentage. A value greater than zero suggests that the asset is gaining upward momentum, while a value less than zero can be interpreted as a sign that selling pressure is increasing.
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Dispersion
- A term used in statistics that refers to the location of a set of values relative to a mean or average level.
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Displaced Moving Average
- A moving average that has been adjusted forward or back in time in order to forecast trends. Displaced moving averages are constructed by taking the moving average and shifting it by a number of intervals, either positive or negative. If the number is negative, the displaced moving average will lag the original moving average, and if the number is positive the displaced moving average will lead the original moving average.
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Display Book
- A detailed tracking tool used on market exchanges that displays, records and executes market order data based on order type, price, time and quantity for a specific security. Specialists on an exchange will have their own display books for each security they trade.
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Disposable Income
- The amount of money that households have available for spending and saving after income taxes have been accounted for. Disposable personal income is often monitored as one of the many key economic indicators used to gauge the overall state of the economy.
Calculated as:
Also known as "disposable personal income" (DPI).
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Disposition
- Getting rid of an asset or security through a direct sale or some other method.
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Dissenters' Rights
- State legislation that allows shareholders of a corporation the right to receive a cash payment for the fair value of their share, in the event of a share-for-share merger or acquisition to which the shareholders do not consent. Dissenters' rights allow dissenting shareholders an easy way out of the company if they do not want to be a part of the merger.
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Distinct Business Entity
- A sub-division within a company that is completely autonomous from the rest of the company. The distinct business entity will have complete control over how it utilizes its assets, organizes its management and the most appropriate financing structure if required.
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Distressed Borrower
- A borrower who is unable to fully repay his or her debt due to financial difficulties - difficulties either created by personal circumstance or the terms of the loan which he or she did not fully understand or was not able to meet when originally agreeing to the loan. The term "distressed borrower" is most commonly used to refer to homeowners at risk of foreclosure.
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Distressed Sale
- An urgent sale of assets because of negative conditions.
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Distressed Securities
- A financial instrument in a company that is near or is currently going through bankruptcy. This usually results from a company's inability to meet its financial obligations. As a result, these financial instruments have suffered a substantial reduction in value. Distressed securities can include common and preferred shares, bank debt, trade claims (goods owed) and corporate bonds.
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Distributable Net Income - DNI
- In the case of an income trust, an amount that is transferable to unitholders. In the case of an estate trust, the amount to be distributed to a beneficiary. Distributable net income is the maximum amount received by a unitholder or a beneficiary that is taxable; any amount above this figure will be tax free.
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Distribution
- 1. When trading volume is higher than that of the previous day without any price appreciation.
2. The removal of assets from a retirement account. The assets are then paid to the retirement account owner or beneficiary.
3. A company's payment of cash, stock or physical products to its shareholders.
4. Distributions of income and capital gains that mutual funds make to their investors periodically during a calendar year.
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Distribution In Kind
- A distribution made in the form of stock rather than cash.
Also referred to as a "distribution in specie".
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Distribution Reinvestment
- A process whereby the distribution from a limited partnership, real estate investment trust (REIT) or other pooled investment is automatically reinvested into common units or shares in a fund, often at a discount to the current market price. Investors can set up distribution reinvestment plans with the partnership itself, or with a broker through which the units are held.
Also known as a DRIP, but not to be confused with dividend reinvestment plans (also called DRIPs), which are found in many large-cap stocks and mutual funds. Most distributions are done quarterly, but some may occur on a monthly basis.
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Divergence
- When the price of an asset and an indicator, index or other related asset move in opposite directions. In technical analysis, traders make transaction decisions by identifying situations of divergence, where the price of a stock and a set of relevant indicators, such as the money flow index (MFI), are moving in opposite directions.
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Diversification
- A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.
Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. Therefore, the benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated.
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Diversified Common Stock Fund
- A mutual fund that invests its assets in a relatively large number and variety of common stocks. The investment manager for this type of fund is not restricted in terms of company size or investment style.
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Diversified Company
- A company that has multiple, unrelated businesses. Unrelated businesses are those which (1) require unique management expertise, (2) have different end customers and (3) produce different products or provide different services. One of the benefits of being a diversified company is that it buffers a company from dramatic fluctuations in any one industry sector. However, this model is also less likely to enable stockholders to realize significant gains or losses because it is not singularly focused on one business.
