Glossary

Agency Costs

Costs of preventing agents............
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Agency Relationships

Occur when one or more individuals...........
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Aggressive Shares

Shares having......
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American-style Option

An option which...............
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Amortized debt

A debt in which..........
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Annual Equivalent Annuity (AEA)

A regular annual amount which.......................
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Arbitrage Pricing Theory (APT)

A type of multifactor..............
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Ask price

The price at which...........
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Asset transformers

Intermediaries who mobilize..................
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Asset-backed securities

Asset-backed securities – see securitization.
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Asymmetric information

One party in a negotiation...............
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At-the-money option

An option for which............................
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Authorized share capital

The maximum amount of....................
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Balance of payment

A record of the payment..................
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Basis point

One-hundredth of............................
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Beta

This increases the systematic.............
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Bid premium

The additional amount....................
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Bid price

The price at which......
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Bid-offer spread

The difference between....................
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Bill of exchange

A document which sets................
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Bimbo

A buy-in management.....................
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Bond

A debt obligation with...........
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Borrowing capacity

Limits to total..................
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Bubble

An explosive upward..................
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Buffer stock

Stock held to reduce.................
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Bulldog

A foreign bond..................
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Business risk

The risk associated with.........................
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Call option

This gives the purchaser......................
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Cap

An interest rate..................
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Capital asset pricing model (CAPM)

An asset pricing theory which..................
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Capital gearing

The extent to which....................
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Capital market line (CML)

The set of risk-return combinations.........................
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Capped bonds

The floating interest....................
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Cartel

A group of firms entering.......................
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Cash cow

A company with low......................
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Cash operating cycle

A measure of the time between............................
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Cash-and-carry arbitrage

An arbitrage strategy with......................
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Characteristic line

The line that best relates.........................
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Chartist

Investment analysts that......................
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Chasing the trend

Buying financial securities....................
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Clientele effects

In dividend theory, the level......................
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Coefficient of determination, R-squared

For single linear regression this.....................
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Collar

A combination of.........................
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Collateral

Property pledged by......................
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Commercial paper

Very short-term................
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Conglomerate merger

A merger between........................
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Consumer Price Index (CPI)

A price index..................
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Conventional cash flows

Where an outflow is...........................
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Conversion premium

The difference between the.............................
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Conversion price

The share price at which..............................
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Conversion ratio

The nominal (par) value of a..........................
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Conversion value

The value of a convertible.....................
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Convertible bonds

Bonds which carry a rate...........................
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Corporate raider

An organization that makes..............................
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Correlation coefficient

A measure of the extent to which.......................
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Counterparty risk

The risk that counterparty.................................
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Coupon rate

Coupon rate is the rate...............................
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Covariance

The extent to which...............................
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Covenant

A solemn..........................
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Covered Interest Arbitrage

A risk-free transaction in which................
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Creative accounting

The drawing up of accounts which..................
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Credit rating

An estimate of the quality of a...............................
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Credit risk

The risk that a.................
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Cross-rate

The exchange rate between.........................
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Crown jewels defense

In a hostile merger situation.....................
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Cum-rights

Shares bought on the....................
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Currency exposure

The sensitivity of the asset.......................
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Current yield

A bond's annual interest.......................
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Dawn raid

An acquirer acts with such................................
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Debenture issue

A debenture is a...........................
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Debt covenants

Debt covenants are the restrictions...........................
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Defensive shares

Having a Beta............
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Degree of Combined Leverage (DCL)

The percentage change in a.....................
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Degree of Financial Leverage (DFL)

The percentage change in.................
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Degree of Operating Leverage (DOL)

The percentage change in...................
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Derivative

A financial asset, the performance of......................
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Direct foreign investment

The purchase of commercial......................
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Discount

The amount below face-value...................
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Discriminant Analysis

A statistical technique...................
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Disintermediation

Borrowing firms bypassing....................
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Diversification

To invest in varied......................
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Divestiture

To remove assets.................
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Dividend valuation models (DVM)

The method of share valuation based on..........................
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Dow theory

A method of predicting......................
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DuPont equations

A series of relationships between.......................
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Economic order quantity (EOQ)

The quantity of inventory items......................
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Economic value added (EVA)

A measure of income that recognizes the cost of equity as well as debt. A positive EVA represents a contribution to shareholder wealth over that required by an equity investor, and is viewed as an increment to MVA. EVA is after-tax EBIT less the Product of capital and the cost of capital.
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Efficiency frontier

The range of expected return.......................
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Efficient portfolio

A portfolio that offers................
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Efficient stock market

Prices rationally reflect.................
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Emerging markets

