Financial Glossary
What are you looking for?
-
R
- A Nasdaq stock symbol specifying that the stock has rights.
-
R-Squared
- A statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index. For fixed-income securities, the benchmark is the T-bill. For equities, the benchmark is the S&P 500.
-
Rabbi Trust
- A trust created for the purpose of supporting the non-qualified benefit obligations of employers to their employees.
These trusts are sometimes referred to as "grantor trusts".
-
Raider
- An individual or organization that tries to take over a company by initiating a hostile takeover bid.
-
Rain Check
- A promise or commitment by a seller to a buyer that an item currently out of stock can be purchased at a later date for today's sale price.
-
Rainbow Option
- A single option linked to two or more underlying assets. In order for the option to pay off, all the underlying assets must move in the intended direction.
-
Rainmaker
- An employee of a brokerage firm who brings a large amount of wealthy individuals or corporations to the brokerage firm's client base.
-
Raintaker
- A former employee of a brokerage firm who takes high-value clientelle from his or her previous employer to his or her new brokerage. The term raintaker is taken from rainmaker, which is used to describe a brokerage employee who brings in large amounts of business to their brokerage.
-
Rally
- A period of sustained increases in the prices of stocks, bonds or indexes. This type of price movement can happen during either a bull or a bear market, when it is known as either a bull market rally or a bear market rally, respectively. However, a rally will generally follow a period of flat or declining prices.
-
Ramp Up
- To increase a company's operations in anticipation of increased demand.
-
Random Factor Analysis
- A statistical analysis performed to determine the origin of random data figures collected. Random factor analysis is used to decipher whether the outlying data is caused by an underlying trend or just simply random occurring events and attempts to explain the apparently random data. It uses multiple variables to more accurately interpret the data.
-
Random Walk Theory
- The theory that stock price changes have the same distribution and are independent of each other, so the past movement or trend of a stock price or market cannot be used to predict its future movement.
-
Range
- A stock's low price and high price for a particular trading period, such as the close of a day's trading, the opening of a day's trading, a day, a month, or a year.
-
Range Accrual
- A form of interest accrual in which the coupon rate is only earned on days when another rate from which the coupon is derived falls within a specified range. As such, there is no standard coupon rate that can be counted on for interest payments.
-
Range-Bound Trading
- A trading strategy that identifies stocks trading in channels. By finding major support and resistance levels with technical analysis, a trend trader buys stocks at the lower level of support (bottom of the channel) and sells them near resistance (top of the channel).
-
Rate And Term Refinance
- The refinancing of an existing mortgage for the purpose of changing the interest and/or term of a mortgage without advancing new money on the loan. This differs from a cash-out refinance, in which new money is advanced on the loan. Rate and term refinances can carry lower interest rates than cash-out refinances.
-
Rate Anticipation Swap
- A type of swap in which bonds are swapped according to their current duration and predicted interest rate movements.
-
Rate Level Risk
- A type of interest rate risk which asserts that the characteristics of interest rate fluctuation are variable (as opposed to constant) over a period of time. Although interest rates are expected to fluctuate over the period of an investment, the probability of an interest rate change is not always constant, nor is the magnitude of the volatility of interest rate changes.
-
Rate Of Change
- The speed at which a variable changes over a specific period of time. Rate of change is often used when speaking about momentum, and it can generally be expressed as a ratio between a change in one variable relative to a corresponding change in another. Graphically, the rate of change is represented by the slope of a line.
-
Rate Of Return
- The gain or loss on an investment over a specified period, expressed as a percentage increase over the initial investment cost. Gains on investments are considered to be any income received from the security plus realized capital gains.
-
Rate Trigger
- A sizeable decline in interest rates that may trigger or cause companies to call in bonds that otherwise pay high coupon or interest rates. Because these bonds are being called before their initial expiration date, theoretically, bondholders can expect to receive a premium or additional sum for their securities.
-
Rate-Improvement Mortgage
- A type of fixed-rate mortgage, which contains a clause that entitles the borrower to reduce the fixed-interest-rate charge on the mortgage once, and early in the mortgage. The option will be exercised when interest rates fall lower then the borrowers initial mortgage rate.
There is typically a fee associated with exercising this option, and the initial mortgage might have a higher-than market-interest rate and/or high costs. However, the rate reduction option could save the borrower the costs of refinancing which might be more then the cost of using their rate improvement option.
-
Rating
- 1. An evaluation of a corporate or municipal bond's relative safety from an investment standpoint. Basically, it scrutinizes the issuer's ability to repay principal and make interest payments.
2. An analyst's recommendation on whether to buy, sell or hold a specific stock.
-
Ratings Service
- A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends.
-
Ratio Analysis
- A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis.
-
Ratio Call Write
- An option strategy in which an investor owns shares in the underlying stock and writes more at-the-money call options than the amount of underlying shares owned. The goal of a ratio call write is to capture the premiums received by the option sale. The call writer hopes that there is little volatility in the underlying stock over the same period..
-
Ratio Spread
- An options strategy in which an investor simultaneously holds an unequal number of long and short positions. A commonly used ratio is two short options for every option purchased.
-
Rational Expectations Theory
- An economic idea that the people in the economy make choices based on their rational outlook, available information and past experiences. The theory suggests that the current expectations in the economy are equivalent to what the future state of the economy will be. This contrasts the idea that government policy influences the decisions of people in the economy.
-
Rational Pricing
- A financial theory that contends that the market prices of assets will represent the arbitrage-free pricing level for those assets. This is based on the assumption that any deviation from arbitrage-free price levels for an asset will result in arbitrageurs immediately trading away the profit opportunity on the asset until it trades at an arbitrage-free price.
-
Rationalization
- A reorganization of a company in order to increase its efficiency. This reorganization may lead to an expansion or reduction in company size, a change of policy, or an alteration of strategy pertaining to particular products.
-
Raw Materials
- A material or substance used in the primary production or manufacturing of a good. Raw materials are often natural resources such as oil, iron and wood. Before being used in the manufacturing process raw materials often are altered to be used in different processes. Raw materials are often referred to as commodities, which are bought and sold on commodities exchanges around the world.
-
Razor-Razorblade Model
- A business tactic involving the sale of dependent goods for different prices - one good is sold at a discount, while the second dependent good is sold at a considerably higher price.
-
RBC Consumer Attitudes And Spending By Household Index - RBC CASH Index
- An index based on a monthly national survey of consumer attitudes on the state of savings, local economies, personal financial situations and confidence to make significant investments, which covers both now and in the future. The RBC CASH Index was assigned a value in its base year (2002) of 100. The index is released at the end of the first full week of every month.
-
Re-Offer Price
- A price at which the underwriting syndicate of a debt issue resells the bonds to public investors. The syndicate will purchase the bonds for a specified amount from the issuing firm and re-offer the bonds to the public, usually at a different price.
-
Reaction
- The typical downward movement in the price of a security after the price had previously risen.
-
Reaganomics
- A popular term used to refer to the economic policies of Ronald Reagan, the 40th U.S. President (1981–1989), which called for widespread tax cuts, decreased social spending, increased military spending, and the deregulation of domestic markets.
-
Real Asset
- Physical or identifiable assets such as gold, land, equipment, patents, etc. They are the opposite of a financial asset.
-
Real Body
- In candlestick charting this is the wide part of a candle that represents the range between the opening and the closing prices over a specific time period.
-
Real Economic Growth Rate
- A measure of economic growth from one period to another expressed as a percentage and adjusted for inflation (i.e. expressed in real as opposed to nominal terms). The real economic growth rate is a measure of the rate of change that a nation's gross domestic product (GDP) experiences from one year to another. Gross national product (GNP) can also be used if a nation's economy is heavily dependent on foreign earnings.
-
Real Effective Exchange Rate - REER
- The weighted average of a country's currency relative to an index or basket of other major currencies adjusted for the effects of inflation. The weights are determined by comparing the relative trade balances, in terms of one country's currency, with each other country within the index.
-
Real Estate
- Land plus anything permanently fixed to it, including buildings, sheds and other items attached to the structure.
-
Real Estate Agent
- A person with a state/provincial license to represent a buyer or a seller in a real estate transaction in exchange for commission. Most agents work for a real estate broker or realtor.
-
Real Estate Investment Group
- An organization that builds or buys a group of properties and then sells them to investors as rental properties. In exchange for finding tenants, handling maintenance and other responsibilities, the organization receives a portion of the investors' monthly rent proceeds.
-
Real Estate Investment Trust - REIT
- A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.
REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.
Equity REITs: Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties' rents.
Mortgage REITs: Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans.
Hybrid REITs: Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.
-
Real Estate Limited Partnership - RELP
- A direct participation program formed to build new structures and generate income from existing property, or profit from the capital appreciation of undeveloped land.
-
Real Estate Mortgage Investment Conduit - REMIC
- A special purpose vehicle (SPV) that is used to pool mortgage loans and issue mortgage-backed securities (MBS). Real estate mortgage investment conduits (REMIC) hold commercial and residential mortgages in trust, and issue interests in these mortgages to investors.
-
Real Estate Mortgage Investment Conduits - REMIC
- A complex pool of mortgage securities created for the purpose of acquiring collateral. This base is then divided into varying classes of securities backed by mortgages with different maturities and coupons.
-
Real Estate Operating Company - REOC
- A company that invests in real estate and whose shares trade on a public exchange. A real estate operating company (REOC) is similar to a real estate investment trust (REIT), except that an REOC will reinvest its earnings into the business, rather than distributing them to unit holders like REITs do. Also, REOCs are more flexible than REITs in terms of what types of real estate investments they can makes.
-
Real Estate Owned - REO
- Property owned by a lender - usually a bank - after an unsuccessful sale at a foreclosure auction. This is common because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank: the minimum bid in most foreclosure auctions equal the outstanding loan amount, the accrued interest and any fees associated with the foreclosure sale.
-
Real Gross Domestic Product (GDP)
- This inflation-adjusted measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices. Often referred to as "constant-price", "inflation-corrected" GDP or "constant dollar GDP".
-
Real Income
- The income of an individual or group after taking into consideration the effects of inflation on purchasing power. For example, if you received a 2% salary rise over the previous year and inflation for the year was 1%, then your real income only rose 1%. Conversely, if you received a 2% raise in salary and inflation stood at 3%, then your real income would have shrunk 1%.
Also known as "real wages".
-
Real Interest Rate
- An interest rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower, and the real yield to the lender. The real interest rate of an investment is calculated as the amount by which the nominal interest rate is higher than the inflation rate.
Real Interest Rate = Nominal Interest Rate - Inflation (Expected or Actual)
-
Real Option
- An alternative or choice that becomes available with a business investment opportunity.
-
Real Property
- Any property that is attached directly to land, as well as the land itself. Real property not only includes buildings and other structures, but also rights and interests. Real property can be either rental or residential.
-
Real Rate Of Return
- The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects. This method expresses the nominal rate of return in real terms, which keeps the purchasing power of a given level of capital constant over time.
-
Real Time
- When a system relays information to a user at a speed that is near instantaneous or has a short delay from when the event actually occurred. Online brokerages often provide a real-time data feed that displays stock quotes and their respective real-time changes, with a very insignificant lag time, so that clients can base their investing decisions on the most up-to-date information.
-
Real Time Forex Trading
- A form of speculation in which a trader bets on the movement in the exchange rates of foreign currency pairs. Real-time forex trading involves placing an order to buy or sell a specific currency pair at the current exchange rate.
-
Real Time Gross Settlement - RTGS
- The continuous settlement of payments on an individual order basis without netting debits with credits across the books of a central bank.
-
Real-Time Quote
- This is the actual price of a security at that moment in time. Most prices of securities that are displayed on various websites are delayed quotes. These quotes are usually delayed from 15 to 20 minutes. Real-time quotes are instantaneous with no delay.
-
Real-Time Trade Reporting
- A requirement imposed on market makers (and in some instances, non market makers) to report each trade immediately after the transaction is completed.
-
Realization Multiple
- A private equity measurement that values the return paid to an investor. The multiple is named after the amount of return that is realized. The realization multiple is found by dividing the cumulative distributions from a project by the paid-in capital.
-
Realized Gain
- A gain resulting from selling an asset at a price higher than the original purchase price.
-
Realized Loss
- A loss recognized when assets are sold for a price lower than the original purchase price.
-
Realized Yield
- The actual amount of return earned on a security investment over a period of time. This period of time is typically the holding period which may differ from the expected yield at maturity. The realized yield also includes the returns that have been earned from reinvested interest, dividends and other cash distributions.
-
Reallowance
- In securities underwriting, the fee that the underwriting group pays to a securities firm that isn't part of the syndicate, but who still sells shares in the offering.
-
Realtor
- In the United States a designation used to describe a member of the National Association of Realtors (NAR).
-
Reassessment
- The process of re-determining the value of property or land for tax purposes.
-
Rebalancing
- The process of realigning the weightings of one's portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation.
-
Rebate
- 1. In a short-sale transaction, the portion of interest or dividends earned by the owner (lender) of shares that are paid to the short seller (borrower) of the shares.
2. In an options transaction, the amount paid to the holder of the option if the option expires worthless.
-
Rebate Barrier Option
- A barrier option that offers a predetermined rebate, should the option be 'knocked-out.'