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Diversified Fund
- An investment fund that contains a wide array of securities to reduce the amount of risk in the fund. Actively maintaining diversification prevents events that affect one sector from affecting an entire portfolio, make large losses less likely.
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Diversity Score
- A measure, created by Moody's Investors Service, to estimate the diversification in a portfolio, specifically in the context of a collateralized debt obligation (CDO). The calculation methodology for a diversification score takes into account the extent to which a portfolio is diversified by industry.
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Divestiture
- The partial or full disposal of an investment or asset through sale, exchange, closure or bankruptcy. Divestiture can be done slowly and systematically over a long period of time, or in large lots over a short time period.
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Divestment
- The process of selling an asset. Also known as divestiture, it is made for either financial or social goals. Divestment is the opposite of investment.
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Dividend
- 1. A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.
Also referred to as "Dividend Per Share (DPS)."
2. Mandatory distributions of income and realized capital gains made to mutual fund investors.
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Dividend Adjusted Return
- When a stock's return is calculated using not only the stock's capital appreciation, but also all dividends paid to shareholders. This adjustment provides investors with a more accurate evaluation of the return received over a specified holding period.
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Dividend Arbitrage
- An options trading strategy that involves purchasing put options and an equivalent amount of underlying stock before the ex-dividend date and then exercising the put after collecting the dividend. When used on a security with low volatility (causing lower options premiums) and a high dividend, dividend arbitrage can create profits while assuming very low to no risk.
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Dividend Clawback
- An arrangement under which those financing a project agree to contribute, as equity, any prior dividends received from the project to cover any cash shortages.
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Dividend Discount Model - DDM
- A procedure for valuing the price of a stock by using predicted dividends and discounting them back to present value. The idea is that if the value obtained from the DDM is higher than what the shares are currently trading at, then the stock is undervalued.
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Dividend Drag
- A disadvantage of the dividend structure of unit trust exchange-traded funds (ETFs) that results from SEC rules that stipulate that passively managed ETFs cannot reinvest dividends back into the portfolio. ETFs must instead accumulate the dividends in cash and pay them to holders at periodic intervals. During periods of rising markets, the dividends would be better served being reinvested in securities rather than held in cash. This leads the ETF to lag a portfolio that would be able to reinvest.
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Dividend Enhanced Convertible Stock - DECS
- Preferred stock that provides the holder with premium dividends in addition to an embedded short put option and a long call on the issuing company's stock.
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Dividend ETF
- Any exchange-traded fund that seeks to provide high dividend yields by investing in a basket of high-dividend paying common stocks, preferred stocks or REITs. There are dividend ETFs that contain only U.S. domestic stocks and global dividend ETFs, which have an international focus. The indexes used to create dividend ETFs vary by fund manager or custodian, but most contain stocks with a high level of liquidity and above-market dividend yields.
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Dividend Frequency
- How often a dividend is paid by an individual stock or fund. The most common dividend frequencies are annually, biannually and quarterly.
There are no uniform calendar dates for when dividends are paid; it depends on the individual company's fiscal calendar. Special or one-time dividends are not measured in terms of their frequency because they only appear sporadically.
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Dividend Growth Rate
- The annualized percentage rate of growth that a particular stock's dividend undergoes over a period of time. The time period included in the analysis can be of any interval desired, and is calculated by using the least squares method, or by simply taking a simple annualized figure over the time period.
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Dividend Imputation
- An arrangement in Australia that eliminates the double taxation of dividends.
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Dividend Irrelevance Theory
- A theory that investors are not concerned with a company's dividend policy since they can sell a portion of their portfolio of equities if they want cash.
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Dividend Payout Ratio
- The percentage of earnings paid to shareholders in dividends.
Calculated as:
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Dividend Per Share - DPS
- The the sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued.
DPS can be calculated by using the following formula:
D - Sum of dividends over a period (usually 1 year)
SD - Special, one time dividends
S - Shares outstanding for the period
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Dividend Policy
- The policy a company uses to decide how much it will pay out to shareholders in dividends.
