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Quadratic programming Variant of linear programming whereby the equations are quadratic rather than
linear.

Quality option Also called the swap option, the seller's choice of deliverables in Treasury Bond and Treasury
note futures contract. Related: cheapest to deliver issue

that are identical in all respects except for quality rating. For instance, the difference between yields on
Treasuries and those on single A-rated industrial bonds.

Quanto swap See: differential swap.

Quantos Currency options with a guaranteed exchange rate that enable buyers who like the asset, German
bonds for example, but not the asset's pricing currency, to arrange to be paid in a different currency for a fee.

Quick assets Current assets minus inventories.

Quick ratio Indicator of a company's financial strength (or weakness). Calculated by taking current assets
less inventories, divided by current liabilities. This ratio provides information regarding the firm's liquidity
and ability to meet its obligations. Also called the Acid Test ratio.

Quotation The bid and offered prices a dealer is willing to buy or sell at.
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R squared (R2) Square of the correlation coefficient proportion of the variability explained by the linear
regression model. For example, an r squared of 75% means that 75% of the variability observed in the
dependent variable is explained by the independent variable.

Rally (recovery) An upward movement of prices. Opposite of reaction.

RAMs (Reverse-annuity mortgages) Mortgages in which the bank makes a loan for an amount equal to a
percentage of the appraisal value of the home. The loan is then paid to the homeowner in the form of an
annuity.

Random variable A function that assigns a real number to each and every possible outcome of a random
experiment.

Random walk Theory that stock price changes from day to day are at random; the changes are independent
of each other and have the same probability distribution. Many believers of the random walk theory believe
that it is impossible to outperform the market consistently without taking additional risk.

Randomized strategy A strategy of introducing into the decision-making process a random element that is
designed to reduce the information content of the decision-maker's observed choices.

Range The high and low prices, or high and low bids and offers recorded during a specified time.

Range forward A forward exchange rate contract that places upper and lower bounds on the cost of foreign
exchange.

Rate anticipation swaps An exchange of bonds in a portfolio for new bonds that will achieve the target
portfolio duration, based on the investor's assumptions about future changes in interest rates.

Rate lock An agreement between the mortgage banker and the loan applicant guaranteeing a specified interest
rate for a designated period, usually 60 days.

Rate of interest The rate, as a proportion of the principal, at which interest is computed.

Rate of return ratios Ratios that are designed to measure the profitability of the firm in relation to various
measures of the funds invested in the firm.

Rate risk In banking, the risk that profits may decline or losses occur because a rise in interest rates forces up
the cost of funding fixed-rate loans or other fixed-rate assets.

Ratings An evaluation of credit quality Moody's, S&P, and Fitch Investors Service give to companies used by
investors and analysts.

Rational expectations The idea that people rationally anticipate the future and respond to what they see

Raw material supply agreement As used in connection with project financing, an agreement to furnish a
specified amount per period of a specified raw material.

Reaction A decline in prices following an advance. Opposite of rally.

Real assets Identifiable assets, such as buildings, equipment, patents, and trademarks, as distinguished from a
financial obligation.

Real capital Wealth that can be represented in financial terms, such as savings account balances, financial
securities, and real estate.
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Real cash flow A cash flow is expressed in real terms if the current, or date 0, purchasing power of the cash
flow is given.

Real exchange rates Exchange rates that have been adjusted for the inflation differential between two
countries.

Real interest rate The rate of interest excluding the effect of inflation; that is, the rate that is earned in terms
of constant-purchasing-power dollars. Interest rate expressed in terms of real goods, i.e. nominal interest rate

Real market The bid and offer prices at which a dealer could do "size." Quotes in the brokers market may
reflect not the real market, but pictures painted by dealers playing trading games.

Real time A real time stock or bond quote is one that states a security's most recent offer to sell or bid (buy).
A delayed quote shows the same bid and ask prices 15 minutes and sometimes 20 minutes after a trade takes
place.

Realized compound yield Yield assuming that coupon payments are invested at the going market interest
rate at the time of their receipt and rolled over until the bond matures.

Realized return The return that is actually earned over a given time period.

Rebalancing Realigning the proportions of assets in a portfolio as needed.

Receivables balance fractions The percentage of a month's sales that remain uncollected (and part of
accounts receivable) at the end of succeeding months.

Receivables turnover ratio Total operating revenues divided by average receivables. Used to measure how
effectively a firm is managing its accounts receivable.

Receiver A bankruptcy practitioner appointed by secured creditors in the United Kingdom to oversee the
repayment of debts.

Reclamation A claim for the right to return or the right to demand the return of a security that has been
previously accepted as a result of bad delivery or other irregularities in the delivery and settlement process.

Record date (1) Date by which a shareholder must officially own shares in order to be entitled to a dividend.
For example, a firm might declare a dividend on Nov 1, payable Dec 1 to holders of record Nov 15. Once a
trade is executed an investor becomes the "owner of record" on settlement, which currently takes 5 business
days for securities, and one business day for mutual funds. Stocks trade ex-dividend the fourth day before the
record date, since the seller will still be the owner of record and is thus entitled to the dividend. (2) The date
that determines who is entitled to payment of principal and interest due to be paid on a security. The record
date for most MBSs is the last day of the month, however the last day on which they may be presented for the
transfer is the last business day of the month. The record date for CMOs and asset-backed securities vary with
each issue.

Recourse Term describing a type of loan. If a loan is with recourse, the lender has a general claim against the
parent company if the collateral is insufficient to repay the debt.