-
Rebound
- In financial terms, a rebound means a recovery from prior negative activity. For a security, a rebound means that it has moved higher from a lower price. For the general economy, a rebound means that economic activity has increased from lower levels, like the bounce back following a recession.
-
Recapitalization
- Restructuring a company's debt and equity mixture, most often with the aim of making a company's capital structure more stable. Essentially, the process involves the exchange of one form of financing for another, such as removing preferred shares from the company's capital structure and replacing them with bonds.
-
Recapture
- 1. A condition set by the seller of an asset that gives him/her the right to purchase back some or all of the assets within a certain period of time.
2. A situation where an individual must add back a deduction from a previous year to his or her income.
-
Recareering
- A late-in-life career change. Recareering is not just a job change, but a move to a completely different career path. Money, power and prestige are prime motivators for many people switching careers, but others do it to pursue a passion or make a lifestyle change.
-
Recast Trigger
- A clause in a loan contract that causes an unscheduled recasting of the loan's remaining amortization schedule if and when certain conditions are met. A recast trigger is most often associated with negative amortization mortgages, which typically have a trigger that recasts the remaining amortization schedule when the mortgage's outstanding principal balance reaches a certain percentage - usually 110-125% of the mortgage's original principal balance.
-
Receivables
- An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they include all debts owed to the company, even if the debts are not currently due.
-
Receivables Turnover Ratio
- An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.
Formula:
Some companies' reports will only show sales - this can affect the ratio depending on the size of cash sales.
-
Receive Versus Payment - RVP
- An instruction accompanying sell orders, stating that only cash will be accepted in exchange for delivery of the securities.
-
Receiver
- A person appointed by a bankruptcy court or secured creditor to run a company for a short period of time in a manner that will ensure as much debt is paid back to creditors as possible.
-
Receivership
- A type of corporate bankruptcy in which a receiver is appointed by bankruptcy courts or creditors to run the company.
-
Recession
- A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP); although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession.
-
Recession Proof
- A term used to describe an asset, company, industry or other entity that is believed to be economically resistant to the outcomes of a recession. Oftentimes, recession-proof stocks are added to many investment portfolios during times of economic decline, which may be the onset of a recession. Securities that are believed to be recession proof often have a negative beta values, which would indicate an inverse relationship to the greater market.
-
Recession Resistant
- An entity which is not greatly affected by a recession. Recession resistance can apply to stocks, companies, businesses, jobs and even entire industries that will be needed during all economic states. For example, an item such as bread may be considered recession resistant, as people will continue to buy bread regardless of a recession.
-
Recession Rich
- A slang term used to describe an individual who manages to do well financially, relative to broader population, during a recession. Someone that is recession rich does not necessarily need to be considered wealthy, but rather has managed to maintain a good standard of living during a time when others worry about their financial stability.
-
Recessionary Gap
- A term routed in macroeconomic theory that summarizes the situation where an economy is operating at below its full-employment equilibrium. Under this condition, the level of real gross domestic product (GDP) is currently lower then it is at full-employment, which puts downward pressure on prices in the long run.
-
Recessionista
- A person who is able to remain stylish during times of economic hardship. A recessionista can shop on a limited budget and still manage to be up to date on the most current fashions. A recessionista does not let a bad economy, inflation, or a strong recession damage his or her wardrobe and opts to search for sales and shop at thrifty discount stores instead.
-
Recessionship
- A slang term used to describe an intimate relationship that forms during a recession. People in a recessionship usually meet after losing their jobs or after incurring some sort of financial hardship. The term recessionship was originally coined during the financial crisis of 2008-2009.
-
Recharacterization
- The treatment of a contribution as being made to another type of IRA instead of the IRA to which the contribution was initially made.
-
Reclassification
- The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event.
-
Recognition Lag
- The time lag between when an actual economic shock, such as sudden boom or bust occurs, and when it is recognized by economists, central bankers and the government.
The recognition lag is studied in conjunction with implementation lag and response lag, two other measures of time lags within an economy. Recognition lags may be days, weeks, or months, depending on the nature and severity of the economic shock or shift.
-
Recognized Gain
- When an investment or asset is sold for an amount that is greater than what was originally paid. Recognizing gains on an asset will trigger a capital gains situation, but only if the asset is deemed to be capital in nature.
The amount of any capital gain will need to be reported for income tax purposes, and is measured by the selling price minus the purchase price.
-
Recognized Loss
- When an investment or asset is sold for less than its purchase price. Recognized losses may be reported for income tax purposes and then carried over into future periods.
-
Recompense
- The act of awarding a target person, group or entity some form of monetary benefit as a result of the target performing some action or as a result of some action happening to the target. This is one of the main tenets of capitalism, as people perform a task as a result of being paid some sort of relevant incentive.
-
Reconciliation
- An accounting process used to compare two sets of records to ensure the figures are in agreement and are accurate. Reconciliation is the key process used to determine whether the money leaving an account matches the amount spent, ensuring that the two values are balanced at the end of the recording period.
-
Reconstitution
- A reevaluation of a market index that involves adding and removing stocks and re-ranking existing stocks so that the index mirrors current market capitalization and style. The Russell indexes are well known for their annual reconstitution. To reconstitute the Russell indexes, all publicly traded stocks are ranked by market capitalization. Stocks that are ineligible for inclusion in the indexes are weeded out, and the new indexes are formed.
-
Reconstruction Finance Corporation - RFC
- An agency created by the the U.S. government to aid the troubled banking sector in the years following the stock market crash of 1929. The Reconstruction Finance Corporation (RFC) was approved by Congress to begin business in 1932 with a mandate to make emergency loans to banks that were in danger of failing.
-
Reconversion
- A method used by individuals to minimize the tax burden of converting an IRA by recharacterizing Roth IRA-converted amounts back to a Traditional IRA and then converting these assets back to a Roth IRA again. Be aware that the IRS released regulations in 1999 placing limits on reconversions.
-
Record Date
- The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.
-
Record High
- The highest historical price level reached by a security, commodity or index during trading. The record high is measured from when the instrument first starts trading and updates whenever the last record high is exceeded. The values for record highs are usually nominal, which means they do not account for inflation.
-
Record Low
- The lowest historical price level reached by a security, commodity or index during trading. A record low can be reached during a trading day, and is recorded regardless of whether it is the closing price. Record lows tend to be nominal values, which do not account for inflation.
-
Recording Fee
- The fee a government charges for reporting a real estate purchase or sale into the public record.
-
Recoupling
- The occurrence of returns on asset classes reverting back to their historical or traditional patterns of correlation. This is in contrast to decoupling, which occurs when asset classes break away from their traditional correlations. Recoupling occurs after a period in which the asset classes have been generating a return that shows little correlation.
-
Recoverable Reserves
- A term used in natural resource industries to describe the amount of resources identified in a reserve that is technologically or economically feasible to extract. A new reserve can be discovered, but if the resource cannot be extracted by any known technological methods, then it would not be considered part of recoverable reserves. Recoverable reserves is also often called proved reserves.
-
Rectangle
- A pattern formed on a chart where the price of a security is trading within a bounded range in which the levels of resistance and support are parallel to each other, resembling the shape of a rectangle. This pattern signals that the price movement, which has stalled during the pattern, will trend in the direction of the price breakout of the bounded range.
-
Recurring Debt
- Any payment used to service a debt obligation that occurs on a continuing basis. Recurring debt involves payments that cannot be easily canceled at the payer's request, including alimony or child support, and loan payments.
-
Recurring Revenue
- The portion of a company's revenue that is highly likely to continue in the future. This is revenue that is predictable, stable and can be counted on in the future with a high degree of certainty.
-
Red
- A term relating to a negative balance on a company's financial statements.
-
Red Candlestick
- The component of a candlestick chart that represents a downward movement in the underlying price. A red candlestick is composed of the period's high, low, opening and closing prices. If the closing price is lower than the day's opening price, then the body of the candle is red or black.
Also known as a "black candlestick" or a "closed candlestick".
-
Red Chip
- A company based in Mainland China that is incorporated internationally and listed on the Hong Kong Stock Exchange. Red chip stocks are expected to maintain the filing and reporting requirements of the Hong Kong exchange, which makes them a main outlet for foreign investors who wish to participate in the rapid growth of the Chinese economy.
Red chips may be issued in addition to A-shares in the same companies, although only Chinese citizens can invest in A-shares.
-
Red Flag
- An indicator of potential problems with a security. Most often used to refer to a stock, a red flag can be any undesirable characteristic that stands out to an analyst. There is no universal standard for identifying red flags; the method used will depend on the investment methodology being employed.
-
Red Herring
- A preliminary registration statement that must be filed with the SEC describing a new issue of stock and the prospects of the issuing company.
-
Redemption
- The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units in a mutual fund. A redemption occurs, in a fixed income security at par or at a premium price, upon maturity or cancellation by the issuer. Redemptions occur with mutual funds, at the choice of the investor, however limitations by the issuer may exist, such as minimum holding periods.
-
Redemption Fee
- A fee collected by an investment company from traders practicing mutual fund timing. This stiff penalty is used to discourage short-term, in-and-out trading of mutual fund shares. Generally, the fee is in effect for a holding period from 30 days to one year, but it can be in place for longer periods.
Also referred to as an "exit fee", "back-end load" or "contingent deferred sales charge".
-
Redemption Mechanism
- Refers to how market makers of exchange traded funds (ETF) can reconcile the differences between net asset value (NAV) and market values when shares of the ETFs are bought and sold. The market maker can arbitrage the ETF shares with the shares that make up the underlying portfolio, or by buying or redeeming lots of the ETF shares. This structure causes ETFs to be treated as "in kind" transactions where investors only pay capital gains like with stocks, as opposed to other fees associated with mutual funds.
-
Redemption Suspension
- A provision on a hedge fund preventing the withdrawal from the fund during a redemption period. Depending on the terms of the hedge fund, which can be found in its prospectus, a manager generally has the ability to implement this at anytime. The redemption suspension is implemented when the fund is unable to meet redemption demands.
-
Redenomination
- 1. The process whereby a country's currency is recalibrated due to significant inflation and currency devaluation. Certain currencies have been redenominated a number of times over the last century for various reasons.
2. The process of changing the currency value on a financial security.
-
Redeposit
- 1. The requirement for a person to reinvest a certain amount of money into their retirement fund after he or she previously requested and obtained a return on the deposits made to the fund during a set time period, in order to receive a certain payout from the fund upon retirement.
2. A cash management policy used by the Bank of Canada, where money is transferred from the central bank to the chartered banks.
-
Rediscount
- The act of discounting a short-term negotiable debt instrument for a second time. Banks may rediscount these short-term debt securities to assist the movement of a market that has a high demand for loans. When there is low liquidity in the market, banks can generate cash by rediscounting short-term securities.
-
Redlining
- The unethical practice whereby financial institutions make it extremely difficult or impossible for residents of poor inner-city neighborhoods to borrow money, gain approval for a mortgage, take out insurance or gain access to other financial services because of high default rates. In this case, the rejection does not take the individual's qualifications and creditworthiness into account.
-
Reduced Spread
- A reduction in the spread between the buy/bid and sell/ask price for a security, currency, or loan. In most cases, a reduction in the spread signifies that a financial institution will experience a decline in its profit margin that it earns on its spread.
-
Reference Asset
- An underlying asset used in credit derivatives, which are then used when there is a risky debt issuer, such as a corporation or municipality. In a credit derivative, the buyer purchases protection against the chance of default by the risky borrower by buying the reference asset.
-
Reference Base Period
- A year in which the Consumer Price Index is equal to 100, a reference base period that serves as a benchmark for future periods, allowing economists to judge levels of inflation. Currently, the reference base period is set between 1982 and 1984.
-
Reference Rate
- An interest rate benchmark upon which a floating-rate security or interest rate swap is based. The reference rate will be a moving index such as LIBOR, the prime rate or the rate on benchmark U.S. Treasuries.
Depending on the security or financial contract being written, the reference rate can be more esoteric, in the form of an inflation benchmark (such as the Consumer Price Index) or a measure of economic health (such as unemployment rates or corporate default rates).
-
Refi Bubble
- A period during which old debt obligations are being replaced with newer obligations with different terms. A typical refi bubble usually occurs when homeowners refinance their home mortgages because rates have fallen to an attractive level. Lowering interest costs or the interest rate leaves homeowners with more discretionary income.
-
Refinance
- 1. When a business or person revises a payment schedule for repaying debt.
2. Replacing an older loan with a new loan offering better terms.
-
Refinance Wave
- A situation where a large amount of mortgage refinancing occurs as a result of a drop in interest rates. The larger the drop in rates, the larger the "wave". A refinance wave can be triggered by a drop in short-term interest rates, in which case borrowers might refinance out of long-term, fixed-rate mortgages into short-term, adjustable-rate mortgages. Alternatively, a refinance wave might be triggered by a rise in short-term interest rates, in which case the same borrowers who refinanced into adjustable-rate mortgages will refinance into fixed-rate mortgages to avoid further increases in the rate on their adjustable rate mortgages.
-
Refinancing Risk
- 1. The risk that an early unscheduled repayment of principal on mortgage-backed securities(MBS) will occur when the underlying mortgages are refinanced by borrowers. All MBS buyers assume some level of prepayments in their initial yield calculations, but an increase in the level of refinancing (which usually occurs as a result of falling interest rates) means that MBSs mature faster and will have to be reinvested at lower rates.
