<<

. 6
( 34 .)



>>


Collection fractions The percentage of a given month's sales collected during the month of sale and each
month following the month of sale.

Collection policy Procedures followed by a firm in attempting to collect accounts receivables.

Collective wisdom The combination of all of the individual opinions about a stock's or security's value.

Comanger A bank that ranks just below a lead manager in a syndicated Eurocredit or international bond
issue. Comanagers may assist the lead manger bank in the pricing and issue of the instrument.

Combination matching Also called horizon matching, a variation of multiperiod immunization and cash
flow matching in which a portfolio is created that is always duration matched and also cash-matched in the
first few years.

Combination strategy A strategy in which a put and with the same strike price and expiration are either both
bought or both sold. Related: Straddle

Commercial draft Demand for payment.

Commercial paper Short-term unsecured promissory notes issued by a corporation. The maturity of
commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less.

Commercial risk The risk that a foreign debtor will be unable to pay its debts because of business events,
such as bankruptcy.

Commission The fee paid to a broker to execute a trade, based on number of shares, bonds, options, and/or
their dollar value. In 1975, deregulation led to the creation of discount brokers, who charge lower
commissions than full service brokers. Full service brokers offer advice and usually have a full staff of
analysts who follow specific industries. Discount brokers simply execute a client's order -- and usually do not
offer an opinion on a stock. Also known as a round-turn.

Commission broker A broker on the floor of an exchange acts as agent for a particular brokerage house and
who buys and sells stocks for the brokerage house on a commission basis.

Commission house A firm which buys and sells future contracts for customer accounts. Related: futures
commission merchant, omnibus account.

Commitment A trader is said to have a commitment when he assumes the obligation to accept or make
delivery on a futures contract. Related: Open interest

Commitment fee A fee paid to a commercial bank in return for its legal commitment to lend funds that have
not yet been advanced.

Committee, AIMR Performance Presentation Standards Implementation Committee The Association
for Investment Management and Research (AIMR)'s Performance Presentation Standards Implementation
Committee is charged with the responsibility to interpret, revise and update the AIMR Performance
Presentation Standards (AIMR-PPS(TM)) for portfolio performance presentations.

Commodities Exchange Center (CEC) The location of five New York futures exchanges: Commodity
Exchange, Inc. (COMEX), the New York Mercantile exchange (NYMEX), the New York Cotton Exchange,
26
Dictionary of Financial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
the Coffee, Sugar and Cocoa exchange (CSC), and the New York futures exchange (NYFE). common size
statement A statement in which all items are expressed as a percentage of a base figure, useful for purposes of
analyzing trends and the changing relationship between financial statement items. For example, all items in
each year's income statement could be presented as a percentage of net sales.

Commodity A commodity is food, metal, or another physical substance that investors buy or sell, usually via
futures contracts.

Common market An agreement between two or more countries that permits the free movement of capital
and labor as well as goods and services.

Common stock These are securities that represent equity ownership in a company. Common shares let an
investor vote on such matters as the election of directors. They also give the holder a share in a company's
profits via dividend payments or the capital appreciation of the security.

Common stock/other equity Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.

Common stock equivalent A convertible security that is traded like an equity issue because the optioned
common stock is trading high.

Common stock market The market for trading equities, not including preferred stock.

Common stock ratios Ratios that are designed to measure the relative claims of stockholders to earnings
(cash flow per share), and equity (book value per share) of a firm.

Common-base-year analysis The representing of accounting information over multiple years as percentages
of amounts in an initial year.

Common-size analysis The representing of balance sheet items as percentages of assets and of income
statement items as percentages of sales.

Company-specific risk Related: Unsystematic risk

Comparative credit analysis A method of analysis in which a firm is compared to others that have a desired
target debt rating in order to infer an appropriate financial ratio target.

Comparison universe The collection of money managers of similar investment style used for assessing
relative performance of a portfolio manager.

Compensating balance An excess balance that is left in a bank to provide indirect compensation for loans
extended or services provided.

Competence Sufficient ability or fitness for ones needs. Possessing the necessary abilities to be qualified to
achieve a certain goal or complete a project.

Competition Intra- or intermarket rivalry between businesses trying to obtain a larger piece of the same
market share.

Competitive bidding A securities offering process in which securities firms submit competing bids to the
issuer for the securities the issuer wishes to sell.

Competitive offering An offering of securities through competitive bidding.

Complete capital market A market in which there is a distinct marketable security for each and every
possible outcome.
27
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Complete portfolio The entire portfolio, including risky and risk-free assets.

Completion bonding Insurance that a construction contract will be successfully completed.

Completion risk The risk that a project will not be brought into operation successfully.

Completion undertaking An undertaking either (1) to complete a project such that it meets certain specified
performance criteria on or before a certain specified date or (2) to repay project debt if the completion test
cannot be met.

Composition Voluntary arrangement to restructure a firm's debt, under which payment is reduced.

Compound interest Interest paid on previously earned interest as well as on the principal.

Compound option Option on an option.

Compounding The process of accumulating the time value of money forward in time. For example, interest
earned in one period earns additional interest during each subsequent time period.

Compounding frequency The number of compounding periods in a year. For example, quarterly
compounding has a compounding frequency of 4.

