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bank.

Bank discount basis A convention used for quoting bids and offers for treasury bills in terms of annualized
yield , based on a 360-day year.

Bank draft A draft addressed to a bank.

Bank line Line of credit granted by a bank to a customer.

Bank wire A computer message system linking major banks. It is used not for effecting payments, but as a
mechanism to advise the receiving bank of some action that has occurred, e.g. the payment by a customer of
funds into that bank's account.

Banker's acceptance A short-term credit investment created by a non-financial firm and guaranteed by a
bank as to payment. Acceptances are traded at discounts from face value in the secondary market. These
instruments have been a popular investment for money market funds. They are commonly used in
international transactions.

Bank for International Settlements (BIS) An international bank headquartered in Basel, Switzerland, which
serves as a forum for monetary cooperation among several European central banks, the Bank of Japan, and the
U.S. Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it
now monitors and collects data on international banking activity and promulgates rules concerning
international bank regulation.

Bankruptcy State of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from
the stockholders to the bondholders.

Bankruptcy cost view The argument that expected indirect and direct bankruptcy costs offset the other
benefits from leverage so that the optimal amount of leverage is less than 100% debt finaning.

Bankruptcy risk The risk that a firm will be unable to meet its debt obligations. Also referred to as default or
insolvency risk.
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Dictionary of Financial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Bankruptcy view The argument that expected bankruptcy costs preclude firms from being financed entirely
with debt.

Bar Slang for one million dollars.

Barbell strategy A strategy in which the maturities of the securities included in the portfolio are concentrated
at two extremes.

Bargain-purchase-price option Gives the lessee the option to purchase the asset at a price below fair market
value when the lease expires.

BARRA's performance analysis (PERFAN) A method developed by BARRA, a consulting firm in
Berkeley, Calif. It is commonly used by institutional investors applying performance attribution analysis to
evaluate their money managers' performances.

Barrier options Contracts with trigger points that, when crossed, automatically generate buying or selling of
other options. These are very exotic options.

Base interest rate Related: Benchmark interest rate.

Base probability of loss The probability of not achieving a portfolio expected return.

Basic balance In a balance of payments, the basic balance is the net balance of the combination of the current
account and the capital account.

Basic business strategies Key strategies a firm intends to pursue in carrying out its business plan.

Basic IRR rule Accept the project if IRR is greater than the discount rate; reject the project is lower than the
discount rate.

Basis Regarding a futures contract, the difference between the cash price and the futures price observed in the
market. Also, it is the price an investor pays for a security plus any out-of-pocket expenses. It is used to
determine capital gains or losses for tax purposes when the stock is sold.

Basis point In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage
point of yield in bonds equals 100 basis points. Basis points also are used for interest rates. An interest rate of
5% is 50 basis points greater than an interest rate of 4.5%.

Basis price Price expressed in terms of yield to maturity or annual rate of return.

Basis risk The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
price risk.

Basket options Packages that involve the exchange of more than two currencies against a base currency at
expiration. The basket option buyer purchases the right, but not the obligation, to receive designated
currencies in exchange for a base currency, either at the prevailing spot market rate or at a prearranged rate of
exchange. A basket option is generally used by multinational corporations with multicurrency cash flows
since it is generally cheaper to buy an option on a basket of currencies than to buy individual options on each
of the currencies that make up the basket.

Basket trades Related: Program trades.

Bear An investor who believes a stock or the overall market will decline. A bear market is a prolonged period
of falling stock prices, usually by 20% or more. Related: bull.
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Dictionary of Financial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Bearer bond bonds that are not registered on the books of the issuer. Such bonds are held in physical form by
the owner, who receives interest payments by physically detaching coupons from the bond certificate and
delivering them to the paying agent.

Bear market Any market in which prices are in a declining trend.

Bear raid A situation in which large traders sell positions with the intention of driving prices down.

Before-tax profit marginThe ratio of net income before taxes to net sales.

Beggar-thy-neighbor An international trade policy of competitive devaluations and increased protective
barriers where one country seeks to gain at the expense of its trading partners.

Beggar-thy-neighbor devaluation A devaluation that is designed to cheapen a nation's currency and thereby
increase its exports at other countries' expense and reduce imports. Such devaluations often lead to trade wars.

Bellwether issues Related:Benchmark issues.

Benchmark The performance of a predetermined set of securities, for comparison purposes. Such sets may be
based on published indexes or may be customized to suit an investment strategy.

Benchmark errorUse of an inappropriate proxy for the true market portfolio.

Benchmark interest rate Also called the base interest rate, it is the minimum interest rate investors will
demand for investing in a non-Treasury security. It is also tied to the yield to maturity offered on a
comparable-maturity Treasury security that was most recently issued ("on-the-run").

Benchmark issues Also called on-the-run or current coupon issues or bellwether issues. In the secondary
market, it's the most recently auctioned Treasury issues for each maturity.

Best-efforts sale A method of securities distribution/ underwriting in which the securities firm agrees to sell
as much of the offering as possible and return any unsold shares to the issuer. As opposed to a guaranteed or
fixed price sale, where the underwriter agrees to sell a specific number of shares (with the securities firm
holding any unsold shares in its own account if necessary).