2. For a mortgage borrower, the risk that he or she will not be able to refinance an existing mortgage at a future date under favorable terms.
-
Reflation
- A fiscal or monetary policy, designed to expand a country's output and curb the effects of deflation. Reflation policies can include reducing taxes, changing the money supply and lowering interest rates.
The term "reflation" is also used to describe the first phase of economic recovery after a period of contraction.
-
Reflexivity
- The idea that a person's thoughts and ideas tend to be inherently biased. In other words, the values and thoughts of a person will be represented in their work.
In the context of finance, the theory of reflexivity states that investors' and traders' biases can change the fundamentals that assist in determining market prices.
-
Refund
- A payment from the government for an individual's overpaid taxes. An individual in this situation is said to be "over-withholding". Federal income tax refunds are not taxable.
-
Refundable Credit
- A tax credit that is not limited by the amount of an individual's tax liability. Typically a tax credit only reduces an individual's tax liability to zero. Refundable credits go beyond this and so really can be considered the same as a payment.
-
Refunded Bond
- Bonds that have their principle cash amount already held aside by the original issuer of the debt. A subset of the municipal and corporate bond classes, the funds required to pay off refunded bonds are held in escrow until the maturity date, usually by purchasing Treasury or agency paper.
Also known as "prerefunded bonds".
-
Refunding
- Retiring an outstanding bond issue at maturity by using money from the sale of a new offering.
-
Refunding Escrow Deposits - REDs
- A type of forward financial contract that creates an obligation for its investors to purchase a particular bond issue at a specified yield at some date in the future. The money from investors is held in escrow and is used to purchase interest-bearing U.S. Treasuries, which are either sold or allowed to mature, providing proceeds to be invested into the new bond issue with an interest rate that is locked in with a forward contract.
Investors participate early in the new bond issue (typically municipal bond) but will temporarily receive taxable income from the Treasury held in escrow.
-
Regional Fund
- A mutual fund that confines itself to investments in securities from a specified geographical area, such as Latin America, Europe or Asia. A regional mutual fund will generally look to own a diversified portfolio of companies based in and operating out of its specified geographical area. However, some regional funds can also be set up to invest in a specific segment of the region's economy, such as energy.
-
Regional Stock Exchange
- Any exchange located outside a country's main financial center.
-
Register
- 1. The act of recording an event, transaction, name or other information.
2. An aggregation of stored data, usually containing past events, transactions, names or other information.
3. A record of all charges to a debit account
-
Register Of Deeds
- A record of real estate deeds or other land titles that is maintained by a local government official. The register of deeds will be used in conjunction with a grantor-grantee index that lists the owner of record and any transfers of property.
-
Registered Bond
- A bond whose owner is registered with the bond's issuer. The owner's name and contact information is recorded and kept on file with the company, allowing it to pay the bond's coupon payment to the appropriate person. If the bond is in physical form, the owner's name is printed on the certificate. Most registered bonds are now tracked electronically, using computers to record owners' information.
-
Registered Education Savings Plan - RESP
- A savings plan sponsored by the Canadian government that encourages investing in a child's future post-secondary education. Subscribers to an RESP make contributions that build up tax-free earnings - tax-free because subscribers cannot deduct payments made to the plan from their income. The government contributes a certain amount to plans for children under 18 under the Canada Education Savings Grant (CESG).
-
Registered Investment Advisor - RIA
- An advisor, registered with the Securities and Exchange Commission, who manages the investments of others.
-
Registered Options Principal - ROP
- An employee at a brokerage firm that is responsible for supervising options' exposure and the trading activities on options within client accounts. The ROP acts between the client making the order and the exchange member who executes the order.
-
Registered Options Trader
- An individual working on the floor of an exchange whose function it is to watch a number of options traded on the exchange to ensure that they are being traded fairly, in fair market conditions. The individual may trade for him/herself or for other parties, but is under no obligation to 'make a market' for any options traded on the exchange.
-
Registered Pension Plan - RPP
- A form of a trust that provides pension benefits for an employee of a company upon retirement. RPPs are registered with the Canada Revenue Agency. The employee and employer, or just the employer make contributions to this retirement plan until the employee leaves the company or retires.
-
Registered Principal
- A licensed securities dealer who is also empowered to oversee operational, compliance, trading and sales operations and the personnel who staff them. Registered principals must have all the basic securities licenses required for the operation they oversee plus an additional principal license.
-
Registered Representative - RR
- A person who works for a brokerage company that is licensed by the Security and Exchange Commission (SEC) and acts as an account executive for clients trading investment products such as stocks, bonds and mutual funds. Also known as an "account executive".
-
Registered Retirement Income Fund - RRIF
- A retirement fund similar to an annuity contract that pays out income to a beneficiary or a number of beneficiaries. To fund their retirement, RRSP holders often roll over their RRSPs into an RRIF. RRIF payouts are considered a part of the beneficiary's normal income and are taxed as such by the Canadian Revenue Agency in the year that the beneficiary receives payouts. The organization or company that holds the RRIF is known as the carrier of the plan. Carriers can be insurance companies, banks or any kind of licensed financial intermediary. The Government of Canada is not the carrier for RRIFs; it merely registers them for tax purposes.
-
Registered Retirement Savings Plan - RRSP
- A legal trust registered with the Canada Revenue Agency and used to save for retirement. RRSP contributions are tax deductible and taxes are deferred until the money is withdrawn. An RRSP can contain stocks, bonds, mutual funds, GICs, contracts and even mortgage-backed equity.
RRSPs have two main tax advantages:
1. Contributors deduct contributions against their income. For example, if a contributor's tax rate is 40%, every $100 he or she invests in an RRSP will save that person $40 in taxes, up to his or her contribution limit.
2. The growth of RRSP investments is tax sheltered. Unlike with non-RRSP investments, returns are exempt from any capital-gains tax, dividend tax or income tax. This means that investments under RRSPs compound at a pretax rate.
-
Registered Retirement Savings Plan Contribution - RRSP Contribution
- Assets invested in an RRSP. RRSP contributions can be made at any time and for any amount up to an individual’s contribution limit for the year. If a contributor does not make the maximum allowable contribution, the balance of unused contribution room from 1991 onwards is carried forward indefinitely. This allows people to make up for the years that they did not maximize their allowed RRSP contributions.
-
Registered Retirement Savings Plan Deduction - RRSP Deduction
- The amount that a Canadian taxpayer contributes to his or her RRSP. This amount can be deducted from the taxpayer's annual income to arrive at his or her taxable income for the year.
-
Registered Retirement Savings Plan Deduction Limit - RRSP Deduction Limit
- The maximum amount that the Canada Revenue Agency (CRA) allows a taxpayer to deduct from his or her personal income when calculating tax liability. The sum of contributions made to a taxpayer's personal RRSP and his or her spouse's or common-law partner's RRSP must be lower than the RRSP deduction limit or withholding taxes will be imposed on the coverage.
-
Registered Security
- 1. The name given to securities whereby ownership is registered with the issuing company or their agent.
2. Securities that are unavailable for sale due to restrictions placed upon them at the time of issue.
-
Registrar
- An institution or organization that is responsible for keeping records of bondholders and shareholders. If you are the owner of a bond or a share in a company you will be registered as a owner by one of these institutions.
-
Registration
- 1. The process by which a company files required documents with the Securities and Exchange Commission detailing the particulars of a proposed public offering. A company issuing shares must reveal essential facts and detailed information about its business during the registration process, including a business and asset description, a description of the security being offered and the details of that offering, a description and names of the company's management, and the company's financial statements, which have been certified by an accountant working independently of the company.
2. The process by which securities brokers or dealers become legally entitled to sell securities. To have the authority to sell securities, a broker or dealer must file forms and be granted registration with the SEC, must already be a member, or must become a member of a self-regulatory organization such as the NASD, be registered with the state or states in which he or she intends to sell securities if such state laws require him or her to do so, and finally, be or become a member of the Security Investor Protection Corporation.
-
Registration Right
- A contractual right giving investors holding restricted stock the ability to demand that the issuing company register the shares to the SEC, effectively making the stock available for sale to the public.
-
Regression
- A statistical measure that attempts to determine the strength of the relationship between one dependent variable (usually denoted by Y) and a series of other changing variables (known as independent variables).
-
Regressive Tax
- A tax that takes a larger percentage from low-income people than from high-income people. A regressive tax is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder.
-
Regret Theory
- A theory that says people anticipate regret if they make a wrong choice, and take this anticipation into consideration when making decisions. Fear of regret can play a large role in dissuading or motivating someone to do something.
-
Regular-Way Trade - RW
- A type of trade that is settled through the regular settlement cycle required for the particular investment being traded. The settlement cycle is the time that the regulations of the securities market allows for the buyer to complete payment and for the seller to deliver the goods being purchased. The settlement cycle differs for different assets. Most trades are regular-way trades.
-
Regulated Investment Company - RIC
- A mutual fund or real estate investment trust that is eligible to pass the taxes on capital gains, dividends, or interest payments onto the clients or individual investors.
-
Regulation 9
- A regulation that permits national banks to open and operate trust departments in-house and function as fiduciaries. Regulation 9 allows national banks to manage and administrate investment-related activities. They can register stocks, bonds and other securities and act as trustees for them.
-
Regulation A - Reg A
- An Securities and Exchange Commission (SEC) regulation that governs offerings of $5 million or less, which qualify for simplified registration (an exemption).
-
Regulation AA
- A regulation designed to address practices by banks that are perceived as unfair by consumers. Regulation AA establishes the procedures used to process complaints registered by bank customers. This regulation applies to state member banks only.
-
Regulation B
- A regulation intended to prevent discrimination against applicants for consumer credit. Regulation B outlines the rules that lenders must adhere to when obtaining and processing credit information. Lenders are prohibited from discrimination on the basis of age, gender, ethnicity, nationality, marital status or the receipt of public assistance.
-
Regulation BB
- A regulation that requires banks to provide certain information to the public. Regulation BB mandates that banks must disclose to the public which communities they will serve and the type of credit that they are willing to extend there. It also requires them to publish any comments they have about their Community Reinvestment Act (CRA) statement to the public.
-
Regulation C
- A regulation that implements the Home Mortgage Disclosure Act of 1975. Regulation C mandates that depository institutions must annually disclose the communities to which they provided residential mortgages. This allows regulatory authorities to evaluate whether the lender is adequately meeting the needs of the prospective borrowers in that community.
-
Regulation CC
- One of the banking regulations set forth by the Federal Reserve. Regulation CC implements the Expedited Funds Availability Act of 1987. This act sets certain standards for endorsements on checks that are paid by banks and other depository institutions.
-
Regulation D - Reg D
- A Securities and Exchange Commission (SEC) regulation governing private placement exemptions. Reg D allows usually smaller companies to raise capital through the sale of equity or debt securities without having to register their securities with the SEC.
-
Regulation DD
- A regulation set forth by the Federal Reserve. Regulation DD was enacted to implement the Truth in Savings Act that was passed in 1991. This act requires lenders to provide certain uniform information about fees and interest when opening an account for a customer.
-
Regulation E
- A regulation set forth by the Federal Reserve. Regulation E outlines the rules and procedures for electronic funds transfers (EFTs) and outlines guidelines for those who sell and issue electronic debit cards. Rules pertaining to consumer liability for unauthorized card usage fall under this regulation as well.
-
Regulation F
- A regulation set forth by the Federal Reserve. Regulation F specifies that banks must institute internal rules that regulate the amount of risk that they can take in their business proceedings with other institutions. It also limits the amount of credit exposure between banks to 25% of capital, in most cases.
-
Regulation Fair Disclosure - Reg FD
- A rule passed by the Securities and Exchange Commission in an effort to prevent selective disclosure by public companies to market professionals and certain shareholders.
The Reg FD rule reads as follows: "Whenever an issuer, or any person acting on its behalf, discloses any material nonpublic information regarding that issuer or its securities to [certain enumerated persons], the issuer shall make public disclosure of that information... simultaneously, in the case of an intentional disclosure; and... promptly, in the case of a non-intentional disclosure."
-
Regulation G
- The Federal Reserve Board regulation that governs the extension of credit for securities transactions by commercial lenders and non-financial corporations.
-
Regulation H
- A regulation set forth by the Federal Reserve. Regulation H outlines the requirements for membership that state-chartered banks that become Federal Reserve System members must adhere to. It also lists the procedures for membership that prospective members must follow and sets certain limits and requirements on some loan types.
-
Regulation I
- A regulation set forth by the Federal Reserve. Regulation I stipulates that any bank that becomes a member of the Federal Reserve acquire a certain amount of stock in its Federal Reserve Bank. This regulation states the procedures for banks to purchase and redeem Federal Reserve Bank capital stock. The bank cannot use this stock as collateral.
-
Regulation J
- A regulation set forth by the Federal Reserve. Regulation J establishes the core guidelines for the processing of checks and other cash instruments for Federal Reserve Banks, senders and payers of checks, and recipients and senders of Fedwire funds. It also allows for these items to be settled on a net basis.
-
Regulation K
- One of the regulations set forth by the Federal Reserve. Regulation K provides governance on the international banking front, offering guidelines for bank holding companies that engage in international trade and also foreign banks located domestically. It limits the kinds of business and financial practices and transactions in which foreign banks located domestically can participate.