Compounding period The length of the time period (for example, a quarter in the case of quarterly
compounding) that elapses before interest compounds.

Comprehensive due diligence investigation The investigation of a firm's business in conjunction with a
securities offering to determine whether the firm's business and financial situation and its prospects are
adequately disclosed in the prospectus for the offering.

Concentration account A single centralized account into which funds collected at regional locations
(lockboxes) are transferred.

Concentration services Movement of cash from different lockbox locations into a single concentration
account from which disbursements and investments are made.

Concession agreement An understanding between a company and the host government that specifies the
rules under which the company can operate locally.

Conditional sales contracts Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.

Confidence indicator A measure of investors' faith in the economy and the securities market. A low or
deteriorating level of confidence is considered by many technical analysts as a bearish sign.

Confidence level The degree of assurance that a specified failure rate is not exceeded.

Confirmation The written statement that follows any "trade" in the securities markets. Confirmation is issued
immediately after a trade is executed. It spells out settlement date, terms, commission, etc.

Conflict between bondholders and stockholders These two groups may have interests in a corporation that
conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective
covenants work to resolve these conflicts.

Conglomerate A firm engaged in two or more unrelated businesses.
28
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Conglomerate merger A merger involving two or more firms that are in unrelated businesses.

Consensus forecast The mean of all financial analysts' forecasts for a company.

Consol A type of bond that has an infinite life but is not issued in the U.S. capital markets.

Consolidation The combining of two or more firms to form an entirely new entity.

Consortium banks A merchant banking subsidiary set up by several banks that may or may not be of the
same nationality. Consortium banks are common in the Euromarket and are active in loan syndication.

Constant-growth model Also called the Gordon-Shapiro model, an application of the dividend discount
model which assumes (1) a fixed growth rate for future dividends and (2) a single discount rate.

Consumer credit Credit granted by a firm to consumers for the purchase of goods or services. Also called
retail credit.

Consumer Price Index The CPI, as it is called, measures the prices of consumer goods and services and is a
measure of the pace of U.S. inflation. The U.S.Department of Labor publishes the CPI very month.

Contango A market condition in which futures prices are higher in the distant delivery months.

Contingent claim A claim that can be made only if one or more specified outcomes occur.

Contingent deferred sales charge (CDSC) The formal name for the load of a back-end load fund.

Contingent immunization An arrangement in which the money manager pursues an active bond portfolio
strategy until an adverse investment experience drives the then-available potential return down to the safety-
net level. When that point is reached, the money manager is obligated to pursue an immunization strategy to
lock in the safety-net level return.

Contingent pension liability Under ERISA, the firm is liable to the plan participants for up to 39% of the net
worth of the firm.

Continuous compounding The process of accumulating the time value of money forward in time on a
continuous, or instantaneous, basis. Interest is earned continuously, and at each instant, the interest that
accrues immediately begins earning interest on itself.

Continuous random variable A random value that can take any fractional value within specified ranges, as
contrasted with a discrete variable.

Contract A term of reference describing a unit of trading for a financial or commodity future. Also, the actual
bilateral agreement between the buyer and seller of a transaction as defined by an exchange.

Contract month The month in which futures contracts may be satisfied by making or accepting a delivery.
Also called value managers, those who assemble portfolios with relatively lower betas, lower price-book and
P/E ratios and higher dividend yields, seeing value where others do not.

Contribution margin The difference between variable revenue and variable cost.

Control 50% of the outstanding votes plus one vote.

Controlled disbursement A service that provides for a single presentation of checks each day (typically in
the early part of the day).
29
Dictionary of Financial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Controlled foreign corporation (CFC) A foreign corporation whose voting stock is more than 50% owned
by U.S. stockholders, each of whom owns at least 10% of the voting power.

Controller The corporate manager responsible for the firm's accounting activities.

Convenience yield The extra advantage that firms derive from holding the commodity rather than the future.

Convention statement An annual statement filed by a life insurance company in each state where it does
business in compliance with that state's regulations. The statement and supporting documents show, among
other things, the assets, liabilities, and surplus of the reporting company.

Conventional mortgage A loan based on the credit of the borrower and on the collateral for the mortgage.

Conventional pass-throughs Also called private-label pass-throughs, any mortgage pass-through security not
guaranteed by government agencies. Compare agency pass-throughs.

Conventional project A project with a negative initial cash flow (cash outflow), which is expected to be
followed by one or more future positive cash flows (cash inflows).

Convergence The movement of the price of a futures contract toward the price of the underlying cash
commodity. At the start, the contract price is higher because of the time value. But as the contract nears
expiration, the futures price and the cash price converge.

Conversion factors Rules set by the Chicago Board of Trade for determining the invoice price of each
acceptable deliverable Treasury issue against the Treasury Bond futures contract.

Conversion parity price Related:Market conversion price

Conversion premium The percentage by which the conversion price in a convertible security exceeds the
prevailing common stock price at the time the convertible security is issued.

Convertibility The degree of freedom to exchange a currency without government restrictions or controls.

Convertible price The contractually specified price per share at which a convertible security can be
converted into shares of common stock.

Conversion ratio The number of shares of common stock that the security holder will receive from
exercising the call option of a convertible security.

<<

. 6
( 34 .)



>>