Security markets in newly.................
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Equity

Equity refers to owner's........................
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Eurocurrency

Currency held outside...................
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Eurocurrency banking

Transactions in a.......................
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Eurodollar

A deposit or credit dollars held outside....................
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Event risk

The risk that some future may.........................
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Ex-ante

Intended, desired or......................
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Ex-post

The value of some...........................
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Ex-rights

When a share goes.....................
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Ex-rights price of a share

The theoretical market........................
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Expectations theory of foreign exchange

The current forward exchange rate is......................
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Financial distress

Obligations to creditors.......................
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Financial risk

The additional liability in a.........................
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Fixed interest securities

Securities such as bonds on.....................
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Forfeiting

A bank purchases a number of..........................
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Forward Contract

A contract calling for the delivery of......................
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Forward discount or premium

Refers to the percentage difference between.............................
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Forward-rate agreement (FRA)

An agreement about the future level of........................
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Free cash flow

Cash generated by a...................
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Full price (or dirty price)

The total price of....................
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Fundamental analysis

A systematic process in which a...................
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Futures contract

A standardized contract to buy...................
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Gearing (financial gearing)

The proportion of debt capital in.....................
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Gearing (operating)

The extent to which the......................
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Globalization

The increasing internationalization of.....................
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Golden handcuffs

Financial inducements to....................
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Golden parachutes

In a hostile merger situation..............................
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Greenmail

Key shareholders try to..................
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Hedging

Reducing or eliminating risk by...........................
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Horizontal merger

The two companies merging are..................
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Income gearing

The proportion of the annual income.........................
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Initial public offering (IPO)

The offering of shares in..................
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Insider information

Information about companies that.....................
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Interest Rate Parity

The theory that the percentage differential between............................
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Interest rate risk

The risk of loss to an................................
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Intrinsic value

The difference between the............................
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Introduction

A company with shares already quoted on....................
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IPO

Initial public offering. Stock in a..............................
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Leading

The bringing forward from...................
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Leasing

The owner of an asset (lessor) grants..........................
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LIBOR (The London Interbank Offered Rate)

The rate of interest offered on loans to.....................
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Liquidity preference theory

A theory of the shape of ......................
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Liquidity risk

The risk of loss to an investor from....................
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London Interbank Offer Rate (LIBOR)

The interest rate at which.................
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Long position

Owning a security or...................
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Management buy-in (MBI)

A new team of managers makes an........................
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Management buy-out (MBO)

A team of managers makes an..............................
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Managerialism

Operating the firm for the benefit of......................
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Market capitalization

The total value at market prices of........................
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Market index

A sample of shares is........................
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Market portfolio

A portfolio which contains all.......................
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Market risk

Variation on the return on a...................
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Market segmentation theory

A theory of the shape of the..........................
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Market value added (MVA)

The excess of market value measured by the product of stock price and the number of shares outstanding over the book value of equity. An indication of the effectiveness of management in contributing to shareholder wealth. Also see EVA
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Marketable securities

Highly liquid short-term debt investments held by...................
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Matching

The company matches the inflows and outflows in....................
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Matching principle

Maturity structure of debt matches the........................
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Maturity

The date on which the principal of.....................
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Maturity date

The time when a financial security........................
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Maturity matching

The idea that the maturity of.....................
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Maturity risk

The risk of loss to an investor from changes in............................
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Maturity transformation

Intermediaries offer securities with........................
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Merger

Combination of two or more business under one ownership in which....................
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Money market

A financial market in which................
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Moor

An agreement whereby...........................
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Mortgage loan

A loan secured by .....................
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Multilateral Netting

A process of international cash..................
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Mutually exclusive projects

In capital budgeting, projects that......................
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Netting

When subsidiaries in different................
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Nominal interest rate

The named or quoted rate usually......................
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Offer for sale

A method of selling shares in a..................
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Offer for subscription

A method of selling shares in a........................
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Offer price

The price at which a market-maker in.....................
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Operating Lease

A cancelable lease agreement that provides..........................
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Opportunity cost

The benefit foregone by using an.....................
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Option

A contract giving one party the right.........................
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Organic growth

Growth from within the...............
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Out-of-the-money option

An option with.................
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Over-the-counter trade (OTC)

Securities trading carried on outside.................
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Overtrading

When a business has insufficient finance to.......................
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Par value

The principal amount repaid at.......................
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Pecking order theory of financial gearing

Firms exhibit preferences in terms of.........................
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Perfect market

The following..................
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Poison pill

A corporate tactic to avoid being.....................
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Political risk

In international business, the chance that the..........................
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Pooling of Interests Method