-
Regulation L
- One of the regulations set forth by the Federal Reserve. Regulation L disallows certain types of interlocking arrangements with directors for member banks and their respective holding companies. Any official of a state bank or holding company cannot act as a manager of an unaffiliated depository institution.
-
Regulation M
- An IRS regulation that allows regulated investment companies to pass taxes from capital gains, dividends, and interest distributions onto individual investors.
-
Regulation N
- One of the regulations set forth by the Federal Reserve. Regulation N oversees financial transactions among Federal Reserve Banks, foreign entities, bankers and governments. It also makes the board of directors responsible for the advance approval of transactions or agreements between the Fed and foreign countries.
-
Regulation NMS
- National Market System (NMS) is a set of rules passed by the Securities and Exchange Commission (SEC), which looks to improve the U.S. exchanges through improved fairness in price execution as well as improve the displaying of quotes and amount and access to market data.
-
Regulation O
- One of the regulations set forth by the Federal Reserve. Regulation O places limits and stipulations on the credit extension that a member bank can offer to its executive officers, principal shareholders and directors. This regulation also implements certain reporting requirements as set forth in previous financial legislation.
-
Regulation P
- One of the regulations set forth by the Federal Reserve. Regulation P addresses standards for all bank hardware and equipment related to security and the holding of cash. This regulation covers security measures, such as bank vaults, and other currency-handling equipment, such as ATMs.
-
Regulation Q
- A Federal Reserve Board regulation that limits the interest rate banks can pay on savings deposits.
-
Regulation SHO
- A regulation implemented on January 3, 2005 that seeks to update legislations concerning short sale practices. Regulation SHO established "locate" and "close-out" standards that are primarily aimed at preventing the opportunity for unethical traders to engage in naked short selling practices.
-
Regulation T - Reg T
- The Federal Reserve Board regulation that governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities.
-
Regulation U
- The Federal Reserve Board regulation that governs loans by banks for the purchase of securities.
-
Regulation Z
- A specific Federal Reserve Board regulation that requires debt lenders to disclose all the specifics of a given loan. This was done to promote a level of credit protection for the underlying consumer. Most of the requirements imposed by the 1968 Truth in Lending Act are contained within Regulation Z, and the two terms are often used interchangeably.
-
Regulatory Asset
- Specific costs or revenues that a regulatory agency permits a U.S. public utility (usually an energy company) to defer to its balance sheet. These amounts would otherwise be required to appear on the company's income statement and would be charged against current expenses or revenues.
-
Regulatory Risk
- The risk that a change in laws and regulations will materially impact a security, business, sector or market. A change in laws or regulations made by the government or a regulatory body can increase the costs of operating a business, reduce the attractiveness of investment and/or change the competitive landscape.
-
Rehypothecation
- When a broker pledges hypothecated client owned securities in a margin account to secure a bank loan.
-
Reimbursable Out-Of-Pocket Costs
- Cash payments that an individual or company incurs on behalf of the company, and that will be refunded sometime in the future. While some of these costs may have personally benefited the employees, companies are willing to repay employees for incurring these expenses, because they come about as a result of performing their job.
-
Reimbursement Plan
- A generic term for several types of plans that reimburse employees for various types of work-related expenses. These expenses can include medical, auto, travel, meal and entertainment costs. Reimbursement plans are instituted by employers in order to allow them to pay for a more accurate amount of employee expenses incurred instead of having to provide a broad allowance or increase in compensation to cover them.
-
Reinstatement
- 1. The process of re-establishing the status of a person, company or law.
2. In regards to insurance, reinstatement allows a previously terminated policy to resume active coverage. Depending on the circumstance of the termination, such as failure to pay the premium, the insured person may be required to compensate the insurer before reinstatement occurs.
-
Reinsurance
- The practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim. The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten policies by spreading risks across alternative institutions.
Also known as "insurance for insurers" or "stop-loss insurance".
-
Reinsurance Sidecar
- A limited purpose company created to work in tandem with insurance companies. Reinsurance sidecars will purchase a portion or all of an insurance policy from an insurance company to share in the profits and risks. If the underwritten policies have low claim rates while in possession of the sidecar, the investors will make higher returns.
-
Reinvestment
- Using dividends, interest and capital gains earned in an investment or mutual fund to purchase additional shares or units, rather than receiving the distributions in cash.
1. In terms of stocks, it is the reinvestment of dividends to purchase additional shares.
2. In terms of mutual funds, it is the reinvestment of distributions and dividends to purchase additional units of that fund.
3. In terms of tax gain/loss harvesting, it is the realization of losses to offset a capital gains liability.
-
Reinvestment Rate
- The rate at which cash flows from fixed-income securities may be reinvested.
-
Reinvestment Risk
- The risk that future proceeds will have to be reinvested at a lower potential interest rate.
-
Reinvoicing Center
- A subsidiary or department of a multinational corporation where all intrafirm transactions are centralized and foreign currency related receivables and liabilities are netted. The means of hedging the entire multinational firm's foreign currency exposures are also determined by the reinvoicing center.
-
REIT ETF
- Exchange-traded funds that invest the majority of assets in equity REIT securities and related derivatives. REIT ETFs are passively managed around an index of publicly traded real estate owners; indexes may vary from provider to provider but two popular benchmarks are the MSCI U.S. REIT Index and the Dow Jones U.S. REIT Index, both of which cover about two-thirds of the aggregate value of the publicly-traded REIT market domestically. REIT ETFs are characterized by their above-average dividend yields.
-
Related-Party Transaction
- A business deal or arrangement between two parties who are joined by a special relationship prior to the deal. For example, a business transaction between a major shareholder and the corporation, such as a contract for the shareholder's company to perform renovations to the corporation's offices, would be deemed a related-party transaction.
-
Relative Purchase Power Parity
- An expansion of the purchase power parity theory, which suggests that prices in countries vary for the same product but that they differ by the same proportional rate over time. The reasons suggested for this price difference include taxes, shipping costs and differences in product quality.
-
Relative Return
- The return that an asset achieves over a period of time compared to a benchmark. The relative return is the difference between the absolute return achieved by the asset and the return achieved by the benchmark.
-
Relative Strength
- A measure of price trend that indicates how a stock is performing relative to other stocks in its industry.
-
Relative Strength Index - RSI
- A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula:
| RSI = 100 - | 100 |
| ______ |
| 1 + RS |
| RS = Average of x days' up closes / Average of x days' down closes |
As you can see from the chart below, the RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued.
-
Relative Vigor Index - RVI
- An indicator used in technical analysis that measures the conviction of a recent price action and the likelihood that it will continue. The RVI compares the positioning of a security's closing price relative to its price range, and the result is smoothed by calculating an exponential moving average of the values.
The indicator is calculated by using the following formula:
-
Relevant Cost
- A managerial accounting term that is used to describe costs that are specific to management's decisions. The concept of relevant costs eliminates unnecessary data that could complicate the decision-making process.
-
Reload Option
- An employee stock option that grants additional options upon exercise of the original.
-
Reloading
-
Relocation Mortgage - Relo
- A type of mortgage that is designed for relocating/transferring employees. Corporations sometime make special mortgages available for relocating employees in an effort to make the moving process easier and more economical. Oftentimes, there are bonuses for the employee, such as the company paying the closing costs. Some mortgage companies specialize in offering relo mortgages.
-
Remainder Man
- The person who receives the principal remaining in a trust account after all other required payments have been made, such as those to the beneficiary and expenses.
-
Remargining
- The process of bringing an account up to minimum equity standards by depositing more cash or equity. This typically occurs after the account holder has received a margin call.
When a stock is purchased on margin in a margin account, the account holder is required to maintain certain levels of equity in that account. When these requirements are not met, the brokerage firm will require that additional cash or securities be deposited to bring the account up to minimum equity levels.
-
Remeasurement
- The re-evaluation of the value of an asset or liability within a particular account on a company's financial statements. The purpose of this re-evaluation is to more accurately reflect the company's financial and operating position, even if the re-evaluation doesn't benefit the firm.
-
Remittance
- The process of sending money to remove an obligation. This is most often done through an electronic network, wire transfer or mail. The term also refers to the amount of money being sent to remove the obligation.
-
Remittance Float
- The time it takes for a payment to be sent from the remitter (payer) to the recipient and become liquid again. This term applies to all forms of payment, whether it's a check sent through the mail, an electronic payment or a wire transfer. Most of the remittance float is made up of the transit or mail time.
Sometimes referred to as a "mail float".
-
Remuneration
- Payment or compensation received for services or employment. This includes the base salary and any bonuses or other economic benefits that an employee or executive receives during employment.
-
Renationalization
- Bringing assets and/or industries back into national-government ownership after they had previously been privatized. The motives for renationalization can be widely varied, but are always based in either economics or politics.
Renationalization often occurs in sectors that are required for the country to operate smoothly, or where monopolies must occur. Examples of sectors that are commonly renationalized are utilities and transportation.
If no compensation is given to the previous owners, this process is called expropriation, and it is commonly seen in times of war.
-
Renewable Energy Certificate - REC
- A certificate that is proof that one megawatt-hour (MWh) of electricity was generated from a renewable energy resource. Once the electricity provider has fed the electricity into the grid, the Renewable Energy Certificate (REC) they received can then be sold on the open market as a commodity. Because of the additional cost for producing "green" energy, the RECs provide an additional income stream to the energy provider, thus making it a bit more attractive to produce.
Also known as Green Tags, Tradable Renewable Certificates (TRCs), and Renewable Energy Credits.
-
Renewable Resource
- A substance of economic value that can be replaced or replenished in the same amount or less time as it takes to draw the supply down. Some renewable resources have essentially an endless supply, such as solar energy, wind energy and geothermal pressure, while other resources are considered renewable even though some time or effort must go into their renewal, such as wood, oxygen, leather and fish. Most precious metals are considered renewable as well; even though they are not naturally replaced, they can be recycled because they are not destroyed during their extraction and use.
-
Renewable Term
- A clause in a term insurance contract that allows the beneficiary to extend the coverage term for a set period of time without having to requalify for coverage. A renewable term is contingent on premium payments being up to date, as well as a renewal premium being paid by the beneficiary.
-
Renko Chart
- A type of chart, developed by the Japanese, that is only concerned with price movement; time and volume are not included. It is thought to be named for the Japanese word for bricks, "renga". A renko chart is constructed by placing a brick in the next column once the price surpasses the top or bottom of the previous brick by a predefined amount. White bricks are used when the direction of the trend is up, while black bricks are used when the trend is down. This type of chart is very effective for traders to identify key support/resistance levels. Transaction signals are generated when the direction of the trend changes and the bricks alternate colors.
-
Renounceable Right
- An offer issued by a corporation to shareholders to purchase more shares of the corporation's stock (usually at a discount). Renounceable rights have a value and can be traded.
-
Rent To Own
- An arrangement between a consumer and a seller that allows the consumer to rent furniture, appliances and other goods for a defined period of time. The consumer is only responsible for paying the periodic rental fee for that defined time, which can be as short as a week or month, but may be continued if the consumer chooses to renew it. However, a condition in the rental agreement provides the consumer with an opportunity to purchase the rented goods by continuing to pay the rental fee for a length of time or by paying a lump sum payment.
-
Rent-Seeking
- When a company, organization or individual uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation.
-
Rental Pool
- A type of contract-law sharing arrangement. Rental-pool arrangements resemble time-shares in the sense that in both cases, different parties divide the use and expenses of property. Rental pools seek to increase the number of days the home is occupied for a fair rental value and, by doing to, avoid the loss restriction imposed by the IRS.
However, the arrangements have not held water with the tax courts, which have ruled that only the days that a home is actually rented out can be considered fair rental days, not the number of days that the home is available for rent through the rental-pool arrangement.
-
Reorganization
- A process designed to revive a financially troubled or bankrupt firm. A reorganization involves the restatement of assets and liabilities, as well as holding talks with creditors in order to make arrangements for maintaining repayments.
-
Repackaging
- When a private equity firm takes a public firm private by purchasing all of its common stock with leverage loans. The private equity firm then makes changes to the company, in effect "dressing up" the company, with an eye toward bringing it public again via an initial public offering (IPO).
-
Repatriable
- Refers to the ability of an asset to be moved from a foreign country back to an investor's home country. Assets such as cash and securities are considered highly repatriable, while assets such as foreign real estate and business ownership are considered to have a low level of repatriability. Barriers to repatriation may include the physical nature of the asset, laws of the foreign country, and laws of the investor's home country.
-
Repatriation
- The process of converting a foreign currency into the currency of one's own country. The amount that the investor will receive depends on the exchange rate between the two currencies being traded at the settlement time.
-
Repayment
- The act of paying back a debt.
-
Replacement Cost
- The price that will have to be paid to replace an existing asset with a similar asset.
-
Replacement Property
- Any property that is received as a replacement for property that was lost as a result of an involuntary conversion, such as theft. Replacement property can be either personal or business property and can include real estate, machinery and equipment, vehicles or personal equipment. Replacement property is often provided for by casualty-insurance carriers.
-
Replacement Risk
- The risk that a contract holder will know that the counterparty will be unable to meet the terms of a contract, creating the need for a replacement contract.
Also known as "replacement-cost risk".
-
Reporting Currency
- The currency used in published reports and financial documents.
