<<

. 23
( 34 .)



>>

index value x $100 (the options contract multiple).

Options on physicals Interest rate options written on fixed-income securities, as opposed to those written on
interest rate futures contracts.
103
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Organized exchange A securities marketplace wherein purchasers and sellers regularly gather to trade
securities according to the formal rules adopted by the exchange.

Original face value The principal amount of the mortgage as of its issue date.

Original issue discount debt (OID debt) Debt that is initially offered at a price below par.

Original margin The margin needed to cover a specific new position. Related: Margin, security deposit
(initial)

Original maturity Maturity at issue. For example, a five year note has an original maturity of 5 years; one
year later it has a maturity of 4 years.

Origination The making of mortgage loans.

OTC See: over-the-counter.

Other capital In the balance of payments, other capital is a residual category that groups all the capital
transactions that have not been included in direct investment, portfolio investment, and reserves categories. It
is divided into long-term capital and short-term capital and, because of its residual status, can differ from
country to country. Generally speaking, other long-term capital includes most non-negotiable instruments of a
year or more like bank loans and mortgages. Other short-term capital includes financial assets of less than a
year such as currency, deposits, and bills.

Other current assets Value of non-cash assets, including prepaid expenses and accounts receivable, due
within 1 year.

Other long term liabilities Value of leases, future employee benefits, deferred taxes and other obligations
not requiring interest payments that must be paid over a period of more than 1 year.

Other sources Amount of funds generated during the period from operations by sources other than
depreciation or deferred taxes. Part of Free cash flow calculation.

Out-of-the-money option A call option is out-of-the-money if the strike price is greater than the market price
of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of
the underlying security.

Outright rate Actual forward rate expressed in dollars per currency unit, or vice versa.

Outsourcing The practice of purchasing a significant percentage of intermediate components from outside
suppliers.

Outstanding share capital Issued share capital less the par value of shares that are held in the company's
treasury.

Outstanding shares Shares that are currently owned by investors.

Overbought\oversold indicator An indicator that attempts to define when prices have moved too far and too
fast in either direction and thus are vulnerable to reaction.

Overfunded pension plan A pension plan that has a positive surplus (i.e., assets exceed liabilities).

Overlay strategy A strategy of using futures for asset allocation by pension sponsors to avoid disrupting the
activities of money managers.
104
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Overnight delivery risk A risk brought about because differences in time zones between settlement centers
require that payment or delivery on one side of a transaction be made without knowing until the next day
whether the funds have been received in an account on the other side. Particularly apparent where delivery
takes place in Europe for payment in dollars in New York.

Overnight repo A repurchase agreement with a term of one day.

Overperform When a security is expected to appreciate at a rate faster than the overall market.

Overreaction hypothesis The supposition that investors overreact to unanticipated news, resulting in
exaggerated movement in stock prices followed by corrections.

Overshooting The tendency of a pool of MBSs to reflect an especially high rate or prepayments the first time
it crosses the threshold for refinancing, especially if two or more years have passed since the date of issue
without the WAC of the pool having crossed the refinancing threshold.

Oversubscribed issue Investors are not able to buy all of the shares or bonds they want, so underwriters must
allocate the shares or bonds among investors. This occurs when a new issue is underpriced or in great demand
because of growth prospects.

Oversubscription privilege In a rights issue, arrangement by which shareholders are given the right to apply
for any shares that are not taken up.

Over-the-counter market (OTC) A decentralized market (as opposed to an exchange market) where
geographically dispersed dealers are linked together by telephones and computer screens. The market is for
securities not listed on a stock or bond exchange. The NASDAQ market is an OTC market for U.S. stocks.

P&L Profit and loss statement for a trader.

P&S Purchase and sale statement. A statement provided by the broker showing change in the customer's net
ledger balance after the offset of a previously established position(s).

P/E See Price/Earnings ratio.

P/E ratio Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this year; $25. 50 = 10
times $2. 55

XYZ stock sells for 10 times earnings. P/E = Current stock price divided by trailing annual earnings per
share or expected annual earnings per share.

P/E effect That portfolios with low P/E stocks have exhibited higher average risk-adjusted returns than high
P/E stocks.

PSA A prepayment model based on an assumed rate of prepayment each month of the then unpaid principal
balance of a pool of mortgages. PSA is used primarily to derive an implied prepayment speed of new
production loans, a 100% PSA assumes a prepayment rate of 2% per month in the first month following the
date of issue, increasing at 2% per month thereafter until the 30th month. Thereafter, 100% PSA is the same as
6% CPR.

Pac-Man strategy Takeover defense strategy in which the prospective acquiree retaliates against the
acquirer's tender offer by launching its own tender offer for the other firm.

Pairoff A buy-back to offset and effectively liquidate a prior sale of securities.

Paper Money market instruments, commercial paper and other.
105
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Paper gain (loss) Unrealized capital gain (loss) on securities held in portfolio, based on a comparison of
current market price to original cost.

Par value Also called the maturity value or face value, the amount that the issuer agrees to pay at the maturity
date.

Parallel loan A process whereby two companies in different countries borrow each other's currency for a
specific period of time, and repay the other's currency at an agreed maturity for the purpose of reducing
foreign exchange risk. Also referred to as back-to-back loans.

Parallel shift in the yield curve A shift in the yield curve in which the change in the yield on all maturities is
the same number of basis points. In other words, if the 3 month T-bill increases 100 basis points (one
percent), then the 6 month, 1 year, 5 year, 10 year, 20 year, and 30 year rates increase by 100 basis points as
well. Related: Non-parallel shift in the yield curve.

