. 11
( 34 .)


Euroequity issues Securities sold in the Euromarket. That is, securities initially sold to investors
simultaneously in several national markets by an international syndicate. Euromarket. Related: external

European Currency Unit (ECU) An index of foreign exchange consisting of about 10 European currencies,
originally devised in 1979.

European Monetary System (EMS) An exchange arrangement formed in 1979 that involves the currencies
of European Union member countries.

European option Option that may be exercised only at the expiration date. Related: american option.

European Union (EU) An economic association of European countries founded by the Treaty of Rome in
1957 as a common market for six nations. It was known as the European Community before 1993 and is
comprised of 15 European countries. Its goals are a single market for goods and services without any
economic barriers and a common currency with one monetary authority. The EU was known as the European
Community until January 1, 1994.

European-style option An option contract that can only be exercised on the expiration date.

Euroyen bonds Eurobonds denominated in Japanese yen.

Euro-commercial paper Short-term notes with maturities up to 360 days that are issued by companies in
international money markets.

Euro-medium term note (Euro-MTN) A non-underwritten Euronote issued directly to the market. Euro-
MTNs are offered continuously rather than all at once as a bond issue is. Most Euro-MTN maturities are
under five years.

Euro-note Short- to medium-term debt instrument sold in the Eurocurrency market.

Evaluation period The time interval over which a money manager's performance is evaluated.

Evening up Buying or selling to offset an existing market position.

Event risk The risk that the ability of an issuer to make interest and principal payments will change because
of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural
or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.

Event study A statistical study that examines how the release of information affects prices at a particular

Events of default Contractually specified events that allow lenders to demand immediate repayment of a

Evergreen credit Revolving credit without maturity.

Ex post return Related: Holding period return

Exact matching A bond portfolio management strategy that involves finding the lowest cost portfolio
generating cash inflows exactly equal to cash outflows that are being financed by investment.

Exante return The expected return of a portfolio based on the expected returns of its component assets and
their weights.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Except for opinion An auditor's opinion reflecting the fact that the auditor was unable to audit certain areas
of the company's operations because of restrictions imposed by management or other conditions beyond the
auditor's control.

Excess reserves Any excess of actual reserves above required reserves.

Excess return on the market portfolio The difference between the return on the market portfolio and the
riskless rate.

Excess returns Also called abnormal returns, returns in excess of those required by some asset pricing model.

Exchange The marketplace in which shares, options and futures on stocks, bonds, commodities and indices
are traded. Principal US stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange
(AMEX) and the National Association of Securities Dealers (NASDAQ)

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

Exchange controls Governmental restrictions on the purchase of foreign currencies by domestic citizens or
on the purchase of the local domestic currency by foreigners.

Exchange of assets Acquisition of another company by purchase of its assets in exchange for cash or stock.

Exchange of stock Acquisition of another company by purchase of its stock in exchange for cash or shares.

Exchange offer An offer by the firm to give one security, such as a bond or preferred stock, in exchange for
another security, such as shares of common stock.

Exchange rate The price of one country's currency expressed in another country's currency.

Exchange Rate Mechanism (ERM) The methodology by which members of the EMS maintain their
currency exchange rates within an agreed upon range with respect to other member countries.

Exchange rate risk Also called currency risk, the risk of an investment's value changing because of currency
exchange rates.

Exchange risk The variability of a firm's value that results from unexpected exchange rate changes or the
extent to which the present value of a firm is expected to change as a result of a given currency's appreciation
or depreciation.

Exchangeable Security Security that grants the security holder the right to exchange the security for the
common stock of a firm other than the issuer of the security.

Exclusionary self-tender The firm makes a tender offer for a given amount of its own stock while excluding
targeted stockholders.

Execution The process of completing an order to buy or sell securities. Once a trade is executed, it is reported
by a Confirmation Report; settlement (payment and transfer of ownership) occurs in the U.S. between 1
(mutual funds) and 5 (stocks) days after an order is executed. Settlement times for exchange listed stocks are
in the process of being reduced to three days in the U. S.

Execution costs The difference between the execution price of a security and the price that would have
existed in the absence of a trade, which can be further divided into market impact costs and market timing
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Exempt securities Instruments exempt from the registration requirements of the Securities Act of 1933 or the
margin requirements of the SEC Act of 1934. Such securities include government bonds, agencies, munis,
commercial paper, and private placements.

Exercise To implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of
a put) the underlying security.

Exercise price The price at which the underlying future or options contract may be bought or sold.

Exercise value The amount of advantage over a current market transaction provided by an in-the-money

Exercising the option The act buying or selling the underlying asset via the option contract.

Exogenous variable A variable whose value is determined outside the model in which it is used. Also called
a parameter.

Expectations hypothesis theories Theories of the term structure of interest rates which include the pure
expectations theory, the liquidity theory of the term structure, and the preferred habitat theory. These theories
hold that each forward rate equals the expected future interest rate for the relevant period. These three theories
differ, however, on whether other factors also affect forward rates, and how.

Expectations theory of forward exchange rates A theory of foreign exchange rates that holds that the
expected future spot foreign exchange rate t periods in the future equals the current t-period forward exchange

Expected future cash flows Projected future cash flows associated with an asset of decision.