-
Reporting Level
- A level of ownership of a specific futures position wherein the holders exceed the stated amounts and are required by the CFTC to submit daily reports.
Also known as reporting limit.
-
Reprice
- A situation involving the exchange of stock options that are no longer in the money for options that are currently at the money. This allows the investor to exchange worthless options for options that have value, and is common for executives, pending approval from the board of directors.
-
Reproduction Cost
- The costs involved with identically reproducing an asset or property with the same materials and specifications as an insured property based on current prices. Insurers use reproduction cost as a method of valuation to calculate the costs involved with the risk of replacing an insured asset with an identical one at the same location.
Reproduction cost looks at the cost of creating an exact replica, and should not be confused with replacement cost, which looks at the cost of replacing an insured property with one of similar functionality.
-
Repudiation
- When one party refuses to honor its terms in a loan contract.
-
Repurchase Agreement - Repo
- A form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.
For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.
-
Required Beginning Date - RBD
- The date by which a qualified plan participant or IRA owner must begin receiving required minimum distributions from his or her retirement account.
-
Required Cash
- The total dollar amount that must be posted up front by the buyer to close a mortgage or to refinance an existing property. The required cash amount can include any of the following amounts if they are requested at closing:
-Any down payment
-Points or other fixed charges to the lender
-Insurance premiums
-Title insurance or per diem interest
The required cash should be expressed on the Good Faith Estimate of Settlement, which is a mandatory step in the lending process.
-
Required Minimum Distribution - RMD
- The amount that Traditional, SEP and SIMPLE IRA owners and qualified plan participants must begin distributing from their retirement accounts by April 1 following the year they reach age 70.5. RMD amounts must then be distributed each subsequent year.
-
Required Rate Of Return (RRR)
- The rate of return needed to induce investors or companies to invest in something.
-
Required Yield
- The return a bond must offer in order to be a worthwhile investment. Required yield is set by the market and sets the precedent for how current bond issues will be priced.
-
Requisitioned Property
- Property that is involuntarily seized by a governmental authority for any reason. Requisitioned property can be taken for a number of reasons relating to furtherance of the public good. It can be of any type, including real estate, vehicles, machinery, office equipment or even personal property.
-
Rescaled Range Analysis
- A statistical analysis of a time-series of financial data that attempts to find patterns that might repeat in the future. While rescaled-range analysis techniques have proved useful in other mathematical endeavors, the evidence for its use in analyzing financial data remains somewhat unproven. There are two main variables used in this technique – the range of the data (as measured by the highest and lowest values in the time period), and the standard deviation of the data. A derivative of this mathematical result is known as a Hurst exponent; if a trend actually exists in the data, this Hurst exponent can extrapolate a future value or average for the data point.
-
Rescission
- The right of an individual involved in a contract to return to a state identical to that before they entered into the agreement, due to courts not recognizing the contract as legally binding. In many cases, rescission may be an option if there is a material error in the contract, among other reasons.
-
Research And Development - R&D
- Investigative activities that a business chooses to conduct with the intention of making a discovery that can either lead to the development of new products or procedures, or to improvement of existing products or procedures. Research and development is one of the means by which business can experience future growth by developing new products or processes to improve and expand their operations.
-
Research Note
- A statement from a brokerage firm or other investment advisory service discussing a specific security, industry, market or news item. Research notes are usually meant to contain time-sensitive information that applies to the current day's trading session or some event in the near future.
-
Reserve Bank of Australia
- The Reserve Bank of Australia is Australia's central bank and its main responsibility is to be involved in Australia's monetary policy. In addition, the Reserve Bank of Australia is also involved in banking and registry services for federal agencies and some international central banks. The Reserve Bank of Australia is tasked with contributing to three objectives: a) The stability of Australia's currency, b) Maintenance of full employment in Australia and c) The economic prosperity of the people of Australia. The bank was established in 1960 and is entirely owned by the Australian government.
-
Reserve Bank Of India - RBI
- The central bank of India, which was established on April 1, 1935, under the Reserve Bank of India Act. The RBI uses monetary policy to create financial stability in India and is charged with regulating the country's currency and credit systems.
-
Reserve Bank of New Zealand
- The Reserve Bank of New Zealand is New Zealand's central bank and its overall purpose is to maintain the stability of New Zealand's financial system. The Reserve Bank of New Zealand is also responsible for maintaining monetary policy, meeting the currency needs of the public and providing support services for other banks. In 2007, New Zealand's government decided to expand the role of the Reserve Bank by increasing its regulatory oversight to include not only banks but also building societies, credit unions, insurance and finance companies.
-
Reserve Currency
- A foreign currency held by central banks and other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate.
-
Reserve Fund
- An account set aside by an individual or business to meet any unexpected costs that may arise in the future as well as the future costs of upkeep. In most cases, the fund is simply a savings account or another highly liquid asset, as it is impossible to predict when an unexpected cost may arise. However, if the fund is set up to meet the costs of scheduled upgrades, less liquid assets may be used.
-
Reserve Maintenance Period
- The time frame in which banks and other depository institutions must maintain a specified level of funds. It is a two-week period that begins on a Thursday and ends on a Wednesday. An assessment of overdrafts and corresponding charges also occurs during this time period.
-
Reserve Ratio
- The portion (expressed as a percent) of depositors' balances banks must have on hand as cash. This is a requirement determined by the country's central bank, which in the U.S. is the Federal Reserve. The reserve ratio affects the money supply in a country.
This is also referred to as the "cash reserve ratio" (CRR).
-
Reserve Requirements
- Requirements regarding the amount of funds that banks must hold in reserve against deposits made by their customers. This money must be in the bank's vaults or at the closest Federal Reserve bank.
Also known as "required reserves".
-
Reserve Tranche
- The proportion of the required quota of currency that each International Monetary Fund (IMF) member country must provide to the IMF, but can designate for its own use. The reserve tranche portion of the quota can be accessed by the member nation at any time, whereas the rest of the member's quota is typically unaccessible.
-
Reserves to Production Ratio
- A ratio indicating the remaining lifespan of a natural resource. This ratio is expressed in terms of years, and is used in forecasting the future availability of a resource to determine project life, income, employment etc. While applicable to all natural resources, it is primarily used in the oil and gas industry.
RPR = amount of known resource
amount used per year
-
Reset Margin
- The additional fixed spread above the index underlying a floating-rate security.
-
Resident Alien
- A foreigner who is a permanent resident of the country in which he or she resides but does not have citizenship. To fall under this classification in the U.S., you need to either currently have a green card or have had one in the last calendar year. You also fall under the U.S. classification of resident alien if you have been in the U.S. for more than 31 days during the current year along with having been in the U.S. for at least 183 days over a three-year period that includes the current year.
-
Residential Mortgage-Backed Security (RMBS)
- A type of security whose cash flows come from residential debt such as mortgages, home-equity loans and subprime mortgages. This is a type of mortgage-backed securities that focuses on residential instead of commercial debt.
-
Residential Rental Property
- A type of property that derives more than 80% of its revenue from dwelling units. Residential rental property uses the 27.5 year modified accelerated cost recovery system (MACRS) schedule for depreciation.
Income from residential rental property is passive income.
-
Residual Income
- The amount of income that an individual has after all personal debts, including the mortgage, have been paid. This calculation is usually made on a monthly basis, after the monthly bills and debts are paid. Also, when a mortgage has been paid off in its entirety, the income that individual had been putting toward the mortgage becomes residual income.
-
Residual Interest
- A type of interest payment received by investors in a real estate mortgage investment conduit (REMIC).
-
Residual Interest Bonds - RIBS
- A type of inverse floating-rate bond created by dividing the income from a municipal bond into two portions. The municipal bondholder will create two new securities: a primary direct floating-rate bond and a residual inverse floating-rate bond. The floaters will be linked to a reference interest rate, such as LIBOR, and the municipal bond's income will be used to pay the coupon on the direct floater, with any remaining income going toward the residual interest bond.
-
Residual Security
- Another way to describe convertibles.
-
Residual Standard Deviation
- A statistical term used to describe the standard deviation of points formed around a linear function, and is an estimate of the accuracy of the dependent variable being measured.
Residual standard deviation is also referred to as the standard deviation of points around a fitted line.
-
Resistance (Resistance Level)
- The price at which a stock or market can trade, but not exceed, for a certain period of time.
Often referred to as "resistance level".
-
Respite Care
- Short-term or temporary care of a few hours or weeks of the sick or disabled to provide relief, or respite, to the regular caregiver, usually a family member.
-
Response Lag
- The time lag between when a corrective action is taken in the economy and when any changes coming from the action are noticed or felt. Corrective actions may be taken by the government directly, or more commonly by central banks or other mandated monetary authorities.
Also known as "impact lag", or the time it takes for the impact of corrective action to be felt by the economy.
-
Restatement
- A revision in a company's earlier financial statements.
-
Restricted Stock
- Insider holdings that are under some other kind of sales restriction. Restricted stock must be traded in compliance with special SEC regulations. These regulations are outlined under Section 1244 of the Internal Revenue Code.
Also referred to as "Letter Stock" and "Section 1244 Stock".
-
Restrictive Covenant
- Any type of agreement that requires the buyer to either take or abstain from a specific action. In real estate transactions, restrictive covenants are binding legal obligations written into the deed of a property by the seller. These covenants can be either simple or complex and can levy penalties against buyers who fail to obey them.
-
Restructuring
- A significant modification made to the debt, operations or structure of a company. This type of corporate action is usually made when there are significant problems in a company, which are causing some form of financial harm and putting the overall business in jeopardy. The hope is that through restructuring, a company can eliminate financial harm and improve the business.
-
Retail Banking
- Typical mass-market banking in which individual customers use local branches of larger commercial banks. Services offered include savings and checking accounts, mortgages, personal loans, debit/credit cards and certificates of deposit (CDs).
-
Retail Credit Facility
- A financing method which provides loan services to retail consumers for goods and services. Retail credit facilities lend funds to consumers wishing to purchase high ticket items but are short on capital. Thus, retail credit facilities may enable a greater number of consumers access to a retailer's goods.
-
Retail Fund
- A type of fund that is registered with the Securities and Exchange Commission (SEC) and is sold to individual investors through investment dealers and in open market transactions. Retail funds are often categorized as mutual funds, and carry lower initial investments and management expense ratios than non-retail funds.
-
Retail Investor
- Individual investors who buy and sell securities for their personal account, and not for another company or organization.
Also known as an "individual investor" or "small investor".
-
Retail Lender
- A lender who lends money to individuals rather than institutions. Banks, credit unions, savings and loans institutions, and mortgage bankers are all examples of retail lenders. Retail lenders are used generally for lending money for mortgages, auto loans and consumer-finance loans.
-
Retail Note
- A medium-term, subordinated, unsecured debt obligation usually issued by a multinational corporation. Retail notes can be purchased directly from the issuer at par in $1,000 increments with no accrued interest or added markups. They will usually pay a fixed interest rate for nine months or more (after that, the rate may vary). Retail notes may be callable and can be redeemed at the option of the issuer or holder. Most retail notes also feature a survivor's option.
Also known as "retail bonds".
-
Retail Price Index - RPI
- An index that gathers the prices of several retail goods in outlets across the United States in order to give an indication of the rate of inflation.
-
Retail Sales
- An aggregated measure of the sales of retail goods over a stated time period, typically based on a data sampling that is extrapolated to model an entire country. In the U.S., the retail sales report is a monthly economic indicator compiled and released by the Census Bureau and the Department of Commerce. The report covers the previous month, and is released about two weeks after the month-end. Comparisons are made against historical data; year-over-year comparisons are the most-reported metric because they account for the seasonality of consumer-based retail.
-
Retained Cash Flow - RCP
- A measure of the net change in cash and cash equivalent assets at the end of a financial period. It is the difference between the incoming and outgoing cash for the period. retained cash flow is cash left over after the company uses cash for expenses and dividends, and is typically used to reinvest into positive net present value (NPV) projects.
-
Retained Earnings
- The percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders' equity on the balance sheet.
The formula calculates retained earnings by adding net income to (or subtracting any net losses from) beginning retained earnings and subtracting any dividends paid to shareholders:
Also known as the "retention ratio" or "retained surplus".
-
Retender
- The act of an investor selling the delivery note issued by a clearing house upon tender by the counter-party of the futures contract.
-
Retention Ratio
- The percent of earnings credited to retained earnings. In other words, the proportion of net income that is not paid out as dividends.
Calculated as:
-
Retention Tax
- A mandatory tax placed on income that is earned on investments in a country that is not the resident's home country. This only applies to countries that are members of the European Union (EU).
-
Retired Securities
-
Retirement of Securities
- 1. The cancellation of stocks or bonds because the issuer has bought them back.
2. The removal of an asset from securities markets because its maturity date has been reached.
-
Retirement Planner
- A practicing professional who helps individuals prepare a retirement plan. A retirement planner identifies sources of income, estimates expenses, implements a savings program and helps manage assets. Estimating future cash flows and assets is also a central part of a retirement planner's work. He or she may use a web-based calculator or software program that will predict future cash flows and assets based on the data entered.
-
Retirement Planning
- The process of determining retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program and managing assets. Future cash flows are estimated to determine if the retirement income goal will be achieved.
