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Steady state As the MBS pool ages, or four to six months after it was passed at least once through the
threshold for refinancing, the prepayment speed tends to stabilize within a fairly steady range.
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Steepening of the yield curve A change in the yield curve where the spread between the yield on a long-term
and short-term Treasury has increased. Compare flattening of the yield curve and butterfly shift.

Step-up To increase, as in step up the tax basis of an asset.

Step-up bond A bond that pays a lower coupon rate for an initial period which then increases to a higher
coupon rate. Related: Deferred-interest bond, Payment-in-kind bond

Sterilized intervention Foreign exchange market intervention in which the monetary authorities have
insulated their domestic money supplies from the foreign exchange transactions with offsetting sales or
purchases of domestic assets.

Stochastic models Liability-matching models that assume that the liability payments and the asset cash flows
are uncertain. Related: Deterministic models.

Stock Ownership of a corporation which is represented by shares which represent a piece of the corporation's
assets and earnings.

Stock dividend Payment of a corporate dividend in the form of stock rather than cash. The stock dividend
may be additional shares in the company, or it may be shares in a subsidiary being spun off to shareholders.
Stock dividends are often used to conserve cash needed to operate the business. Unlike a cash dividend, stock
dividends are not taxed until sold.

Stock exchanges Formal organizations, approved and regulated by the Securities and Exchange Commission
(SEC), that are made up of members that use the facilities to exchange certain common stocks. The two major
national stock exchanges are the New York Stock Exchange (NYSE) and the American Stock Exchange (ASE
or AMEX). Five regional stock exchanges include the Midwest, Pacific, Philadelphia, Boston, and Cincinnati.
The Arizona stock exchange is an after hours electronic marketplace where anonymous participants trade
stocks via personal computers.

Stock repurchase A firm's repurchase of outstanding shares of its common stock.

Stock selection An active portfolio management technique that focuses on advantageous selection of
particular stocks rather than on broad asset allocation choices.

Stockholder equity Balance sheet item that includes the book value of ownership in the corporation. It
includes capital stock, paid in surplus, and retained earnings.

Stock index option An option in which the underlying is a common stock index.

Stock market Also called the equity market, the market for trading equities.

Stock option An option in which the underlying is the common stock of a corporation.

Stock replacement strategy A strategy for enhancing a portfolio's return, employed when the futures
contract is expensive based on its theoretical price, involving a swap between the futures, treasury bills
portfolio and a stock portfolio.

Stock split Occurs when a firm issues new shares of stock but in turn lowers the current market price of its
stock to a level that is proportionate to pre-split prices. For example, if IBM trades at $100 before a 2-for-1
split, after the split it will trade at $50 and holders of the stock will have twice as many shares than they had
before the split. See: split.

Stock ticker This is a lettered symbol assigned to securities and mutual funds that trade on U.S.financial
exchanges.
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Stockholder Holder of equity shares in a firm.

Stockholder's books Set of books kept by firm management for its annual report that follows Financial
Accounting Standards Board rules. The tax books follow IRS tax rules.

Stockholder's equity The residual claims that stockholders have against a firm's assets, calculated by
subtracting total liabilities from total assets.

Stockout Running out of inventory.

Stop-loss order An order to sell a stock when the price falls to a specified level.

Stop order (or stop) An order to buy or sell at the market when a definite price is reached, either above (on a
buy) or below (on a sell) the price that prevailed when the order was given.

Stopping curve A curve showing the refunding rates for different points in time at which the expected value
of refunding immediately equals the expected value of waiting to refund.

Stopping curve refunding rate A refunding rate that falls on the stopping curve.

Stop-limit order A stop order that designates a price limit. In contrast to the stop order, which becomes a
market order once the stop is reached, the stop-limit order becomes a limit order once the stop is reached.

Straddle Purchase or sale of an equal number of puts and calls with the same terms at the same time.
Related: spread

Straight line depreciation An equal dollar amount of depreciation in each accounting period.

Straight value Also called investment value, the value of a convertible security without the con-version
option.

Straight voting A shareholder may cast all of his votes for each candidate for the board of directors.

Stratified equity indexing A method of constructing a replicating portfolio in which the stocks in the index
are classified into stratum, and each stratum is represented in the portfolio.

Stratified sampling approach to indexing An approach in which the index is divided into cells, each
representing a different characteristic of the index, such as duration or maturity.

Stratified sampling bond indexing A method of bond indexing that divides the index into cells, each cell
representing a different characteristic, and that buys bonds to match those characteristics.

Street Brokers, dealers, underwriters, and other knowledgeable members of the financial community; from
Wall Street financial community.

Street name Describes securities held by a broker on behalf of a client but registered in the name of the Wall
Street firm.

Strike index For a stock index option, the index value at which the buyer of the option can buy or sell the
underlying stock index. The strike index is converted to a dollar value by multiplying by the option's contract
multiple. Related: strike price

Strike price The stated price per share for which underlying stock may be purchased (in the case of a call) or
sold (in the case of a put) by the option holder upon exercise of the option contract.
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Strip mortgage participation certificate (strip PC) Ownership interests in specified mortgages purchased
by Freddie Mac from a single seller in exchange for strip PCs representing interests in the same mortgages.

Stripped bond Bond that can be subdivided into a series of zero-coupon bonds.

Stripped mortgage-backed securities (SMBSs) Securities that redistribute the cash flows from the
underlying generic MBS collateral into the principal and interest components of the MBS to enhance their use
in meeting special needs of investors.