Expected future return The return that is expected to be earned on an asset in the future. Also called the
expected return.

Expected return The return expected on a risky asset based on a probability distribution for the possible rates
of return. Expected return equals some risk free rate (generally the prevailing U.S. Treasury note or bond rate)
plus a risk premium (the difference between the historic market return, based upon a well diversified index
such as the S&P500 and historic U.S. Treasury bond) multiplied by the assets beta.

Expected return on investment The return one can expect to earn on an investment. See: capital asset
pricing model.

Expected return-beta relationship Implication of the CAPM that security risk premiums will be
proportional to beta.

Expected value The weighted average of a probability distribution.

Expected value of perfect information The expected value if the future uncertain outcomes could be known
minus the expected value with no additional information.

Expense ratio The percentage of the assets that were spent to run a mutual fund (as of the last annual
statement). This includes expenses such as management and advisory fees, overhead costs and 12b-1
(distribution and advertising ) fees. The expense ratio does not include brokerage costs for trading the
portfolio, although these are reported as a percentage of assets to the SEC by the funds in a Statement of
Additional Information (SAI). the SAI is available to shareholders on request. Neither the expense ratio or the
SAI includes the transaction costs of spreads, normally incurred in unlisted securities and foreign stocks.
These two costs can add significantly to the reported expenses of a fund. The expense ratio is often termed an
Operating Expense Ratio (OER).
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Expensed Charged to an expense account, fully reducing reported profit of that year, as is appropriate for
expenditures for items with useful lives under one year.

Expiration The time when the option contract ceases to exist (expires).

Expiration cycle An expiration cycle relates to the dates on which options on a particular security expire. A
given option will be placed in 1 of 3 cycles, the January cycle, the February cycle, or the March cycle. At any
point in time, an option will have contracts with 4 expiration dates outstanding, 2 in near-term months and 2
in far-term months.

Expiration date The last day (in the case of American-style) or the only day (in the case of European-style)
on which an option may be exercised. For stock options, this date is the Saturday immediately following the
3rd Friday of the expiration month; however, brokerage firms may set an earlier deadline for notification of
an option holder's intention to exercise. If Friday is a holiday, the last trading day will be the preceding

Export-Import Bank (Ex-Im Bank) The U.S. federal government agency that extends trade credits to U.S.
companies to facilitate the financing of U.S. exports.

Exposure netting Offsetting exposures in one currency with exposures in the same or another currency,
where exchange rates are expected to move in such a way that losses or gains on the first exposed position
should be offset by gains or losses on the second currency exposure.

Expropriation The official seizure by a government of private property. Any government has the right to
seize such property, according to international law, if prompt and adequate compensation is given.

Extendable bond Bond whose maturity can be extended at the option of the lender or issuer.

Extendable notes Note the maturity of which can be extended by mutual agreement of the issuer and

Extension Voluntary arrangements to restructure a firm's debt, under which the payment date is postponed.

Extension date The day on which the first option either expires or is extended.

Extension swap Extending maturity through a swap, e.g. selling a 2-year note and buying one with a slightly
longer current maturity.

External efficiency Related: pricing efficiency.

External finance Finance that is not generated by the firm: new borrowing or a stock issue.

External market Also referred to as the international market, the offshore market, or, more popularly, the
Euromarket, the mechanism for trading securities that (1) at issuance are offered simultaneously to investors
in a number of countries and (2) are issued outside the jurisdiction of any single country. Related: internal

Extinguish Retire or pay off debt.

Extra or special dividends A dividend that is paid in addition to a firm's "regular" quarterly dividend.

Extraordinary positive value A positive net present value.

Extrapolative statistical models Models that apply a formula to historical data and project results for a
future period. Such models include the simple linear trend model, the simple exponential model, and the
simple autoregressive model.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Ex-dividend This literally means "without dividend." The buyer of shares when they are quoted ex-dividend
is not entitled to receive a declared dividend.

Ex-dividend date The first day of trading when the seller, rather than the buyer, of a stock will be entitled to
the most recently announced dividend payment. This date set by the NYSE (and generally followed on other
US exchanges) is currently two business days before the record date. A stock that has gone ex-dividend is
marked with an x in newspaper listings on that date.

Ex-rights In connection with a rights offering, shares of stock that are trading without the rights attached.

Ex-rights date The date on which a share of common stock begins trading ex-rights.

Face value See: Par value.

Factor A financial institution that buys a firm's accounts receivables and collects the debt.

Factor analysis A statistical procedure that seeks to explain a certain phenomenon, such as the return on a
common stock, in terms of the behavior of a set of predictive factors.

Factor model A way of decomposing the factors that influence a security's rate of return into common and
firm-specific influences.

Factor portfolio A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of
zero on any other factors.

Factoring Sale of a firm's accounts receivable to a financial institution known as a factor.

Fail A trade is said to fail if on settlement date either the seller fails to deliver securities in proper form or the
buyer fails to deliver funds in proper form.

Fair game An investment prospect that has a zero risk premium.

Fair market price Amount at which an asset would change hands between two parties, both having
knowledge of the relevant facts. Also referred to as market price.


. 11
( 34 .)