-
Retirement Readiness
- The state and/or degree of being ready for retirement. Retirement readiness typically refers to being financially prepared for retirement, or the degree to which an individual is on target to meet his or her retirement-income goals so that the standard of living enjoyed while working will be maintained after retirement.
-
Retracement
- A reversal in the movement of a stock's price, countering the prevailing trend.
-
Retract
- The withdrawal of a bid, offer or statement before any relevant party acts on the information provided. In most circumstances, retracting an offer within a proper time frame will relieve a person of any obligations associated with the bid.
-
Retractable Bond
- A bond that features an option for the holder to force the issuer to redeem the bond before maturity at par value. An investor may choose to shorten the maturity on a bond because of market conditions or if he or she requires the principal sooner than expected.
-
Retractable Preferred Shares
- A specific type of preferred stock thats lets the owner sell the share back to the issuer at a set price. Typically, the issuer can force the redemption of the retractable preferred share for cash at maturity. Sometimes instead of cash, retractable preferred shares can be exchanged for common shares of the issuer.
-
Retrocession
- 1. The practice of one reinsurance company essentially insuring another reinsurance company by accepting business that the other company had agreed to underwrite.
2. The voluntary act of returning ceded property from one group to another. Retrocession can also be the result of a request to have property returned but, by definition, is not the result of a forced transaction.
3. The process of differentiating or diversifying assets by consolidating and then subdividing them amongst a number of stakeholders.
-
Return
- The gain or loss of a security in a particular period. The return consists of the income and the capital gains relative on an investment. It is usually quoted as a percentage.
-
Return Of Capital
- A return from an investment that is not considered income. The return of capital is when some or all of the money an investor has in an investment is paid back to him or her, thus decreasing the value of the investment. This is not a gain of any type because it is not in excess of the original investment.
-
Return On Assets - ROA
- An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment".
The formula for return on assets is:
Note: Some investors add interest expense back into net income when performing this calculation because they'd like to use operating returns before cost of borrowing.
-
Return On Average Assets - ROAA
- An indicator used to assess the profitability of a firm's assets. It is most often used by banks and other financial institutions as a means to gauge their performance. As return on average assets (ROAA) is calculated at period ends (quarters, years, etc.), it does not reflect all of the highs/lows but is merely an average of the period.
-
Return On Average Equity - ROAE
- An adjusted version of the return on equity (ROE) measure of company profitability, in which the denominator, shareholders' equity, is changed to average shareholders' equity. Typically, return on average equity refers to a company's performance over a fiscal year, so the average-equity denominator is usually computed as the sum of the equity value at the beginning and end of the year, divided by two.
-
Return On Capital Employed - ROCE
- A ratio that indicates the efficiency and profitability of a company's capital investments.
Calculated as:
-
Return On Capital Gains
- The return that one gets from an increase in the value of a capital asset (investment or real estate).
-
Return On Debt - ROD
- 1. A measure of a company's performance or net income as related to the amount of debt it has issued.
2. The amount of profit generated for each dollar that a company holds in debt.
3. A necessary factor when using the adjusted present value (APV) discounted cash flow method for valuing levered assets. The APV method is often used in a leveraged buyout as a way of valuing a firm that has a changing capital structure.
-
Return On Equity - ROE
- The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.
ROE is expressed as a percentage and calculated as:
Return on Equity = Net Income/Shareholder's Equity
Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does not include preferred shares.
Also known as "return on net worth" (RONW).
-
Return On Gross Invested Capital - ROGIC
- The amount that a company earns on the total investment it has made in its business. Total gross invested capital is equal to all of the shareholders' equity (both common and preferred shares) plus the total gross debt that the company has accumulated before making any payments on the debt.
-
Return On Innovation Investment
- A performance measure used to evaluate the effectiveness of a company's investment in new products or services. The return on innovation investment is calculated by comparing the profits of new product or service sales to the research, development and other direct expenditures
generated in creating these new products or services.
Also referred to as "R2I" or "ROI2."
-
Return On Invested Capital - ROIC
- A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. The return on invested capital measure gives a sense of how well a company is using its money to generate returns. Comparing a company's return on capital (ROIC) with its cost of capital (WACC) reveals whether invested capital was used effectively.
The general equation for ROIC is as follows:
Also known as "return on capital"
-
Return On Investment - ROI
- A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.
The return on investment formula:
Return on investment is a very popular metric because of its versatility and simplicity. That is, if an investment does not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment should be not be undertaken.
-
Return On Net Assets - RONA
- A measure of financial performance calculated as:
-
Return On New Invested Capital - RONIC
- A calculation used, either by a firm or investors, to determine the amount of return that a firm could earn on additional contributed capital. The calculation measures the return generated when a company converts its capital into capital expenditures, which generate revenues from core operations. A higher RONIC equates to a relatively efficient firm.
-
Return On Retained Earnings - RORE
- A calculation to show how well the profits of the previous year were reinvested. RORE is expressed as a percentage. A high percentage would indicate that a company would be better off reinvesting into the business, whereas a low one would show that paying out dividends may be in the best interests of the company.
-
Return On Revenue - ROR
- A measure of a corporation's profitability, calculated as net income divided by revenue.
-
Return On Risk-Adjusted Capital - RORAC
- A rate of return used in financial analysis, whereby riskier projects and investments are evaluated based on the capital at risk. RORAC makes it easier to compare and contrast projects with different risk profiles.
Allocated risk capital = the firm's capital, adjusted for a maximum potential loss based on the probability of future returns or volatility of earnings.
-
Return On Sales - ROS
- A ratio widely used to evaluate a company's operational efficiency. ROS is also known as a firm's "operating profit margin". It is calculated using this formula:
-
Return On Total Assets - ROTA
- A ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets. The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid.
To calculate ROTA:
-
Return Protection
- A common, but little-known credit card perk allowing cardholders to receive a refund for any item they purchase with the credit card that they are not satisfied with and that the merchant will not accept as a return. Return protection can be useful if the store's return period is shorter than the credit card's return protection period (30 days vs. 90 days, for example).
-
Returnment
- The act of returning to work after one has retired from one's job. Returnment happens for many reasons: some people do it out of financial necessity, others because they find full-time retirement less fulfilling than they thought and return to work for the satisfaction that work provides.
-
Reuters
- A global information provider headquartered in London, England, and serving professionals in the financial services, media and corporate markets. The news agency provides text, graphics, video and pictures to subscribers around the world, including general and economic news. Reuters Group trades on the London Stock Exchange and Nasdaq as 'RTR' and 'RTRSY'.
-
Revaluation
- A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. 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 "devaluation".
-
Revaluation Rates
- Market currency rates from a specific point in time that are used as a base value by currency traders to assess whether a profit or a loss has been realized for the day. In most cases, the revaluation rate is the closing rate for the previous trading day.
-
Revaluation Reserve
- An accounting term used when a company has to enter a line item on their balance sheet due to a revaluation performed on an asset. This line item is used when the revaluation finds the current and probable future value of the asset is higher than the recorded historic cost of the same asset.
-
Revdex
- A bond index that estimates the approximate yield that an investor will receive if he or she invests in revenue bonds maturing in 30 years. This index is comprised of a broad range of 25 revenue bond issues with investment grade ratings. The index provides an estimate of the yield on a 30-year revenue bond offered under current market conditions.
This index is also known as the "25 Bond Index."
-
Revenue
- The amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the "top line" or "gross income" figure from which costs are subtracted to determine net income.
Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold.
Revenue is also known as "REVs".
-
Revenue Act Of 1862
- This act increased taxes and implemented the first federal income tax in the United States. The Revenue Act of 1862 was passed by Congress in order to fund the American Civil War, and in the process also created the Bureau of Internal Revenue that managed tax collection duties. The income tax was the best source of income during that period, increasing government coffers by an estimated $340 million during the 10 year period it existed.
-
Revenue Agent
- A person who works for the Internal Revenue Service (IRS) examination department.
-
Revenue Agent's Report - RAR
- Changes to an assessment after examination by an IRS agent. The changes are recorded on form 4549.
-
Revenue Anticipation Note - RAN
- A short-term debt security issued on the premise that future revenues will be sufficient to meet repayment obligations.
-
Revenue Bond
- A municipal bond supported by the revenue from a specific project, such as a toll bridge, highway, or local stadium.
-
Revenue Deficit
- When the net amount received (revenues less expenditures) falls short of the projected net amount to be received. This occurs when the actual amount of revenue received and/or the actual amount of expenditures do not correspond with predicted revenue and expenditure figures. This is the opposite of a revenue surplus, which occurs when the actual amount exceeds the projected amount.
-
Revenue Generating Unit - RGU
- An individual service subscriber who generates recurring revenue for a company. This is used as a performance measure with analysts, investors and other participants. Investors will look for a company to increase its revenue generating units over time because this suggests that the company is remaining competitive.
-
Revenue Officer
- 1. A person working for the Internal Revenue Service (IRS) collections department.
2. Short for Chief Revenue Officer, a person responsible for all revenue-generating functions.
-
Revenue Per Available Room - RevPAR
- A performance metric in the hotel industry, which is calculated by multiplying a hotel's average daily room rate (ADR) by its occupancy rate. It may also be calculated by dividing a hotel's total guestroom revenue by the room count and the number of days in the period being measured.
-
Revenue Per Employee
- An important ratio that looks at a company's sales in relation to the number of employees they have. It is calculated as:
-
Revenue Per Occupied Room - RevPOR
- An industry metric used to evaluate companies in the hotel and lodging industries. RevPOR is used in conjunction with, or in place of, the more standard revenue per available room (RevPAR) statistic. RevPAR is calculated by taking the RevPOR value and multiplying it by the occupancy rate.
RevPOR may also be expressed as "total RevPOR", which includes not only the room rate itself, but also any extra services such as room service, laundry services and in-room movie viewing, among others.
-
Revenue Per User - RPU
- A ratio used to express the profitability of a company on a per-user basis. RPUs are calculated by taking overall revenue and dividing by total number of users:
-
Revenue Recognition
- An accounting principle under generally accepted accounting principles (GAAP) that determines the specific conditions under which income becomes realized as revenue. Generally, revenue is recognized only when a specific critical event has occurred and the amount of revenue is measurable.
-
Revenue Ruling
- A decree issued by the IRS that essentially has the force of law. A revenue ruling outlines the IRS's interpretation of the tax laws and is binding on all IRS employees. Revenue rulings are published in the Cumulative Bulletin and are issued only from the National Office of the IRS.
-
Revenue Seat Miles - RPM
- Also known as revenue passenger miles, RPM refers to how many seats were actually sold on an airline's flight.
-
Reversal
- A change in the direction of a price trend. On a price chart, reversals undergo a recognizable change in the price structure. An uptrend, which is a series of higher highs and higher lows, reverses into a downtrend by changing to a series of lower highs and lower lows. A downtrend, which is a series of lower highs and lower lows, reverses into an uptrend by changing to a series of higher highs and higher lows.
Also referred to as a "trend reversal", "rally" or "correction".
-
Reversal Amount
- The amount of price movement required to shift a chart to the right. This condition is used on charts that only take into consideration price movement instead of both price and time.
-
Reverse Auction
- A type of auction in which sellers bid for the prices at which they are willing to sell their goods and services. In a regular auction, a seller puts up an item and buyers place bids until the close of the auction, at which time the item goes to the highest bidder. In a reverse auction, the buyer puts up a request for a required good or service. Sellers then place bids for the amount they are willing to be paid for the good or service, and at the end of the auction the seller with the lowest amount wins.
-
Reverse Conversion
- A finance and risk management technique based on a put-call parity strategy that consists of selling a put and buying call (a synthetic long position), while shorting the underlying stock. As long as the put and call have the same underlying, strike price and expiration date, a synthetic long position will have the same risk/return profile as ownership of an equivalent amount of the underlying stock.
-
Reverse Convertible Bond - RCB
- A bond that can be converted to cash, debt or equity at the discretion of the issuer at a set date. The bond contains an embedded derivative that allows the issuer to put the bond to bondholders at a set date prior to the bond's maturity for existing debt or shares of an underlying company. The underlying company need not be related in any way to the issuer's business. These types of bonds usually have shorter terms to maturity and higher yields than most other bonds because of the risk involved for investors, who may be forced to redeem their bonds for securities in a company that have, or are expected to, decrease substantially in value.
-
Reverse Convertible Note - RCN
- A synthetic instrument that shares characteristics with both bonds and stocks. Reverse convertible notes provide high coupon payments and final payoffs that depend on the equity markets.
-
Reverse Exchange
- A type of property exchange wherein the replacement property is acquired first, and then the current property is traded away. Reverse exchanges were created in order to help buyers who found a new property that they would like to purchase before they were able to trade in a current property.
The opposite of a reverse exchange is a deferred exchange.
-
Reverse Leveraged Buyout
- The action of offering new shares to the public by companies that initially went private through past LBOs.
-
Reverse Mortgage
- A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold. After accounting for the initial mortgage amount, the rate at which interest accrues, the length of the loan and rate of home price appreciation, the transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan.
Often, the lender will require that there can be no other liens against the home. Any existing liens must be paid off with the proceeds of the reverse mortgage.
-
Reverse Repurchase Agreement
- The purchase of securities with the agreement to sell them at a higher price at a specific future date.
For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.
-
Reverse Stock Split
- A reduction in the number of a corporation's shares outstanding that increases the par value of its stock or its earnings per share. The market value of the total number of shares (market capitalization) remains the same.