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Dividend Rate
- The total expected dividend payments from an investment, fund or portfolio expressed on an annualized basis plus any additional non-recurring dividends that may be received during that period.
Depending on the company's preferences and strategy, the dividend rate can be fixed or adjustible.
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Dividend Recapitalization
- When a company incurs a new debt in order to pay a special dividend to private investors or shareholders. This usually involves a company owned by a private investment firm, which can authorize a dividend recapitalization as an alternative to selling its equity stake in the company.
Also known as a "dividend recap".
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Dividend Reinvestment Plan - DRIP
- A plan offered by a corporation that allows investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment date.
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Dividend Rollover Plan
- An investment strategy in which a dividend-paying stock is purchased right before the ex-dividend date, which gives the purchaser the right to the divided, with the position being sold off shortly after the ex-dividend date. The sole intention of this practice is to reap the value of the dividends while breaking even on the shares. Ideally, this strategy is designed to maximize short-term return on shares while minimizing risk.
Also known as a "dividend capture strategy".
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Dividend Signaling
- A theory that suggests company announcements of an increase in dividend payouts act as an indicator of the firm possessing strong future prospects. The rationale behind dividend signaling models stems from game theory. A manager who has good investment opportunities is more likely to "signal" than one who doesn't because it is in his or her best interest to do so.
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Dividend Tax Credit
- The amount a Canadian resident applies against their tax owing on the grossed up portion of dividends received from Canadian corporations.
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Dividend Yield
- A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows:
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Dividends Received Deduction - DRD
- A tax deduction received by a corporation on the dividends paid to it by companies in which it has an ownership stake. The purpose of this deduction is to soften the consequences of triple taxation. Triple taxation occurs because the company paying the dividend does so with after-tax money and the receiving company is subject to income tax on the dividends. Therefore, if the company that receives the dividends decides to pay out its shareholders, the money will have been taxed three times.
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Diworsification
- The process of adding to one's portfolio in such a way that the risk/return tradeoff is worsened.
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DJF
- The ISO 4217 currency code for the Djiboutian franc, the official currency of the country of Djibouti. The Banque Centrale de Djibouti issues the DJF. It mints coins in 1, 2, 5, 10, 20, 50, 100 and 500 denominations. It prints banknotes in 1,000, 2,000, 5,000 and 10,000 denominations.
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DKK
- The currency code for the Danish krone ("crown"), the official currency for the country of Denmark as well as the provinces of Greenland and the Faroe Islands. The Danish krone (DKK) was made the formal currency of Denmark in 1873, replacing the former Danish rigsdaler, and was tied to the gold standard.
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Do It Right The First Time - DRIFT
- A theory from managerial accounting that relates to just-in-time (JIT) inventory (where a company only receives goods as they are needed to cut down on inventory costs) and production management. The idea behind DRIFT is that management wants all of the processes that make up the JIT philosophy to be done correctly and efficiently so there are no delays in the production process.
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Do Not Increase - DNI
- Instructions on a good-till-cancelled buy-limit or stop order that tell a broker not to increase the number of shares bought or sold in the event of a stock dividend or stock split.
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Do Not Reduce - DNR
- A trade type used on an buy or sell order. It tells the broker not to decrease the limit price on buy-limit and sell-stop orders on the record date of a cash dividend.
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Do-It-Yourself (DIY) Investing
- An investment strategy where individual investors choose to build and manage their own investment portfolios. Do-it-yourself (DIY) investors commonly build and manage their portfolios with the use of discount brokerages, as opposed to full-service brokerages or money managers. It is common to find a sharp rise in the level of DIY investing following market downturns or economic uncertainty.
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Doctrine Of Utmost Good Faith
- A minimum standard that requires both the buyer and seller in a transaction to act honestly toward each other and to not mislead or withhold critical information from one another. The doctrine of utmost good faith applies to many common financial transactions.
Also know in its Latin form as "uberrimae fidei".
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Dog
- One of the four categories (quadrants) of the BCG growth-share matrix that represents the division within a company that has a small market share in a mature industry.
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Dog And Pony Show
- A slang term referring to a financial seminar that presents new products or issues of securities to potential buyers.
Also known as a "road show".
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Dog Eat Dog
- When the market for a good or service is ruthlessly competitive.
