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Systematic risk principle Only the systematic portion of risk matters in large, well-diversified portfolios.
The, expected returns must be related only to systematic risks.

T-period holding-period return The percentage return over the T-year period an investment lasts.

Tactical Asset Allocation (TAA) An asset allocation strategy that allows active departures from the normal
asset mix based upon rigorous objective measures of value. Often called active management. It involves
forecasting asset returns, volatilities and correlations. The forecasted variables may be functions of
fundamental variables, economic variables or even technical variables.

Tail (1) The difference between the average price in Treasury auctions and the stopout price. (2) A future
money market instrument (one available some period hence) created by buying an existing instrument and
financing the initial portion of its life with a term repo. (3) The extreme end under a probability curve. (4) The
odd amount in a MBS pool.

Take (1) A dealer or customer who agrees to buy at another dealer's offered price is said to take that offer. (2)
Also, Euro bankers speak of taking deposits rather than buying money.

Take a position To buy or sell short; that is, to have some amount that is owned or owed on an asset or
derivative security.

Take-or-pay contract A contract that obligates the purchaser to take any product that is offered to it (and pay
the cash purchase price) or pay a specified amount if it refuses to take the product.

Take-out A cash surplus generated by the sale of one block of securities and the purchase of another, e.g.
selling a block of bonds at 99 and buying another block at 95. Also, a bid made to a seller of a security that is
designed (and generally agreed) to take him out of the market.
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Take-up fee A fee paid to an underwriter in connection with an underwritten rights offering or an
underwritten forced conversion as compensation for each share of common stock he underwriter obtains and
must resell upon the exercise of rights or conversion of bonds.

Takeover General term referring to transfer of control of a firm from one group of shareholder's to another
group of shareholders.

Taking a view A London expression for forming an opinion as to where market prices are headed and acting
on it.

Taking delivery Refers to the buyer's actually assuming possession from the seller of the asset agreed upon
in a forward contract or a futures contract.

Tandem programs Under Ginnie Mae, mortgage funds provided at below-market rates to residential
mortgage buyers with FHA Section 203 and 235 loans and to developers of multifamily projects with Section
236 loans initially and later with Section 221(d)(4) loans.

TANs (tax anticipation notes) Tax anticipation notes issued by states or municipalities to finance current
operations in anticipation of future tax receipts.

Tangible asset An asset whose value depends on particular physical properties. These i nclude reproducible
assets such as buildings or machinery and non-reproducible assets such as land, a mine, or a work of art. Also
called real assets. Related: Intangible asset

Target cash balance Optimal amount of cash for a firm to hold, considering the trade-off between the
opportunity costs of holding too much cash and the trading costs of holding too little cash.

Target firm A firm that is the object of a takeover by another firm.

Target payout ratio A firm's long-run dividend-to-earnings ratio. The firm's policy is to attempt to pay out a
certain percentage of earnings, but it pays a stated dollar dividend and adjusts it to the target as base-line
increases in earnings occur.

Target zone arrangement A monetary system under which countries pledge to maintain their exchange rates
within a specific margin around agreed-upon, fixed central exchange rates.

Targeted repurchase The firm buys back its own stock from a potential bidder, usually at a substantial
premium, to forestall a takeover attempt.

Tax anticipation bills (TABs) Special bills that the Treasury occasionally issues that mature on corporate
quarterly income tax dates and can be used at face value by corporations to pay their tax liabilities.

Tax books Set of books kept by a firm's management for the IRS that follows IRS rules. The stockholder's
books follow Financial Accounting Standards Board rules.

Tax clawback agreement An agreement to contribute as equity to a project the value of all previously
realized project-related tax benefits not already clawed back to the extent required to cover any cash
deficiency of the project.

Tax differential view ( of dividend policy) The view that shareholders prefer capital gains over dividends,
and hence low payout ratios, because capital gains are effectively taxed at lower rates than dividends.

Tax-exempt sector The municipal bond market where state and local governments raise funds. Bonds issued
in this sector are exempt from federal income taxes.
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Tax free acquisition A merger or consolidation in which 1) the acquirer's tax basis in each asset whose
ownership is transferred in the transaction is generally the same as the acquiree's, and 2) each seller who
receives only stock does not have to pay any tax on the gain he realizes until the shares are sold.

Tax haven A nation with a moderate level of taxation and/or liberal tax incentives for undertaking specific
activities such as exporting or investing.

Tax Reform Act of 1986 A 1986 law involving a major overhaul of the U.S. tax code.

Tax shield The reduction in income taxes that results from taking an allowable deduction from taxable
income.

Tax swap Swapping two similar bonds to receive a tax benefit.

Tax deferral option The feature of the U.S. Internal Revenue Code that the capital gains tax on an asset is
payable only when the gain is realized by selling the asset.

Tax-deferred retirement plans Employer-sponsored and other plans that allow contributions and earnings to
be made and accumulate tax-free until they are paid out as benefits.

Tax-timing option The option to sell an asset and claim a loss for tax purposes or not to sell the asset and
defer the capital gains tax.

Taxable acquisition A merger or consolidation that is not a tax-fee acquisition. The selling shareholders are
treated as having sold their shares.

Taxable income Gross income less a set of deductions.

Taxable transaction Any transaction that is not tax-free to the parties involved, such as a taxable acquisition.

TBA (to be announced) A contract for the purchase or sale of a MBS to be delivered at an agreed-upon
future date but does not include a specified pool number and number of pools or precise amount to be
delivered.

Technical analysis Security analysis that seeks to detect and interpret patterns in past security prices.

Technical analysts Also called chartists or technicians, analysts who use mechanical rules to detect changes
in the supply of and demand for a stock and capitalize on the expected change.