-
Reverse Survivorship Bias
- The tendency for low performers to remain in the game, while high performers are inadvertantly dropped from the running. This bias can be applied to a variety of vehicles ranging from the housing market, stock indexes and even investorss capabilities. The phenomenon occurs when calculating performance based solely on past performances, without taking into account extenuating circumstances such as the economic standpoint at which decisions were made.
-
Reverse Takeover - RTO
- A type of merger used by private companies to become publicly traded without resorting to an initial public offering. Initially, the private company buys enough shares to control a publicly traded company. The private company's shareholder then uses their shares in the private company to exchange for shares in the public company. At this point, the private company has effectively become a publicly traded one.
Also known as a "reverse merger" or "reverse IPO"
-
Reverse Triangular Merger
- When the subsidiary of the acquiring corporation merges with the target firm. In this case, the subsidiary's equity merges with the target firm's stock. As a result of the merger, the target would become a wholly-owned subsidiary of the acquirer and shareholders of the target would get shares of the acquirer.
-
Reverse/Forward Stock Split
- A stock split strategy that includes the use of a reverse stock split followed by a forward stock split. A reverse/forward stock split is usually used by companies to cash out shareholders with a less-than-certain amount of shares. This is believed to cut administrative costs by reducing the number of shareholders who require mailed proxies and other documents.
-
Reversionary Annuities
- A retirement income strategy that combines an insurance policy with an immediate annuity to provide for a surviving spouse. Similar to a permanent life insurance policy, the policy owner of a reversionary annuity pays a premium to guarantee a benefit to the survivor. With a reversionary annuity, upon the insured's death, the beneficiary receives a guaranteed lifetime income instead of a lump sum payment.
-
Revertible
- Refers to a special kind of convertible corporate bond that automatically converts itself into shares of the company's stock in the event that the underlying stock drops below a certain price. This stands in contrast to traditional convertible bonds, which the bondholder may or may not choose to convert into shares of company stock. These revertible bonds generally have a time limit or expiration date when the bond will automatically convert into stock or forever remain a bond. Typically, these bonds pay very high interest rates and are offered by companies that are considered well-below investment grade. They are also known as reverse convertible bonds.
-
Revlon Rule
- A legal precedence that dictates if the sale of the company is forthcoming, the main goal the company's board of directors should have is to conduct the proceedings in a manner that would yield the most benefit for the company's shareholders. Essentially, assuming that a number of situations are fulfilled (there are two or more buyers, all bids are cash-based acquisitions and that all parties have the requisite financing), the board of directors should always be picking the highest bid.
-
Revocable Beneficiary
- The ability of a policy owner either to change who will receive the compensation from his or her policy or to terminate the policy without having to get consent from the current beneficiary. Most life insurance policies have this feature.
This is the opposite of an "irrevocable beneficiary".
-
Revocable Trust
- A trust whereby provisions can be altered or canceled dependent on the grantor. During the life of the trust, income earned is distributed to the grantor, and only after death does property transfer to the beneficiaries.
Also referred to as a "revocable living trust".
-
Revoked IRA
- An IRA holder may revoke an IRA within the 7 days after the IRA is established. When an IRA holder elects to revoke the IRA, the full amount contributed to the IRA must be returned to the IRA holder.
-
Revolving Credit
- A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customer's current cash flow needs.
Often referred to as "revolver".
-
Revolving Underwriting Facility - RUF
- A form of revolving credit in which a group of underwriters agrees to provide loans in the event that a borrower is unable to sell in the Eurocurrency market. These loans are generally provided through the purchase of short-term Euronotes.
-
REX Agreement
- An alternative to a home equity line of credit (HELOC) and refinancing that allows homeowners to access the equity in their home. The agreement is offered by REX & Company, and it gives homeowners a cash payment of 12 to 17% of their home's market value under the stipulation that REX & Company receives 50% of the increase in the house's value when it is sold.
This program is designed for homeowners with above average credit, with single-family detached houses. In addition, homes valued in the top or bottom 10% of their local market cannot participate.
-
Reykjavik Interbank Offered Rate - REIBOR
- The formal interbank market rate for short term loans at Icelandic commercial and savings banks. Similar to how most countries use LIBOR as the base rate for variable rate loans, Icelandic banks use REIBOR (plus a premium) as the basis for supplying variable interest rate loans.
-
Rho
- The rate at which the price of a derivative changes relative to a change in the risk-free rate of interest. Rho measures the sensitivity of an option or options portfolio to a change in interest rate.
-
RHS Loan
- A loan made by or guaranteed by the United States Department of Agriculture Rural Housing Service (RHS). The RHS lends both directly to low income borrowers in rural areas and guarantees loans that meet RHS requirements made by approved lenders. RHS mortgage loans may be part of a pool of mortgages securitized by the Government Nation Mortgage Association (Ginnie Mae).
-
Riba
- A concept in Islamic banking that refers to charged interest. It is forbidden under Sharia, Islamic religious law, because it is thought to be exploitive. Depending on the interpretation, riba may only refer to excessive interest; however to others, the whole concept of interest is riba, and thus is unlawful.
Also known as "usury".
-
Ricardian Equivalence
- An economic theory that suggests that when a government tries to stimulate demand by increasing debt-financed government spending, demand remains unchanged. This is because the public will save its excess money in order to pay for future tax increases that will be initiated to pay off the debt. This theory was developed by David Ricardo in the nineteenth century, but Harvard professor Robert Barro would implement Ricardo's ideas into more elaborate versions of the same concept.
Also known as "Barro-Ricardo equivalence proposition"
-
Ricardo-Barro Effect
- A macroeconomic concept that postulates that when a government runs a budget deficit, households and firms will respond by increasing their level of savings. This behavior allows the aggregate savings of an economy to remain unchanged.
-
Rider
- A provision in an insurance policy allowing for amendments to its terms and/or coverage.
-
Riding the Yield Curve
- A trading strategy that is based upon the yield curve and used for interest rate futures. Investors hope to achieve capital gains by employing this strategy.
-
Rig Utilization Rate
- A ratio used in the oil services industry that measures the amount of rigs being used as a total percentage of a company's entire fleet. A company's rig utilization rate often speaks volumes about both a company's current prospects and the global economic landscape as well. Quite often during times of economic deflation or recession, rig utilization rates will be quite low, due to a decreased demand for oil.
-
Right Of First Offer
- A contractual obligation by the owner of an asset to a rights holder to negotiate the sale of an asset with the rights holder before offering the asset for sale to third parties. If the rights holder is not interested in purchasing the asset or cannot reach an agreement with the seller, the seller has no further obligation to the rights holder and may sell the asset freely.
-
Right Of First Refusal
- In general, the right of a person or company to purchase something before the offering is made available to others.
-
Right Of Rescission
- A right under federal law set forth by the Truth in Lending Act that gives a borrower the right to cancel a home equity loan or line of credit with a new lender, or to cancel a refinance transaction done with another lender other than the current mortgagee within three days of closing. The right is provided on a no-questions-asked basis, and the lender must give up its claim to the property and refund all fees within 20 days of exercising of the right of rescission.
-
Rights
- A security giving stockholders entitlement to purchase new shares issued by the corporation at a predetermined price (normally less than the current market price) in proportion to the number of shares already owned. Rights are issued only for a short period of time, after which they expire.
-
Rights of Accumulation - ROA
- A right that allows a shareholder to receive reduced sales charges when the amount of mutual funds purchased, plus the amount already held, equals an ROA breakpoint. In addition, there is no time limit on how long the mutual fund needs to be held to qualify for a ROA.
-
Rights Offering (Issue)
- Issuing rights to a company's existing shareholders to buy a proportional number of additional securities at a given price (usually at a discount) within a fixed period.
-
Ring Fence
- A protection-based transfer of assets from one destination to another, usually through the use of offshore accounting. A ring fence is meant to protect the assets from inclusion in an investor's calculable net worth or to lower tax consequences.
Moves to ring fence an asset are often called "ring fence trades".
-
Ringfencing
- When a regulated public utility business financially separates itself from a parent company that engages in non-regulated business. This is done mainly to protect consumers of essential services such as power, water and basic telecommunications from financial instability or bankruptcy in the parent company resulting from losses in their open market activites. Ringfencing also keeps customer information within the public utility business private from the for-profit efforts of the parent company's other business.
-
Rings
- Trading arenas, located on the floor of an exchange, in which traders execute orders. Rings are also referred to as pits.
-
Rio Hedge
- When a trader who is facing financial or legal troubles hedges his or her position in an investment with a ticket to a tropical location (such as Rio de Janeiro). The idea behind the Rio hedge is that if the investment goes bad (either legally or through financial loss) the investor will use the ticket to escape.
-
Rio Trade
- In the securities market, a transaction made in a desperate attempt to recover previous losses.
-
Ripple
- A metaphor for a short-term market trend.
-
Rising Bottom
- A pattern on a security's chart that results from the daily low price rising over time, creating a series of ascending troughs. Technical traders use this pattern to confirm that the trend of the underlying security is heading upward. The chart below illustrates a security that has three rising bottoms, indicating progressively higher lows over time.
Also known as "ascending bottom".
-
Rising Three Methods
- A bullish candlestick pattern that is used to predict the continuation of the current uptrend. This pattern is formed when the candlesticks meet the following characteristics:
1. The first candle in the pattern is a long white candlestick within a defined uptrend.
2. A series of descending small-bodied candlesticks that trade within the range of the first candlestick.
3. A long white candlestick creates a new high, which suggests that bullish are back in control of the direction.
-
Risk
- The chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. Risk is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment.
-
Risk Arbitrage
- A broad definition for three types of arbitrage that contain an element of risk:
1) Merger and acquisition arbitrage - The simultaneous purchase of stock in a company being acquired and the sale (or short sale) of stock in the acquiring company.
2) Liquidation arbitrage - The exploitation of a difference between a company's current value and its estimated liquidation value.
3) Pairs trading - The exploitation of a difference between two very similar companies in the same industry that have historically been highly correlated. When the two company's values diverge to a historically high level you can take an offsetting position in each (e.g. go long in one and short the other) because, as history has shown, they will inevitable come to be similarly valued.
-
Risk Averse
- A description of an investor who, when faced with two investments with a similar expected return (but different risks), will prefer the one with the lower risk.
-
Risk Capital
- The money that a person allocates to investing in high-risk securities.
-
Risk Discount
- A situation where a particular investor, either an individual or firm, decides to receive less of a return on their investment in exchange for less risk. The risk discount is the exact opposite of the risk premium, and the degree to which any one person chooses the amount of the discount will vary by person to person.
-
Risk Graph
A two-dimensional graphical representation that displays the profit or loss of an option at various prices. The x-axis represents the price of the underlying security and the y-axis represents the potential profit/loss. Often called a "profit/loss diagram", this graph provides an easy way to understand and visualize the effects of what may happen to an option in various situations.
-
Risk Lover
- An investor who is willing to take on additional risk for an investment that has a relatively low expected return. This contrasts with the typical investor mentality - risk aversion. Risk averse investors tend to take on increased risks only if they are warranted by the potential for higher returns.
-
Risk Management
- The process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making. Essentially, risk management occurs anytime an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given their investment objectives and risk tolerance.
-
Risk Measures
- Statistical measures that are historical predictors of investment risk and volatility and major components in modern portfolio theory (MPT). MPT is a standard financial and academic methodology for assessing the performance of a stock or a stock fund compared to its benchmark index.
-
Risk Neutral
- A description of an investor who purposely overlooks risk when deciding between investments.
-
Risk Of Ruin
- The probability of an individual losing sufficient trading or gambling money (known as capital base) to the point at which continuing on is no longer considered an option to recover losses.
Risk of ruin is calculated by taking into account the probability of winning (or making money on a trade), the probability of incurring losses, and the portion of an individual's capital base that is in play or at risk. Also known as the "probability of ruin".
-
Risk Premium
- The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is a form of compensation for investors who tolerate the extra risk - compared to that of a risk-free asset - in a given investment.
-
Risk Reversal
- 1. In commodities trading, it is a hedge strategy that consists of selling a call and buying a put option. This strategy protects against unfavorable, downward price movements but limits the profits that can be made from favorable upward price movements.
2. In foreign-exchange trading, risk reversal is the difference in volatility (delta) between similar call and put options, which conveys market information used to make trading decisions.
-
Risk Tolerance
- The degree of uncertainty that an investor can handle in regard to a negative change in the value of his or her portfolio.
-
Risk-Adjusted Capital Ratio
- A measure of a financial institutions that compares total adjusted capital (TAC) to the institutions risk-weighted assets. There are many variations of risk-adjusted capital ratios, depending on how the analyst defines capital. Risk-adjusted capital ratios are used to assess the capital adequacy of a financial institution. Analyzing these ratios can help determine whether a bank has enough capital to withstand a downturn in the economy.
-
Risk-Adjusted Return
- A concept that refines an investment's return by measuring how much risk is involved in producing that return, which is generally expressed as a number or rating. Risk-adjusted returns are applied to individual securities and investment funds and portfolios.
-
Risk-Adjusted Return On Capital - RAROC
- An adjustment to the return on an investment that accounts for the element of risk. Risk-adjusted return on capital (RAROC) gives decision makers the ability to compare the returns on several different projects with varying risk levels. RAROC was popularized by Bankers Trust in the 1980s as an adjustment to simple return on capital (ROC).