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Dogs Of The Dow
- An investing strategy that consists of buying the 10 DJIA stocks with the highest dividend yield at the beginning of the year. The portfolio should be adjusted at the beginning of each year to include the 10 highest yielding stocks.
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Doing the Reverse Desk
- A slang phrase referring to a tactic a hedge fund would use to try to mislead other funds that attempt to mimic its trades.
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Doji
- A name for candlesticks that provide information on their own and also feature in a number of important patterns. Dojis form when a security's open and close are virtually equal.
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Dollar Bond
- 1. A U.S. denominated bond that trades outside of the United States. Along with the principal, any coupon payments from the bond are paid in U.S. funds.
2. A bond with a price that is quoted in dollars, rather than based on its yield to maturity.
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Dollar Bond Index-Linked Securities - Dollar BILS
- A zero-coupon floating rate debt instrument with an interest rate that is determined by the return performance of a specified index over a given time period. The interest rate for dollar BILS is determined at maturity, once the change in the value of the specified index is known.
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Dollar Drain
- When a country imports more goods and services from another country than it exports back to the same country. The net effect of spending more money importing than is received from exporting causes a net reduction in the importing country's reserves of the exporting country's currency.
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Dollar Price
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Dollar Roll
- A type of repurchase transaction in the mortgage pass-through securities market in which the buy side trade counterparty of a "to be announced" (TBA) trade agrees to a sell off the same TBA trade in the current month and to a buy back the same trade in a future month at a lower price.
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Dollar-Cost Averaging - DCA
- The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.
Also referred to as a "constant dollar plan".
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Dollarization
- A situation where the citizens of a country officially or unofficially use a foreign country's currency as legal tender for conducting transactions. The main reason for dollarization is because of greater stability in the value of the foreign currency over domestic currency. The downside of dollarization is that the country gives up its right to influence its own monetary policy by adjusting the money supply.
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Domicile
- The location where an individual, partnership, or corporation establishes permanent residence as per legal obligations.
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Domini 400 Social Index
- A market cap weighted stock index of 400 publicly traded companies that have met certain standards of social and environmental excellence. Potential candidates for this index will have positive records on issues such as employee and human relations, product safety, environmental safety, and corporate governance. Companies engaged in the business of alcohol, tobacco, firearms, gambling, nuclear power and military weapons are automatically excluded.
This relatively new index was designed to help socially conscious investors weigh social and environmental factors in their investment choices.
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Don't Know - DK
- A slang expression for an out trade that is used when there is a discrepancy in the details of a trade.
Also known as a "DK'd trade."
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Donchian Channels
- A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time intervals.
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Donor Advised Fund
- A private fund administered by a third party and created for the purpose of managing charitable donations on behalf of an organization, family, or individual.
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Doomsday Call
- A call provision added to fixed income securities that allows for early redemption by the issuer if certain conditions are favorable.
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DOP
- The currency abbreviation for the Dominican Republic's only official legal currency, the peso oro. The currency is represented by the dollar ($) symbol or RD$. It was introduced in 1937 at par with the U.S. dollar and continued to be used in conjunction with the dollar until 1947. The initial peso was created in 1844 to replace the Haitian gourde, the currency of the country that borders the Dominican Republic.
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Dormant Account
- When there has been no financial activity for a long period of time, other than posting of interest, an account can be classified as dormant. Statute of limitations usually does not apply to dormant accounts, and funds can be claimed by the owner or beneficiary at any time. Many banks have accounts that have been left dormant for years because the account holders have forgotten about them.
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Dotcom
- A company that embraces the internet as the key component in its business.
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Double Barreled
- A municipal general obligation bond in which the cash flows are pledged by two distinct and different entities. One entity will make interest payments, and the other, the principal payments. These are municipal general obligation (GO) bonds as opposed to revenue bonds because they are ultimately backed by the issuer and its taxing power.
Double-barreled bonds are sometimes referred to as "combination bonds".
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Double Barrier Option
- An option with two distinct triggers that define the allowable range for the price fluctuation of the underlying asset. In order for the investor to receive a payout, one of two situations must occur; the price must reach the range limits (for a knock-in) or the price must avoid touching either limit (for a knock-out).