Red herring A preliminary prospectus containing information required by the SEC. It excludes the offering
price and the coupon of the new issue.

Redeemable Eligible for redemption under the terms of the indenture.

Redemption charge The commission charged by a mutual fund when redeeming shares. For example, a 2%
redemption charge (also called a "back end load") on the sale of shares valued at \$1000 will result in payment
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of \$980 (or 98% of the value) to the investor. This charge may decrease or be eliminated as shares are held for
longer time periods.

Redemption cushion The percentage by which the conversion value of a convertible security exceeds the
redemption price (strike price).

Reference rate A benchmark 'interest rate (such as LIBOR), used to specify conditions of an interest rate
swap or an interest rate agreement.

Refundable Eligible for refunding under the terms of indenture.

Refunded bond Also called a prerefunded bond, one that originally may have been issued as a general
obligation or revenue bond but that is now secured by an "escrow fund" consisting entirely of direct U.S.
government obligations that are sufficient for paying the bondholders.

Refunding The redemption of a bond with proceeds received from issuing lower-cost debt obligations
ranking equal to or superior to the debt to be redeemed.

Regional fund A mutual fund that invests in a specific geographical area overseas, such as Asia or Europe.

Registered bond A bond whose issuer records ownership and interest payments. Differs from a bearer bond
which is traded without record of ownership and whose possession is the only evidence of ownership.

Registered representative A person registered with the CFTC who is employed by, and soliciting business
for, a commission house or futures commission merchant.

Registered trader A member of the exchange who executes frequent trades for his or her own account.

Registrar Financial institution appointed to record issue and ownership of company securities.

Registration statement A legal document that is filed with the SEC to register securities for public offering.

Regression analysis A statistical technique that can be used to estimate relationships between variables.

Regression equation An equation that describes the average relationship between a dependent variable and a
set of explanatory variables.

Regression toward the mean The tendency for subsequent observations of a random variable to be closer to
its mean.

Regular way settlement In the money and bond markets, the regular basis on which some security trades are
settled is that the delivery of the securities purchased is made against payment in Fed funds on the day
following the transaction.

Regulation A The securities regulation that exempts small public offerings, those valued at less than
\$1.5MM, from most registration requirements with the SEC.

Regulation D Fed regulation currently that required member banks to hold reserves against their net
borrowings from foreign offices of other banks over a 28-day averaging period. Regulation D has been
merged with Regulation M.

Regulation M Fed regulation currently requiring member banks to hold reserves against their net borrowings
from their foreign branches over a 28-day averaging period. Reg M has also required member banks to hold
reserves against Eurodollars lent by their foreign branches to domestic corporations for domestic purposes.
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Regulation Q Fed regulation imposing caps on the rates that banks may pay on savings and time deposits.
Currently time deposits with a denomination of \$100,000 or more are exempt from Reg Q.

Regulatory accounting procedures Accounting principals required by the FHLB that allow S&Ls to elect
annually to defer gains and losses on the sale of assets and amortize these deferrals over the average life of the
asset sold.

Regulatory pricing risk Risk that arises when regulators restrict the premium rates that insurance companies
can charge.

Regulatory surplus The surplus as measured using regulatory accounting principles (RAP) which may allow
the non-market valuation of assets or liabilities and which may be materially different from economic surplus.

Reinvestment rate The rate at which an investor assumes interest payments made on a debt security can be
reinvested over the life of that security.

Reinvestment risk The risk that proceeds received in the future will have to be reinvested at a lower potential
interest rate.

Reinvoicing center A central financial subsidiary used by an MNC to reduce transaction exposure by having
all home country exports billed in the home currency and then reinvoiced to each operating affililate in that
affiliate's local currency. It can also be used as a netting center.

REIT (real estate investment trust) Real estate investment trust, which is similar to a closed-end mutual
fund. REITs invest in real estate or loans secured by real estate and issue shares in such investments.

Relative purchasing power parity (RPPP) Idea that the rate of change in the price level of commodities in
one country relative to the price level in another determines the rate of change of the exchange rate between
the two countries' currencies.

Relative strength A stock's price movement over the past year as compared to a market index (the S&P 500).
Value below 1.0 means the stock shows relative weakness in price movement (underperformed the market); a
value above 1.0 means the stock shows relative strength over the 1-year period. Equation for Relative
Strength: [current stock price/year-ago stock price] [current S&P 500/year-ago S&P 500]

Relative value The attractiveness measured in terms of risk, liquidity, and return of one instrument relative to
another, or for a given instrument, of one maturity relative to another.

Relative yield spread The ratio of the yield spread to the yield level.

Remainderman One who receives the principal of a trust when it is dissolved.

Remaining maturity The length of time remaining until a bond's maturity.

Remaining principal balance The amount of principal dollars remaining to be paid under the mortgage as of
a given point in time.

Rembrandt market The foreign market in the Netherlands.

REMIC (real estate mortgage investment conduit) A pass-through tax entity that can hold mortgages
secured by any type of real property and issue multiple classes of ownership interests to investors in the form
of pass-through certificates, bonds, or other legal forms. A financing vehicle created under the Tax Reform
Act of 1986.

Remote disbursement Technique that involves writing checks drawn on banks in remote locations so as to
increase disbursement float.
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Rental lease See:full-service lease.

Reoffering yield In a purchase and sale, the yield to maturity at which the underwriter offers to sell the bonds
to investors.

Reopen an issue The Treasury, when it wants to sell additional securities, will occasionally sell more of an
existing issue (reopen it) rather than offer a new issue.
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