Technical condition of a market Demand and supply factors affecting price, in particular the net position,
either long or short, of the dealer community.

Technical descriptors Variables that are used to describe the market on a technical basis.

Technical insolvency Default on a legal obligation of the firm. For example, technical insolvency occurs
when a firm doesn't pay a bill.

Technician Related: technical analysts

TED spread Difference between U.S. Treasury bill rate and eurodollar rate; used by some traders as a
measure of investor/trader anxiety.

Temporal method Under this currency translation method, the choice of exchange rate depends on the
underlying method of valuation. Assets and liabilities valued at historical cost (market cost) are translated at
the historical (current market) rate.
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Tender To offer for delivery against futures.

Tender offer General offer made publicly and directly to a firm's shareholders to buy their stock at a price
well above the current market price.

Tender offer premium The premium offered above the current market price in a tender offer.

10-K Annual report required by the SEC each year. Provides a comprehensive overview of a company's state
of business. Must be filed within 90 days after fiscal year end. A 10Q report is filed quarterly.

Term bonds Often referred to as bullet-maturity bonds or simply bullet bonds, bonds whose principal is
payable at maturity. Related: serial bonds

Tenor Maturity of a loan.

Term Fed Funds Fed Funds sold for a period of time longer than overnight.

Term life insurance A contract that provides a death benefit but no cash build-up or investment component.
The premium remains constant only for a specified term of years, and the policy is usually renewable at the
end of each term.

Term bonds Often referred to as bullet-maturity bonds or simply bullet bonds, bonds whose principal is
payable at maturity. Compare to: Serial bonds.

Term loan A bank loan, typically with a floating interest rate, for a specified amount that matures in between
one and ten years and requires a specified repayment schedule.

Term insurance Provides a death benefit only, no build-up of cash value.

Term repo A repurchase \agreement with a term of more than one day.

Term structure of interest rates Relationship between \interest rates on bonds of different maturities usually
depicted in the form of a graph often depicted as a yield curve. Harvey shows that inverted term structures
(long rates below short rates) have preceded every recession over the past 30 years.

Term to maturity The time remaining on a bond's life, or the date on which the debt will cease to exist and
the borrower will have completely paid off the amount borrowed. See: Maturity.

Term premiums Excess of the yields to maturity on long-term bonds over those of short-term bonds.

Term trust A closed-end fund that has a fixed termination or maturity date.

Terminal value The value of a bond at maturity, typically its par value, or the value of an asset (or an entire
firm) on some specified future valuation date.

Terms of sale Conditions on which a firm proposes to sell its goods services for cash or credit.

Terms of trade The weighted average of a nation's export prices relative to its import prices.

Theoretical futures price Also called the fair price, the equilibrium futures price.

Theoretical spot rate curve A curve derived from theoretical considerations as applied to the yields of
actually traded Treasury debt securities because there are no zero-coupon Treasury debt issues with a maturity
greater than one year. Like the yield curve, this is a graphical depiction of the term structure of interest rates.

Theta Also called time decay, the ratio of the change in an option price to the decrease in time to expiration.
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Thin market A market in which trading volume is low and in which consequently bid and asked quotes are
wide and the liquidity of the instrument traded is low.

Thinly traded Infrequently traded.

Third market Exchange-listed securities trading in the OTC market.

Three-phase DDM A version of the dividend discount model which applies a different expected dividend
rate depending on a company's life-cycle phase, growth phase, transition phase, or maturity phase.

Threshold for refinancing The point when the WAC of an MBS is at a level to induce homeowners to
prepay the mortgage in order to refinance to a lower-rate mortgage, generally reached when the WAC of the
MBS is 2% or more above currently available mortgage rates.

Throughput agreement An agreement to put a specified amount of product per period through a particular
facility. For example, an agreement to ship a specified amount of crude oil per period through a particular
pipeline.

Tick Refers to the minimum change in price a security can have, either up or down. Related: point.

Tick indicator A market indicator based on the number of stocks whose last trade was an uptick or a
downtick. Used as an indicator of market sentiment or psychology to try to predict the market's trend.

Tick-test rules SEC-imposed restrictions on when a short sale may be executed, intended to prevent investors
from destabilizing the price of a stock when the market price is falling. A short sale can be made only when
either (1) the sale price of the particular stock is higher than the last trade price (referred to as an uptick trade)
or (2) if there is no change in the last trade price of the particular stock, the previous trade price must be
higher than the trade price that preceded it (referred to as a zero uptick).

Tight market A tight market, as opposed to a thin market, is one in which volume is large, trading is active
and highly competitive, and spreads between bid and ask prices are narrow.

Tilted portfolio An indexing strategy that is linked to active management through the emphasis of a
particular industry sector, selected performance factors such as earnings momentum, dividend yield, price-
earnings ratio, or selected economic factors such as interest rates and inflation.

Time decay Related: theta.

Time deposit Interest-bearing deposit at a savings institution that has a specific maturity. Related: certificate
of deposit.

Time draft Demand for payment at a stated future date.

Time premium Also called time value, the amount by which the option price exceeds its intrinsic value. The
value of an option beyond its current exercise value representing the optionholder's control until expiration,
the risk of the underlying asset, and the riskless return.

Time until expiration The time remaining until a financial contract expires. Also called time to maturity.

Time to maturity The time remaining until a financial contract expires. Also called time until expiration.

Time value of an option The portion of an option's premium that is based on the amount of time remaining
until the expiration date of the option contract, and that the underlying components that determine the value of
the option may change during that time. Time value is generally equal to the difference between the premium
and the intrinsic value. Related: in-the-money.
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Time value of money The idea that a dollar today is worth more than a dollar in the future, because the dollar
received today can earn interest up until the time the future dollar is received.

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