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Double Bottom
- A charting pattern used in technical analysis. It describes the drop of a stock (or index), a rebound, another drop to the same (or similar) level as the original drop, and finally another rebound.
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Double Dip Recession
- When gross domestic product (GDP) growth slides back to negative after a quarter or two of positive growth. A double-dip recession refers to a recession followed by a short-lived recovery, followed by another recession.
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Double Dipping
- For brokerage firms, when a broker puts commissioned products into a fee-based account. The broker makes money from both the client and the commission.
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Double Gearing
- Used to describe situations where multiple companies are using shared capital to buffer against risk occurring in separate entities without the proper documentation of exposure.
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Double Leverage
- When a bank holding company conducts a debt offering to acquire a large equity stake in a subsidiary bank. Ideally, dividends earned on the subsidiary company's stock are used to finance the holding company's interest payments.
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Double No-Touch Option
- A type of exotic option that gives an investor an agreed upon payout if the price of the underlying asset does not reach or surpass one of two predetermined barrier levels. An investor using this type of option pays a premium to his/her broker and in turn receives the right to choose the position of the barriers, the time to expiration, and the payout to be received if the price fails to breach either barrier. With this type of option, the maximum possible loss is just the cost of setting up the option.
A double no-touch option is the opposite of a double one-touch option.
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Double One-Touch Option
- A type of exotic option that gives an investor an agreed upon payout if the price of the underlying asset reaches or surpasses one of two predetermined barrier levels. An investor using this type of option is able to determine the position of both barriers, the time to expiration, and the payout to be received if the price does rise above one of the barriers. Either one of the barrier levels must be breached prior to expiration for the option to become profitable and for the buyer to receive the payout. If neither barrier level is breached prior to expiration, the option expires worthless and the trader loses all the premium paid to the broker for setting up the trade.
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Double Taxation
- A taxation principle referring to income taxes that are paid twice on the same source of earned income.
Double taxation occurs because corporations are considered separate legal entities from their shareholders. As such, corporations pay taxes on their annual earnings, just as individuals do. When corporations pay out dividends to shareholders, those dividend payments incur income-tax liabilities for the shareholders that receive them, even though the earnings that provided the cash to pay the dividends had already been taxed at the corporate level.
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Double Taxing
- A tax law that causes the same earnings to be subjected to taxation twice. A company's income is taxed initially and then the shareholders and investors are taxed on the distributions they receive from the company.
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Double Top
- A term used in technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
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Double Up
- An investing strategy in which a trader doubles his or her current position in an asset when an adverse price movement occurs. By doubling the risk, the trader hopes to earn a larger return when the security moves in a favorable direction.
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Double Witching
- Similar to triple witching, but instead of three classes of options or futures expiring on the same day, double witching is when only two classes (any two) are expiring. The three classes are stock options, index options, and index futures.
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Doubling Option
- A sinking fund provision that gives a bond issuer the right to redeem twice the amount of debt when repurchasing callable bonds. A doubling option allows the issuer to retire additional bonds at the sinking fund's call price.
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Doubtful Loan
- A loan where full repayment is questionable and uncertain. Degree of repayment of loans in question range from a complete loss to uncertain loss unless corrective actions are taken. Doubtful loans are usually non-performing loans on which interest is overdue and full collection of principal is uncertain.
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Douglas Amendment
- An amendment made to the Bank Holding Act of 1956. The Douglas Amendment prevented banks from acquiring banks across different states. However, a bank could seek an exception to this rule by getting the authorization of the state of the bank that is to be acquired. This exception was rarely granted though, and was only authorized in limited circumstances.
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Dove
- An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that inflation and its negative effects will have a minimal impact on society. This term is derived from the docile and placid nature of the bird of the same name, and is the opposite of the term "hawk".
Statements that suggest that inflation will have a minimal impact are called "dovish".
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Dow Divisor
- A number used in the calculation of the Dow Jones Industrial Average that accounts for stock splits and stock dividends.
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Dow Jones 65 Composite Average
- A composite index that measures changes within the 65 companies that make up three Dow Jones averages: the 30 stocks that form the Dow Jones Industrial Average (DJIA), the 20 stocks that make up the Dow Jones Transportation Average (DJTA) and the 15 stocks of the Dow Jones Utility Average (DJUA). The Dow Jones 65 Composite, like the three sub-indexes, is price-weighted.
