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issues than in off-the-run issues.

Current maturity Current time to maturity on an outstanding debt instrument.

Current / noncurrent method Under this currency translation method, all of a foreign subsidiary's current
assets and liabilities are translated into home currency at the current exchange rate while noncurrent assets
and liabilities are translated at the historical exchange rate, that is, the rate in effect at the time the asset was
acquired or the liability incurred.

Current rate method Under this currency translation method, all foreign currency balance-sheet and income
statement items are translated at the current exchange rate.

Current ratio Indicator of short-term debt paying ability. Determined by dividing current assets by current
liabilities. The higher the ratio, the more liquid the company.

Current yield For bonds or notes, the coupon rate divided by the market price of the bond.

Current-coupon issues Related: Benchmark issues

Cushion bonds High-coupon bonds that sell at only at a moderate premium because they are callable at a
price below that at which a comparable non-callable bond would sell. Cushion bonds offer considerable
downside protection in a falling market.

Custodial fees Fees charged by an institution that holds securities in safekeeping for an investor.

Customary payout ratios A range of payout ratios that is typical based on an analysis of comparable firms.

Customized benchmarks A benchmark that is designed to meet a client's requirements and long-term
Customs union An agreement by two or more countries to erect a common external tariff and to abolish
restrictions on trade among members.

Date of payment Date dividend checks are mailed.

Date of record Date on which holders of record in a firm's stock ledger are designated as the recipients of
either dividends or stock rights.

Dates convention Treating cash flows as being received on exact dates - date 0, date 1, and so forth - as
opposed to the end-of-year convention.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Day order An order to buy or sell stock that automatically expires if it can't be executed on the day it is

Day trading Refers to establishing and liquidating the same position or positions within one day's trading.

Days in receivables Average collection period.

Days' sales in inventory ratioThe average number of days' worth of sales that is held in inventory.

Days' sales outstanding Average collection period.

DCF See: Discounted cash flows.

De facto Existing in actual fact although not by official recognition.

Dead cat bounce A small upmove in a bear market.

Dealer An entity that stands ready and willing to buy a security for its own account (at its bid price) or sell
from its own account (at its ask price).

Dealer loan Overnight, collateralized loan made to a dealer financing his position by borrowing from a
money market bank.

Dealer market A market where traders specializing in particular commodities buy and sell assets for their
own accounts.

Dealer options Over-the-counter options, such as those offered by government and mortgage-backed
securities dealers.

Debenture bond An unsecured bond whose holder has the claim of a general creditor on all assets of the
issuer not pledged specifically to secure other debt. Compare subordinated debenture bond, and collateral
trust bonds.

Debt/equity ratio Indicator of financial leverage. Compares assets provided by creditors to assets provided
by shareholders. Determined by dividing long-term debt by common stockholder equity.

Debt Money borrowed.

Debt capacity Ability to borrow. The amount a firm can borrow up to the point where the firm value no
longer increases.

Debt displacement The amount of borrowing that leasing displaces. Firms that do a lot of leasing will be
forced to cut back on borrowing.

Debt instrument An asset requiring fixed dollar payments, such as a government or corporate bond.

Debt leverage The amplification of the return earned on equity when an investment or firm is financed
partially with borrowed money.

Debt limitation A bond covenant that restricts in some way the firm's ability to incur additional indebtedness.

Debt market The market for trading debt instruments.

Debt ratio Total debt divided by total assets.

Debt relief Reducing the principal and/or interest payments on LDC loans.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Debt securities IOUs created through loan-type transactions - commercial paper, bank CDs, bills, bonds, and
other instruments.

Debt service Interest payment plus repayments of principal to creditors, that is, retirement of debt.

Debt service parity approach An analysis wherein the alternatives under consideration will provide the firm
with the exact same schedule of after-tax debt payments (including both interest and principal).

Debt-service coverage ratio Earnings before interest and income taxes plus one-third rental charges, divided
by interest expense plus one-third rental charges plus the quantity of principal repayments divided by one
minus the tax rate.

Debt swap A set of transactions (also called a debt-equity swap) in which a firm buys a country's dollar bank
debt at a discount and swaps this debt with the central bank for local currency that it can use to acquire local

Debtor in possession A firm that is continuing to operate under Chapter 11 bankruptcy process.

Debtor-in-possession financing New debt obtained by a firm during the Chapter 11 bankruptcy process.

Decile rank Performance over time, rated on a scale of 1-10.1 indicates that a mutual fund's return was in the
top 10% of funds being compared, while 3 means the return was in the top 30%. Objective Rank compares all
funds in the same investment strategy category. All Rank compares all funds.

Decision tree Method of representing alternative sequential decisions and the possible outcomes from these

Declaration date The date on which a firm's directors meet and announce the date and amount of the next

Dedicated capital Total par value (number of shares issued, multiplied by the par value of each share). Also
called dedicated value.

Dedication strategy Refers to multi-period cash flow matching.

Dedicating a portfolio Related: cash flow matching.

Deductive reasoning The use of general fact to provide accurate information about a specific situation.