Best-interests-of-creditors test The requirement that a claim holder voting against a plan of reorganization
must receive at least as much as he would have if the debtor were liquidated.

Beta (Mutual Funds) The measure of a fund's or stocks risk in relation to the market. A beta of 0.7 means
the fund's total return is likely to move up or down 70% of the market change; 1.3 means total return is likely
to move up or down 30% more than the market. Beta is referred to as an index of the systematic risk due to
general market conditions that cannot be diversified away.

Beta equation (Mutual Funds)

The beta of a fund is determined as follows:

[(n) (sum of (xy)) ]-[ (sum of x) (sum of y)]

[(n) (sum of (xx)) ]-[ (sum of x) (sum of x)]

where: n = # of observations (36 months)

x = rate of return for the S&P 500 Index

y = rate of return for the fund
14
Dictionary of Financial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Beta equation (Stocks)

The beta of a stock is determined as follows:

[(n) (sum of (xy)) ]-[(sum of x) (sum of y)]

[(n) (sum of (xx)) ]-[(sum of x) (sum of x)]

where: n = # of observations (24-60 months)

x = rate of return for the S&P 500 Index

y = rate of return for the stock

Biased expectations theories Related: pure expectations theory.

Bid price This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically
speaking, this is the available price at which an investor can sell shares of stock. Related: Ask , offer.

Bid-asked spread The difference between the bid and asked prices.

Bidder A firm or person that wants to buy a firm or security.

Big Bang The term applied to the liberalization in 1986 of the London Stock Exchange in which trading was
automated with the use of computers.

Big Board A nickname for the New York Stock Exchange. Also known as The Exchange. More than 2,000
common and preferred stocks are traded. Founded in 1792, the NYSE is the oldest exchange in the United
States, and the largest. It is located on Wall Street in New York City.

Bill of exchange General term for a document demanding payment.

Bill of ladingA contract between the exporter and a transportation company in which the latter agrees to
transport the goods under specified conditions which limit its liability. It is the exporter's receipt for the goods
as well as proof that goods have been or will be received.

Binomial option pricing model An option pricing model in which the underlying asset can take on only two
possible, discrete values in the next time period for each value that it can take on in the preceding time period.

Black market An illegal market.

Black-Scholes option-pricing modelA model for pricing call options based on arbitrage arguments that uses
the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the standard deviation
of the stock return.

Blanket inventory lienA secured loan that gives the lender a lien against all the borrower's inventories.

Block houseBrokerage firms that help to find potential buyers or sellers of large block trades.

Block tradeA large trading order, defined on the New York Stock Exchange as an order that consists of
10,000 shares of a given stock or a total market value of $200,000 or more.

Block votingA group of shareholders banding together to vote their shares in a single block.

Blocked currency A currency that is not freely convertible to other currencies due to exchange controls.
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Dictionary of Financial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Blow-off topA steep and rapid increase in price followed by a steep and rapid drop. This is an indicator seen
in charts and used in technical analysis of stock price and market trends.

Blue-chip company Large and creditworthy company.

Blue-sky laws State laws covering the issue and trading of securities.

Bogey The return an investment manager is compared to for performance evaluation.

Boilerplate Standard terms and conditions.

Bond Bonds are debt and are issued for a period of more than one year. The U.S. government, local
governments, water districts, companies and many other types of institutions sell bonds. When an investor
buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the
loan at a specified time. Interest-bearing bonds pay interest periodically.

Bond agreement A contract for privately placed debt.

Bond covenant A contractual provision in a bond indenture. A positive covenant requires certain actions, and
a negative covenant limits certain actions.

Bond equivalent yield Bond yield calculated on an annual percentage rate method. Differs from annual
effective yield.

Bond indenture The contract that sets forth the promises of a corporate bond issuer and the rights of
investors.

Bond indexing Designing a portfolio so that its performance will match the performance of some bond index.

Bond points A conventional unit of measure for bond prices set at $10 and equivalent to 1% of the $100 face
value of the bond. A price of 80 means that the bond is selling at 80% of its face, or par value.

Bond value With respect to convertible bonds, the value the security would have if it were not convertible
apart from the conversion option.

Bond-equivalent basis The method used for computing the bond-equivalent yield.

Bond-equivalent yield The annualized yield to maturity computed by doubling the semiannual yield.

BONDPAR A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the
individual securities held in the portfolio. BONDPAR decomposes the return into those elements beyond the
manager's control--such as the interest rate environment and client-imposed duration policy constraints--and
those that the management process contributes to, such as interest rate management, sector/quality allocations,
and individual bond selection.

Boning Charging a lot more for an asset than it's worth.

Book A banker or trader's positions.

Book cash A firm's cash balance as reported in its financial statements. Also called ledger cash.

Book profit The cumulative book income plus any gain or loss on disposition of the assets on termination of
the SAT.

Book runner The managing underwriter for a new issue. The book runner maintains the book of securities
sold.
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