Income from capital = (capital charges)*(risk-free rate)
Expected loss = average anticipated loss over the measurement period
-
Risk-Based Capital Requirement
- A stated requirement of liquid reserves placed upon banks and institutions that deal in risky ventures.
-
Risk-Based Haircut
- A reduction in the recognized value of an asset in order to produce an estimate for the level of margin or financial leverage that is acceptable to use when purchasing or continuing to own the asset. An analyst undertaking a risk-based haircut of an asset attempts to determine the chances of the asset's value falling below its current level, so that a sufficient buffer can be established to protect against a margin call.
-
Risk-Based Mortgage Pricing
- Mortgage lenders' offers of different interest rates and loan terms to different borrowers based on a grading of the credit worthiness of each borrower. Lenders grade borrowers, and offer different rates and terms to borrowers, based on several criteria including the borrower's credit score, payment history and the loan to value (LTV) ratio of the mortgage. Risk-based pricing is commonly used by Alt-A and subprime lenders.
-
Risk-Free Asset
- An asset which has a certain future return. Treasuries (especially T-bills) are considered to be risk-free because they are backed by the U.S. government.
-
Risk-Free Rate Of Return
- The theoretical rate of return of an investment with zero risk. The risk-free rate represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time.
-
Risk-Free Rate Puzzle - RFRP
- An anomaly in the difference between the lower historic real returns of government bonds compared to equities. This puzzle is the inverse of the equity premium puzzle, and looks at the disparity from the perspective from the lower returning government bonds.
-
Risk-Free Return
- The theoretical rate of return attributed to an investment with zero risk. The risk-free rate represents the interest on an investor's money that he or she would expect from an absolutely risk-free investment over a specified period of time.
-
Risk-Return Tradeoff
- The principle that potential return rises with an increase in risk. Low levels of uncertainty (low risk) are associated with low potential returns, whereas high levels of uncertainty (high risk) are associated with high potential returns. According to the risk-return tradeoff, invested money can render higher profits only if it is subject to the possibility of being lost.
-
Risk-Weighted Assets
- In terms of the minimum amount of capital that is required within banks and other institutions, based on a percentage of the assets, weighted by risk.
-
Risk/Reward Ratio
- A ratio used by many investors to compare the expected returns of an investment to the amount of risk undertaken to capture these returns. This ratio is calculated mathematically by dividing the amount of profit the trader expects to have made when the position is closed (i.e. the reward) by the amount he or she stands to lose if price moves in the unexpected direction (i.e. the risk).
-
Riskless Principal
- Two principal transactions occurring at the same price that are reported only once as an agency transaction.
-
Riskless Society
- Nobel prize winners, Dr. Kenneth Arrow and Gerard Debreu, wrote about a fictional “riskless society”, where eventually the world markets became complete and sophisticated enough that every imaginable risk we have could be mitigated by an insurance. The theorem has led the way to push progress in the risk management sciences. Since their theories were first published, the growth in financial derivatives products has grown exponentially.
-
Rival Good
- A type of good that may only be possessed or consumed by a single user. Using a rival good prevents its use by other possible users. Rival goods can be durable, where users may use them one at a time, or nondurable, where consumption destroys the good, allowing only one user to enjoy it.
-
Road Show
- A presentation by an issuer of securities to potential buyers. It is intended to create interest in the securities.
-
Robber Barons
- A disparaging term dating back to the 12th century which refers to:
1. Unscrupulous feudal lords who amassed personal fortunes by using illegal and immoral business practices, such as illegally charging tolls to passing merchant ships.
2. Modern-day businesspeople who allegedly engage in unethical business tactics and questionable stock market transactions to build large personal fortunes.
-
Robust
- A characteristic describing a model's, test's or system's ability to effectively perform while its variables or assumptions are altered. A robust concept can operate without failure under a variety of conditions.
-
Rocket Scientist
- In the world of finance, these are people with science and math degrees who work in the finance field building highly advanced quantitative finance models. These models help banking, insurance and investment firms to price financial instruments.
-
Rogue Trader
- A trader who acts independently of others - and, typically, recklessly - usually to the detriment of both the clients and the institution that employs him or her. In most cases this type of trading is high risk and can create huge losses.
-
Roll Back
- When an investor replaces an old options position with new one having an earlier expiration date (and the same strike price).
-
Roll Down
- When an investor replaces an old options position with new one at a lower strike price.
-
Roll Forward
- When an investor replaces an old options position with a new one having a later expiration date (and same strike price).
-
Roll In
- A term which refers to including loan costs into the initial principal balance of a loan. This is a common practice by mortgage borrowers who do not have funds available, or who do not want to pay loan costs out of pocket. While most loan costs (lender fees) may be included into a mortgage balance, "prepaids" (ex. per diem interest) cannot.
"Roll in" is used interchangeably with "to roll" or "rolling". For example, a borrower could say "I'm broke, I want to roll in my loan costs into the loan balance", or "I'm broke, I want to roll my loan costs into the loan balance", or even "I'm broke, and I'm rolling my loan costs into the loan balance."
-
Roll Up
- 1. The move from one option position to another with a higher exercise price.
2. In the context of venture capital, when a VC forces small companies to merge in order to reduce costs.
-
Roll Yield
- The amount of return generated in a backwardated futures market that is achieved by rolling a short-term contract into a longer-term contract and profiting from the convergence toward a higher spot price. Profiting from roll yield is a common goal for many strategies used by traders in the futures market.
-
Roll's Critique
- An economic idea that suggests that it is impossible to create or observe a truly diversified market portfolio (one of the key variables of the capital asset pricing model (CAPM)). According to this view, a true "market portfolio" would include every investment in every market, including commodities, collectibles and virtually anything with marketable value. Those who still use the CAPM do so with a market index, such as the S&P 500, as a proxy for the overall market. The critique is attributed to economist Richard Roll.
-
Roll-Down Return
- A form of return that arises when the value of a bond converges to par as maturity is approached. The size of the roll-down return varies greatly between long and short-dated bonds. Roll-down is smaller for long-dated bonds that are trading away from par compared to bonds that are short-dated.
-
Rollercoaster Swap
- A seasonal swap providing flexibility of payments at predetermined periods to best meet the counterparty's cyclical financing needs or other requirements.
-
Rolling EPS
- Measuring a company's EPS by using the previous 2 quarters and adding them to the following 2 quarter's estimated EPS.
-
Rolling Hedge
- A strategy for reducing risk that involves using the high levels of liquidity typically present with exchange-traded futures and options in order to achieve a continual risk-offsetting position. A rolling hedge is done by closing out existing positions as they near maturity and then concurrently opening new positions with maturity dates further in the future.
-
Rolling Returns
- The annualized average return for a period ending with the listed year. Rolling returns are useful for examining the behavior of returns for holding periods similar to those actually experienced by investors.
Also known as 'rolling period returns' or 'rolling time periods'.
-
Rolling Settlement
- The process of settling security trades on successive dates so that trades executed today will have a settlement date one business day later than trades executed yesterday. This contrasts with account settlement, in which all trades are settled once in a set period of days, regardless of when the trade took place.
-
Rollout
- A slang term for the introduction of a new product or service to the market. A rollout often refers to a significant product release, often accompanied by a strong marketing campaign to generate a large amount of consumer hype.
-
Rollover
- A rollover is when you do the following:
- Reinvesting funds from a mature security into a new issue of the same or a similar security.
- Transferring the holdings of one retirement plan to another without suffering tax consequences.
- A charge that is incurred by Forex investors who move their positions to the following delivery date.
-
RON (Romanian New Leu)
- The currency abbreviation for the Romanian new leu (RON), the currency for Romania. The Romanian new leu is made up of 100 bani and is often presented with the symbol L. The new leu is expected to remain the currency of Romania until it adopts the euro in 2014.
-
Rose-Colored Recession
- The unexpected optimism market observers sometimes experience during a recession. A rose-colored recession reflects the sometimes unwarranted positivity of the general public following news or data released during a recession; it is still considered bad news, but is better than expected.
-
Roth 401(k)
- An employer-sponsored investment savings account that is funded with after-tax money. After the investor reaches age 59.5, withdrawals of any money from the account (including investment gains) are tax-free. Unlike the Roth IRA, the Roth 401(k) has no income limitations for those investors who want to participate - anyone, no matter what his or her income, is allowed to invest up to the contribution limit into the plan.
-
Roth IRA
- An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free. Similar to other retirement plan accounts, non-qualified distributions from a Roth IRA may be subject to a penalty upon withdrawl.
-
Roth IRA Conversion
- A reportable movement of assets from a Traditional, SEP or SIMPLE IRA to a Roth IRA. The movement of assets may be taxable.
-
Round Lot
- The normal unit of trading for a security, which is generally 100 shares of stock.
-
Round Trip Transaction Costs
- All of the costs associated with completing a transaction. Also known as round turn transaction costs.
-
Round-Trip Trading
- An action that attempts to inflate transaction volumes through the continuous and frequent purchase and sale of a particular security, commodity or asset. Round-trip trading can be used to refer to the practice of a business selling an unused asset to another company while agreeing to buy back the same asset for about the same price (which has been seen in the energy and telecom business).
-
Rounding Bottom
- A chart pattern used in technical analysis, which is identified by a series of price movements that, when graphed, form the shape of a "U". Rounding bottoms are found at the end of extended downward trends and signify a reversal in long-term price movements. This pattern's time frame can vary from several weeks to several months and is deemed by many traders as a rare occurrence.
The chart below illustrates a rounding bottom.
-
Rounding Top
- A chart pattern used in technical analysis which is identified by price movements that, when graphed, form the shape of an upside down "U". A rounding top may form at the end of an extended upward trend and indicates a reversal in the long-term price movement. The pattern can develop over several weeks, months or even years, and is considered a rare occurrence by many traders.
The chart below illustrates a rounding top.
-
Routing Transit Number - RTN
- A nine-digit numerical code used to identify a banking or other financial institution to clear funds or process checks in the U.S. The routing transit number, as it appears on a check, specifically denotes the banking institution that holds the account in which funds from the check are to be drawn.
-
Royalty
- A payment to an owner for the use of property, especially patents, copyrighted works, franchises or natural resources.
-
Royalty Income Trust
- A type of special-purpose financing created to hold investments or their cash flows in operating companies. These trusts are neither stocks nor bonds but investment trusts (a legal entity). Royalty trusts buy the right to royalties on the production and sales of a natural-resource company and pass on the profits to trust unit holders.
-
Royalty Interest
- In the oil and gas industry this refers to ownership of a portion of the resource or revenue that is produced. A company or person that owns a royalty interest does not bear any of the costs of the operations needed to produce the resource, yet the person or company still owns a portion of resource of revenue produced.
-
Royalty Units
- An ownership unit in a royalty trust. A royalty unit gives the unit holder a stake in the income generated by the holdings of the trust. A royalty trust takes ownership stakes in operating companies or in their cash flows. The royalty trust owns the income or cash flow that the company generates and passes this income on to the royalty unit holders of that trust. Royalty units are seen as an attractive investment because the income generated by the assets is subject to taxes at the individual level, rather than the double taxation which is seen with dividends on common stock.
-
RSD (Serbian Dinar)
- The currency abbreviation for the Serbian dinar (RSD), the currency for Serbia. The Serbian dinar is made up of 100 para and is often presented with the symbol RSD or, unofficially, din. Also known as the post-Yugoslavia dinar, this currency is used in all of Serbia, except for Kosovo. Kosovo declared itself an independent state in February 2008, although at that time Serbia still claimed sovereignty over the state.
-
RUB (Russian Ruble)
- The currency abbreviation the Russian ruble (RUB), the currency for Russia. The Russian ruble is made up of 100 kopeks and does not have an official symbol. Although no symbol exists officially, py6 (three Cyrillic characters which are the equivalent of RUB in Russian) is currently used.
-
Rubber Check
- Another name for a "bounced check." The check cannot be processed because the writer has insufficient funds.
-
Rule 10b-18
- An SEC rule that provides a "safe harbor" for companies and their affiliated purchasers when the company or affiliates repurchase the company's shares of common stock (i.e., they will not be deemed to have violated anti-fraud provisions of the Securities Exchange Act of 1934). The repurchases must fall within the four conditions of the rule. These cover the manner of purchase, the time of the repurchases, the prices paid and the volume of shares repurchased.
-
Rule 10b-5
- A regulation formally known as the Employment of Manipulative and Deceptive Practices that was created under the Securities Exchange Act of 1934. This rule deems it to be illegal for anybody to directly or indirectly use any measure to defraud, make false statements, omit relevant information or otherwise conduct operations of business that would deceive another person; in relation to conducting transactions involving stock and other securities.
-
Rule 144
- A Securities and Exchange Commission rule that sets the conditions under which restricted, unregistered and control securities can be sold. These are the five conditions that must be met for these securities to be sold:
1. The prescribed holding period must be met.
2. There is an 'adequate' amount of current information available to the public regarding the historical performance of the security.
3. The amount to be sold is less than 1% of the shares outstanding and accounts for less than 1% of the average of the previous four weeks' trading volume.
4. All of the normal trading conditions that apply to any trade have been met.
5. If wishing to sell more than 500 shares or an amount worth more than $10,000, the seller must file a form with the SEC before the sale.