Strip, strap Variants of a straddle. A strip is two puts and one call on a stock, a strap is two calls and one put
on a stock. In both cases, the puts and calls have the same strike price and expiration date.

Strong-form efficiency Pricing efficiency, where the price of a, security reflects all information, whether or
not it is publicly available. Related: Weak form efficiency, semi strong form efficiency

Structured arbitrage transaction A self-funding, self-hedged series of transactions that usually utilize
mortgage securities as the primary assets.

Structured debt Debt that has been customized for the buyer, often by incorporating unusual options.

Structured portfolio strategy A strategy in which a portfolio is designed to achieve the performance of some
predetermined liabilities that must be paid out in the future.

Structured settlement An agreement in settlement of a lawsuit involving specific payments made over a
period of time. Property and casualty insurance companies often buy life insurance products to pay the costs
of such settlements.

Subject Refers to a bid or offer that cannot be executed without confirmation from the customer.

Subject to opinion An auditor's opinion reflecting acceptance of a company's financial statements subject to
pervasive uncertainty that cannot be adequately measured, such as information relating to the value of
inventories, reserves for losses, or other matters subject to judgment.

Subjective probabilities Probabilities that are determined subjectively (for example, on the basis of
judgement rather than using statistical sampling).

Subordinated debenture bond An unsecured bond that ranks after secured debt, after debenture bonds, and
often after some general creditors in its claim on assets and earnings. Related: Debenture bond, mortgage
bond, collateral trust bonds.

Subordinated debt Debt over which senior debt takes priority. In the event of bankruptcy, subordinated
debtholders receive payment only after senior debt claims are paid in full.

Subordination clause A provision in a bond indenture that restricts the issuer's future borrowing by
subordinating the new lender's claims on the firm to those of the existing bond holders.

Subpart F Special category of foreign-source "unearned" income that is currently taxed by the IRS whether
or not it is remitted to the U.S.

Subperiod return The return of a portfolio over a shorter period of time than the evaluation period.

Subscription price Price that the existing shareholders are allowed to pay for a share of stock in a rights
offering.

Subsidiary A foreign-based affiliate that is a separately incorporated entity under the host country's law.
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Substitute sale A method for hedging price risk that utilizes debt-market instruments, such as interest rate
futures, or that involves selling borrowed securities as the primary assets.

Substitution swap A swap in which a money manager exchanges one bond for another bond that is similar in
terms of coupon, maturity, and credit quality, but offers a higher yield.

Sum-of-the-years'-digits depreciation Method of accelerated depreciation.

Sunk costs Costs that have been incurred and cannot be reversed.

Supermajority Provision in a company's charter requiring a majority of, say, 80% of shareholders to approve
certain changes, such as a merger.

Supply shock An event that influences production capacity and costs in an economy.

Support level A price level below which it is supposedly difficult for a security or market to fall.

Surplus funds Cash flow available after payment of taxes in the project.

Surplus management Related: asset management

Sushi bond A eurobond issued by a Japanese corporation.

Sustainable growth rate Maximum rate of growth a firm can sustain without increasing financial leverage.

Swap An arrangement whereby two companies lend to each other on different terms, e.g. in different
currencies, and/or at different interest rates, fixed or floating.

Swap assignment Related: swap sale.

Swap buy-back The sale of an interest rate swap by one counterparty to the other, effectively ending the
swap.

Swap option See:Swaption. Related: Quality option.

Swap rate The difference between spot and forward rates expressed in points, e.g., $0.0001 per pound
sterling.

Swap reversal An interest rate swap designed to end a counterparty's role in another interest rate swap,
accomplished by counterbalancing the original swap in maturity, reference rate, and notional amount.

Swap sale Also called a swap assignment, a transaction that ends one counterparty's role in an interest rate
swap by substituting a new counterparty whose credit is acceptable to the other original counterparty.

Swaption Options on interest rate swaps. The buyer of a swaption has the right to enter into an interest rate
swap agreement by some specified date in the ' future. The swaption agreement will specify whether the buyer
of the swaption will be a fixed-rate receiver or a fixed-rate payer. The writer of the swaption becomes the
counterparty to the swap if the buyer exercises.

Sweep account Account in which the bank takes all of the excess available funds at the close of each business
day and invests them for the firm.

Swingline facility Bank borrowing facility to provide finance while the firm replaces U.S. commercial paper
with eurocommercial paper.

Swissy Jargon for the Swiss Franc.
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Switching Liquidating an existing position and simultaneously reinstating a position in another futures
contract of the same type. Symmetric cash matching An extension of cash flow matching that allows for the
short-term borrowing of funds to satisfy a liability prior to the liability due date, resulting in a reduction in the
cost of funding liabilities.

Symmetric cash matching An extension of cash flow matching that allows for the short-term borrowing of
funds to satisfy a liability prior to the liability due date, resulting in a reduction in the cost of funding
liabilities.

Synchronous data Data available at the same time. In testing option-pricing models, the price of the option
and of the underlying should be synchronous, representing the same moment in the market.

Syndicate A group of banks that acts jointly, on a temporary basis, to loan money in a bank credit (syndicated
credit) or to underwrite a new issue of bonds.

Synergistic effect A violation of value-additivity whereby the value of the combination is greater than the
sum of the individual values.

Synthetics Customized hybrid instruments created by blending an underlying price on a cash instrument with
the price of a derivative instrument.

Systematic Common to all businesses.

Systematic risk Also called undiversifiable risk or market risk, the minimum level of risk that can be
obtained for a portfolio by means of diversification across a large number of randomly chosen assets. Related:
unsystematic risk.

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