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Dow Jones AIG Commodity Index - DJ-AIGCI
- A rolling commodities index composed of futures contracts on 19 physical commodities traded on U.S. exchanges. The index serves as a liquid and diversified benchmark for the commodities' asset class.
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Dow Jones Asian Titans 50 Index
- A market capitalization-weighted index of Asia/Pacific stocks designed to capture the blue-chip leaders of the region. The stock universe is the Dow Jones Asia/Pacific Index, from which the 50 largest Japan-based and 50 largest non-Japan based stocks are selected.
The two lists of 50 stocks are given final rankings based 60% on market cap, 20% on current revenues and 20% on current net income levels. The top 25 members are then chosen from each list for the Asian Titans Index, half of which will be made up of Japan-based companies.
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Dow Jones BRIC 50 Index
- A market capitalization-weighted stock index containing 50 of the most liquid and largest companies operating in Brazil, Russia, India and China (BRIC nations). The index uses the Dow Jones Global Indexes as its stock universe for the four nations, which cover approximately 95% of the market capitalization on local exchanges. Fifteen positions are targeted for each Brazil, Russia and China, while Russia's representation is targeted for five positions.
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Dow Jones CDX Indexes
- A series of indices that track North American and emerging market credit derivative indexes. The purpose of the combined indexes is to track the performance of the various segments of credit derivatives so that the overall return can be benchmarked against funds that invest in similar products.
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Dow Jones EURO STOXX 50
- A market capitalization-weighted stock index of 50 large, blue-chip European companies operating within eurozone nations. The universe for selection is found within the 18 Dow Jones EURO STOXX Supersector indexes, from which members are ranked by size and placed on a selection list.
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Dow Jones EURO STOXX Sustainability Index
- A stock index that measures the financial performance of leading Eurozone companies as measured by their sustainability and environmental practices. The stock universe is the Dow Jones STOXX Sustainability Index, from which only companies operating in Eurozone nations (countries that have transitioned to the Euro) are chosen.
Companies are given a sustainability score based on a comprehensive review by research firm SAM Group; annual surveys are conducted on all potential companies so that company progress and new initiatives can be constantly measured and compared against industry peers.
The index is weighted based on free-float market capitalization and changes to the index are made annually after updated company sustainability scores have been obtained.
Quarterly weighting adjustments are also made as the market caps of member companies fluctuate.
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Dow Jones Global Titans 50 Index
- A market capitalization-weighted index of 50 of the largest multinational companies in the world. The stock universe used for selection is the Dow Jones World Index, which includes approximately 95% of developed and emerging markets by market capitalization.
The index members are chosen based on a ranking system that takes into account the free-float market cap, company sales and revenues, and net income levels. The 50 highest-ranking companies are included in the index for that year as long as they earn revenue both domestically and internationally.
The index is reconstituted annually, and weightings are recalculated quarterly to account for changes in the float of member stocks. The index is calculated and reported in both U.S. dollars and euros.
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Dow Jones Industrial Average (DJIA) Yield
- The aggregate dividend yield on the 30 stocks that make up the Dow Jones Industrial Average. The DJIA yield is calculated by adding the dividends of all 30 component stocks, dividing the result by the price-weighted DJIA index value and factoring in the Dow multiplier. Generally, the DJIA yield is used as a trading indicator by investors, as yields below 3% are considered a selling signal and yields above 6% are considered a buying signal.
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Dow Jones Industrial Average - DJIA
- The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.
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Dow Jones STOXX 50
- A stock index representing 50 of the largest companies in Europe based on market capitalization. The stock universe used for selection is an aggregate of the 18 Dow Jones STOXX 600 Supersector indexes, which together capture about 95% of the capitalization of the major stock exchanges in 18 European countries. Each sub-index places its largest members placed on a selection list, which is then ranked by market cap to choose the STOXX 50 members.
The index, first reported in 1998, is reconstituted annually, and weightings are adjusted quarterly to account for proportional changes in underlying company market caps.
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Dow Jones STOXX Sustainability Index
- A stock index that measures the financial performance of leading European companies as measured by their sustainability practices. The stock universe is the Dow Jones STOXX 600 Index, which captures more than 90% of the aggregate market cap of European-based companies.