Parameter A representation that characterizes a part of a model (e.g. a growth rate), the value of which is
determined outside of the model. See: exogenous variable.

Parity value Related:conversion value

Participating GIC A guaranteed investment contract where the policyholder is not guaranteed a crediting
rate, but instead receives a return based on the actual experience of the portfolio managed by the life
company.

Participating fees The portion of total fees in a syndicated credit that go to the participating banks.

Partnership Shared ownership among two or more individuals, some of whom may, but do not necessarily,
have limited liability. See: general partnership, limited partnership, and master limited partnership.

Passive portfolio strategy A strategy that involves minimal expectational input, and instead relies on
diversification to match the performance of some market index. A passive strategy assumes that the
marketplace will reflect all available information in the price paid for securities, and therefore, does not
attempt to find mispriced securities. Related: active portfolio strategy

Pass-through rate The net interest rate passed through to investors after deducting servicing, management,
and guarantee fees from the gross mortgage coupon.

Pass-through securities A pool of fixed-income securities backed by a package of assets (i.e. mortgages)
where the holder receives the principal and interest payments. Related: mortgage pass-through security

Pass-through coupon rate The interest rate paid on a securitized pool of assets, which is less than the rate
paid on the underlying loans by an amount equal to the servicing and guaranteeing fees.

Passive investment strategy See: passive management.

Passive investment management Buying a well-diversified portfolio to represent a broad-based market
index without attempting to search out mispriced securities.

Passive portfolio A market index portfolio.

Path dependent option An option whose value depends on the sequence of prices of the underlying asset
rather than just the final price of the asset.

Payable through drafts A method of making payment that is used to maintain control over payments made
on behalf of the firm by personnel in noncentral locations. The payer's bank delivers the payable through draft
to the payer, which must approve it and return it to the bank before payment can be received.
106
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Payables

Related: Accounts payable.

Payback The length of time it takes to recover the initial cost of a project, without regard to the time value of
money.

Paydown In a Treasury refunding, the amount by which the par value of the securities maturing exceeds that
of those sold.

Payment date The date on which each shareholder of record will be sent a check for the declared dividend.

Payment float Company-written checks that have not yet cleared.

Payments netting Reducing fund transfers between affiliates to only a netted amount. Netting can be done on
a bilateral basis (between pairs of affiliates), or on a multi-lateral basis (taking all affiliates together).

Payments pattern Describes the lagged collection pattern of receivables, for instance the probability that a
72-day-old account will still be unpaid when it is 73-days-old.

Payout ratio Generally, the proportion of earnings paid out to the common stockholders as cash dividends.
More specifically, the firm's cash dividend divided by the firm's earnings in the same reporting period.

Pay-up The loss of cash resulting from a swap into higher price bonds or the need/willingness of a bank or
other borrower to pay a higher rate of interest to get funds.

Payment-In-Kind (PIK) bond A bond that gives the issuer an option (during an initial period) either to make
coupon payments in cash or in the form of additional bonds.

Peak The transition from the end of an economic expansion to the start of a contraction.

Pecking-order view (of capital structure) The argument that external financing transaction costs, especially
those associated with the problem of adverse selection, create a dynamic environment in which firms have a
preference, or pecking-order of preferred sources of financing, when all else is equal. Internally generated
funds are the most preferred, new debt is next, debt-equity hybrids are next, and new equity is the least
preferred source.

Pension Benefit Guaranty Corporation (PBGC) A federal agency that insures the vested benefits of
pension plan participants (established in 1974 by the ERISA legislation).

Pension plan A fund that is established for the payment of retirement benefits.

Pension sponsors Organizations that have established a pension plan.

Perfect capital market A market in which there are never any arbitrage opportunities.

Perfect competition An idealized market environment in which every market participant is too small to affect
the market price by acting on its own.

Perfect hedge A financial result in which the profit and loss from the underlying asset and the hedge position
are equal.

Perfect market view (of capital structure) Analysis of a firm's capital structure decision, which shows the
irrelevance of capital structure in a perfect capital market.
107
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Perfect market view (of dividend policy) Analysis of a decision on dividend policy, in a perfect capital
market environment, that shows the irrelevance of dividend policy in a perfect capital market.

Perfectly competitive financial markets Markets in which no trader has the power to change the price of
goods or services. Perfect capital markets are characterized by the following conditions: 1) trading is costless,
and access to the financial markets is free, 2) information about borrowing and lending opportunities is freely
available, 3) there are many traders, and no single trader can have a significant impact on market prices.

Perfected first lien A first lien that is duly recorded with the cognizant governmental body so that the lender
will be able to act on it should the borrower default.

Performance attribution analysis The decomposition of a money manager's performance results to explain
the reasons why those results were achieved. This analysis seeks to answer the following questions: (1) What
were the major sources of added value? (2) Was short-term factor timing statistically significant? (3) Was
market timing statistically significant? And (4), Was security selection statistically significant?

Performance evaluation The evaluation of a manager's performance which involves, first, determining
whether the money manager added value by outperforming the established benchmark (performance
measurement) and, second, determining how the money manager achieved the calculated return (performance
attribution analysis).

Performance measurement The calculation of the return realized by a money manager over some time
interval.

Performance shares Shares of stock given to managers on the basis of performance as measured by earnings
per share and similar criteria. A control device used by shareholders to tie management to the self-interest of
shareholders.

<<

. 23
( 34 .)



>>