Deed of trust Indenture.

Deep-discount bond A bond issued with a very low coupon or no coupon and selling at a price far below par
value. When the bond has no coupon, it's called a zero coupon bond.

Default Failure to make timely payment of interest or principal on a debt security or to otherwise comply
with the provisions of a bond indenture.

Default premium A differential in promised yield that compensates the investor for the risk inherent in
purchasing a corporate bond that entails some risk of default.

Default risk Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
issuer of a bond may be unable to make timely principal and interest payments.

Defeasance Practice whereby the borrower sets aside cash or bonds sufficient to service the borrower's debt.
Both the borrower's debt and the offestting cash or bonds are removed from the balance sheet.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Deferred call A provision that prohibits the company from calling the bond before a certain date. During this
period the bond is said to be call protected.

Deferred equity A common term for convertible bonds because of their equity component and the
expectation that the bond will ultimately be converted into shares of common stock.

Deferred futures The most distant months of a futures contract. A bond that sells at a discount and does not
pay interest for an initial period, typically from three to seven years. Compare step-up bond and payment-in-
kind bond.

Deferred nominal life annuity A monthly fixed-dollar payment beginning at retirement age. It is nominal
because the payment is fixed in dollar amount at any particular time, up to and including retirement.

Deferred taxes A non-cash expense that provides a source of free cash flow. Amount allocated during the
period to cover tax liabilities that have not yet been paid.

Deferred-annuities Tax-advantaged life insurance product. Deferred annuities offer deferral of taxes with the
option of withdrawing one's funds in the form of life annuity.

Deficit An excess of liabilities over assets, of losses over profits, or of expenditure over income.

Defined benefit plan A pension plan in which the sponsor agrees to make specified dollar payments to
qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor.
Related: defined contribution plan

Defined contribution plan A pension plan in which the sponsor is responsible only for making specified
contributions into the plan on behalf of qualifying participants. Related: defined benefit plan

Delayed issuance pool Refers to MBSs that at the time of issuance were collateralized by seasoned loans
originated prior to the MBS pool issue date.

Deliverable instrument The asset in a forward contract that will be delivered in the future at an agree-upon

Delivery The tender and receipt of an actual commodity or financial instrument in settlement of a futures

Delivery notice The written notice given by the seller of his intention to make delivery against an open, short
futures position on a particular date. Related: notice day

Delivery options The options available to the seller of an interest rate futures contract, including the quality
option, the timing option, and the wild card option. Delivery options make the buyer uncertain of which
Treasury Bond will be delivered or when it will be delivered.

Delivery points Those points designated by futures exchanges at which the financial instrument or
commodity covered by a futures contract may be delivered in fulfillment of such contract.

Delivery price The price fixed by the Clearing house at which deliveries on futures are in invoiced; also the
price at which the futures contract is settled when deliveries are made.

Delivery versus payment A transaction in which the buyer's payment for securities is due at the time of
delivery (usually to a bank acting as agent for the buyer) upon receipt of the securities. The payment may be
made by bank wire, check, or direct credit to an account.

Delta Also called the hedge ratio, the ratio of the change in price of a call option to the change in price of the
underlying stock.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Delta hedge A dynamic hedging strategy using options with continuous adjustment of the number of options
used, as a function of the delta of the option.

Delta neutral The value of the portfolio is not affected by changes in the value of the asset on which the
options are written.

Demand deposits Checking accounts that pay no interest and can be withdrawn upon demand.

Demand line of credit A bank line of credit that enables a customer to borrow on a daily or on-demand basis.

Demand master notes Short-term securities that are repayable immediately upon the holder's demand.

Demand shock An event that affects the demand for goods in services in the economy.

Dependent Acceptance of a capital budgeting project contingent on the acceptance of another project.

Depository transfer check (DTC) Check made out directly by a local bank to a particular firm or person.

Depository Trust Company (DTC) DTC is a user-owned securities depository which accepts deposits of
eligible securities for custody, executes book-entry deliveries and records book-entry pledges of securities in
its custody, and provides for withdrawals of securities from its custody.

Depreciate To allocate the purchase cost of an asset over its life.

Depreciation A non-cash expense that provides a source of free cash flow. Amount allocated during the
period to amortize the cost of acquiring Long term assets over the useful life of the assets.

Depreciation tax shield The value of the tax write-off on depreciation of plant and equipment.

Derivative instruments Contracts such as options and futures whose price is derived from the price of the
underlying financial asset.

Derivative markets Markets for derivative instruments.

Derivative security A financial security, such as an option, or future, whose value is derived in part from the
value and characteristics of another security, the underlying security.

Detachable warrant A warrant entitles the holder to buy a given number of shares of stock at a stipulated
price. A detachable warrant is one that may be sold separately from the package it may have originally been
issued with (usually a bond).

Deterministic models Liability-matching models that assume that the liability payments and the asset cash
flows are known with certainty. Related: Compare stochastic models

Detrend To remove the general drift, tendency or bent of a set of statistical data as related to time.

Devaluation A decrease in the spot price of the currency.


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