The STOXX Sustainability Index contains the top 20% of these companies in terms of their aggregate sustainability score as obtained by SAM Group, a Zurich-based research firm.
The free float market capitalization-weighted index is reviewed both annually and quarterly; the quarterly reviews focus on share counts and weightings while the annual review incorporates the most recent sustainability scores and industry evaluations.
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Dow Jones Sustainability North America Index
- A stock index that captures the top 20% of the largest 600 companies in the Dow Jones Global Index that are based in North America. Companies are evaluated based on both general and industry-specific sustainability trends by Zurich-based SAM Group, a research firm that surveys thousands of global blue-chip companies each year.
The free-float market capitalization weighted index is reviewed quarterly for share count changes, and reconstituted annually once updated surveys have been completed for all potential index members. Each company in the 600 stock universe is given a sustainability score based on progress in areas such as corporate governance, climate change strategy and energy consumption as well as industry-specific variables.
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Dow Jones Sustainability United States Index
- A free-float market capitalization weighted index that captures the U.S.-based companies in the Dow Jones Sustainability North America Index, which contains the top 20% of the largest U.S., Canadian and Mexican companies from the Dow Jones Global Index based on economic and social sustainability.
The index is reviewed quarterly for possible weighting changes (based on free-float share counts) and reconstituted each year based on the updated results of comprehensive sustainability surveys, as compiled by research firm SAM Group. The surveys measure company efforts in energy conservation, corporate governance, shareholder relations and knowledge management, among many others.
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Dow Jones Sustainability World Index
- A global index consisting of the top 10% of the largest stocks in the Dow Jones Global Indexes (which cover more than 2,500 companies) in terms of their sustainability and environmental practices. The index was started in 1999, and is maintained by Dow Jones in conjunction with SAM Group, a Zurich-based research firm that conducts detailed sustainability analyses of thousands of global market-cap leaders each year.
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Dow Jones Transportation Average - DJTA
- The Dow Jones Transportation Average is a price-weighted average of 20 transportation stocks traded in the United States. The average was started back in 1884.
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Dow Jones U.S. Market Index
- A market-capitalization-weighted index maintained by Dow Jones Indexes providing broad-based coverage of the U.S. stock market. The Dow Jones U.S. Market Index, considered a total market index, represents the top 95% of the U.S. stock market based on market capitalization.
Also known as the "Dow Jones U.S. Index".
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Dow Jones Utility Average - DJUA
- The Dow Jones Utility Average is a price-weighted average of 15 utility stocks traded in the United States. The DJUA was started back in 1929.
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Dow Jones Wilshire Large-Cap Index
- A market-capitalization weighted index maintained by Dow Jones Indexes that is the large-cap subset of the Dow Jones Wilshire 5000 Composite Index. The Dow Jones Wilshire Large-Cap Index contains the top 750 companies as measured by market capitalization.
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Dow Jones Wilshire Mid-Cap Index
- A market-capitalization weighted index maintained by Dow Jones Indexes that is the mid-cap subset of the Dow Jones Wilshire 5000 Composite Index. The Dow Jones Wilshire Mid-Cap Index contains the companies ranked 501 to 1,000 as measured by market capitalization.
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Dow Jones Wilshire Small-Cap Index
- A market-capitalization weighted index maintained by Dow Jones Indexes that is the small-cap subset of the Dow Jones Wilshire 5000 Composite Index. The Dow Jones Wilshire Small-Cap Index contains the companies ranked 751 to 2,500 as measured by market capitalization.
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Dow Theory
- A theory which says the market is in an upward trend if one of its averages (industrial or transportation) advances above a previous important high, it is accompanied or followed by a similar advance in the other.
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Dower
- A common law that entitles a widow to a portion of her husband's estate in absence of a will. The provision of dower allows the wife to provide for herself and any children born during the marriage. In most circumstances, the widow is granted up to one-third interest in her husband's assets.
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Down Payment
- A type of payment made in cash during the onset of the purchase of an expensive good/service. The payment typically represents only a percentage of the full purchase price; in some cases it is not refundable if the deal falls through. Financing arrangements are made by the purchaser to cover the remaining amount owed to the seller.