A method of accounting for mergers in which..........................
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Portfolio

A collection of..............
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Post-completion audit

The monitoring and evaluation of the progress of.................
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Pre-emptive rights

This is the right of existing............................
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Predatory pricing

Pricing below average cost to....................
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Preemptive Right

A provision contained in some.......................
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Price risk

The risk of loss to an investor from....................
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Primary market

A subdivision of financial markets in which.......................
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Prime Rate

The lowest rate normally charged by............................
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Profitability index (PI)

A capital budgeting technique that.............................
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Promissory note

A lending agreement in which the........................
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Proxy

The right to act for another on a.........................
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Purchasing power parity (PPP) theory of exchange rate determination

Exchange rates will be in.............................
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Put option

A contract giving the right to......................
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Random walk theory

The movements in (share) prices are...................
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Real cash flows

Future cash flows are..........................
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Real option

An option to undertake different....................
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Real rate of return

The rate that would be................
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Recourse

If a financial asset is...............
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Required return

The minimum return that keeps an................
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Residual claim

Stockholders' claim to...................
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Residual dividend theory

The idea that corporations pay dividends with..........................
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Rights issue

An invitation to existing shareholders to.........................
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Risk (in finance)

The probability that the return on.................
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Risk aversion

The premise that most people prefer....................
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Risk premium

A component of a rate of interest or..................
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Risk transformation

Intermediaries offer low-risk securities to..............................
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Risk-adjusted rate of return

In capital budgeting, a rate used in.........................
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Risk-free rate

The interest rate excluding all..............
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ROA

Return on assets. Net income divided by.................
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ROE

Return on equity. Net income divided by........................
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ROS

Return on sales. Net income divided by......................
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Sale and leaseback

Assets (for example, land and buildings) are sold to.....................
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Sales ledger administration

The management of trade.......................
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Scrip dividends

Shareholders are offered the.............................
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Securities analysis

A systematic approach to valuing securities, especially.............
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Securitization

Financial payments.....................
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Security market line (SML)

A linear (straight) line showing the..........................
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Semi-strong efficiency

Share prices fully reflect all the..........................
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Sensitivity analysis

An analysis of the effect on a project NPV of changes in.........................
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Separation theorem

The choice of the optimal portfolio (the market portfolio) is........................
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Sharp ratio

The ratio of mean excess return......................
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Signaling

Some financial decisions are taken as.......................
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Signaling effect of dividends

The idea that dividends send a message about management's confidence in......................................
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Speculators

Those that take a position in financial......................
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Spin-off

A method of divesting a business unit by........................
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Spontaneous financing

Financing provided by current liabilities which.................................
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Stand-alone project

In capital budgeting, a project with........................
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Stand-alone risk

The risk associated with investing in a stock that's.......................
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Stock split

A change in the number of shares outstanding by.............................
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Stockbroker

A person licensed to assist investors in.............................
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Structured note

A bond or note Issued with.......................
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Sunk cost

A cost associated with a project, expended prior to.......................
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Sustainable growth rate

The rate at which a firm can grow if................
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Swap

A contract whereby two parties agree to a.......................
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Swaption

An option to enter into a..........................
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Syndicated loan

A loan made by one or...........................
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Synergy

A situation in which two companies operating together under....................
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Systematic (Undiversifiable or market) risk

That element of return variability from an........................
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Takeover

The transfer of control over a...................
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Target capital structure

The capital structure that management strives to..........................
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Technical analysis

An approach to valuing securities by examining past patterns of price and volume. The technique is based on the idea that such patterns repeat themselves.
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Term structure of interest rates

The patterns of interest rates on bonds with...........................
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Tick

The minimum price movement of a.........................
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Time value of money

Calculations involving the present and...........................
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Transaction risk

The risk that transactions already entered into...........................
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Translation Exposure

The change in owners' (accounting) equity because of..............................
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Translation risk

The gain or loss on the value of assets and.........................
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Uncertainty

Strictly (in economists' terms) uncertainty is when................................
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Underwriting

A process whereby a group of........................
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Unsystematic (unique or diversifiable) risk

That element of an asset's variability in...........................
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Vertical merger

A merger between companies when one is......................
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Warrant

A company-issued long-term option to........................
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White knight

A friendly company which makes a bid for a..........................
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Working capital

Refers to assets held by the business that...................................
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Yield

The income from a security as a proportion of...........................
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Yield curve

The relationship between interest rates and.........................
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Yield to Maturity

The discount rate that equates the present value of..........................
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Zero coupon bond

A bond that pays no interest during its............................
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Zero coupon bond (preference share)

A bond that does not pay regular interest (dividend) but........................
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