Making a down payment and then paying the rest of the price through installments is a method that makes expensive assets more affordable for the typical person.
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Down Round
- A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the company by earlier investors.
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Down Transition Probability
- The probability that an asset's value will decline in one period’s time within the context of an option pricing model. The option pricing models using a down transition probability are both the binomial and trinomial option pricing models.
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Down Volume
- A stock volume that closes at a price lower than the previous day's close.
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Down-and-In Option
- A form of a knock-in option whose payoff is determined by the price of the underlying asset sinking to the barrier price level.
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Down-and-Out Option
- A type of knock-out barrier option that ceases to exist when the price of the underlying security hits a specific barrier price level. If the price of the underlying does not reach the barrier level, the investor has the right to exercise their European call or put option at the exercise price specified in the contract.
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Down-Market Capture Ratio
- A statistical measure of an investment manager's overall performance in down-markets. The down-market capture ratio is used to evaluate how well or poorly an investment manager performed relative to an index during periods when that index has dropped. The ratio is calculated by dividing the manager's returns by the returns of the index during the down-market and multiplying that factor by 100.
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Downgrade
- A negative change in the rating of a security. This situation occurs when analysts feel that the
future prospects for the security have weakened from the orginal recommendation, usually due to a material and fundamental change in the company's operations, future outlook or industry.
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Downshifting
- The act of reducing one's standard of living for an improved quality of life. Downshifting assumes a tradeoff between standard of living, such as level of wealth, and quality of life, which relates to well-being.
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Downside
- The dollar amount by which the market or a stock has the potential to fall.
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Downside Risk
- An estimation of a security's potential to suffer a decline in price if the market conditions turn bad.
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Downside Tasuki Gap
- A candlestick formation that is commonly used to signal the continuation of the current downtrend. The pattern is formed when a series of candlesticks have demonstrated the following characteristics:
1. The first bar is a red candlestick within a defined downtrend.
2. The second bar is another red candlestick that has gapped below the close of the previous bar.
3. The last bar is a white candlestick that closes within the gap of the first two bars. It is important to note that the white candle does not need to fully close the gap.
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Downsize
- Reducing the size of a company by eliminating workers and/or divisions within the company.
It is sometimes referred to as "trimming the fat".
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Downstream
- The oil and gas operations that take place after the production phase through to the point of sale.
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Downstream Guarantee
- A guarantee placed on a loan on behalf of the borrowing party by the borrowing party's parent company or stockholder. By guaranteeing the loan for its subsidiary company, the parent company provides assurance to the subsidiary company's lenders that the subsidiary company will be able to repay the loan. The guarantee requires the parent company to repay the loan if the subsidiary is unable to.
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Downswing
- A reduction in the overall level of economic or business activity. Downswings may be caused by fluctuations in the business cycle or a variety of macroeconomic events. Downswing may also refer to the downward movement in the value of a security following a period of stable or rising prices.
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Downtick
- A transaction on an exchange that occurs at a price below the previous transaction.
In order for a downtick to occur, a transaction price must be followed by a decreased transaction price. This is commonly used in reference to stocks, but it can also be extended to commodities and other forms of securities.
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Downtick Volume
- The share volume of a security that trades at a price lower than its previous price.
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Downtrend
- Describes the price movement of a financial asset when the overall direction is downward. A formal downtrend occurs when each successive peak and trough is lower than the ones found earlier in the trend.
Notice how each successive peak and trough is lower than the previous one. For example, the low at Point 3 is lower than the low at Point 1. The downtrend will be deemed broken once the price closes above the high at Point 4.
Downtrend is the opposite of uptrend
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Drag-Along Rights
- A right that enables a majority shareholder to force a minority shareholder to join in the sale of a company. The majority owner doing the dragging must give the minority shareholder the same price, terms, and conditions as any other seller.
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Dragon Bond
- A bond that is issued in Asia but denominated in U.S. dollars.
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Dragonfly Doji
- A type of candlestick pattern that signals indecision among traders. The pattern is formed when the stock's opening and closing prices are equal and occur at the high of the day. The long lower shadow suggests that the forces of supply and demand are nearing a balance and that the direction of the trend may be nearing a major turning point.