<<

. 27
( 34 .)



>>


Reorganization Creating a plan to restructure a debtor's business and restore its financial health.

Replacement cost Cost to replace a firm's assets.

Replacement cycle The frequency with which an asset is replaced by an equivalent asset.

Replacement value Current cost of replacing the firm's assets.

Replacement-chain problem Idea that future replacement decisions must be taken into account in selecting
among projects.

Replicating portfolio A portfolio constructed to match an index or benchmark.

Repo A agreement in which one party sells a security to another party and agrees to repurchase it on a
specified date for a specified price. See: repurchase agreement.

Reported factor The pool factor as reported by the bond buyer for a given amortization period.

Reporting currency The currency in which the parent firm prepares its own financial statements; that is, U.S.
dollars for a U.S. company.

Reproducible assets A tangible asset with physical properties that can be reproduced, such as a building or
machinery.

Repurchase agreement An agreement with a commitment by the seller (dealer) to buy a security back from
the purchaser (customer) at a specified price at a designated future date. Also called a repo, it represents a
collateralized short-term loan, where the collateral may be a Treasury security, money market instrument,
federal agency security, or mortgage-backed security. From the purchaser (customer) perspective, the deal is
reported as a reverse Repo.

Repurchase of stock Device to pay cash to firm's shareholders that provides more preferable tax treatment
for shareholders than dividends. Treasury stock is the name given to previously issued stock that has been
repurchased by the firm. A repurchase is achieved through either a dutch auction, open market, or tender
offer.

Required reserves The dollar amounts based on reserve ratios that banks are required to keep on deposit at a
Federal Reserve Bank.

Required return The minimum expected return you would require to be willing to purchase the asset, that is,
to make the investment.

Required yield Generally referring to bonds, the yield required by the marketplace to match available returns
for financial instruments with comparable risk.

Reserve An accounting entry that properly reflects the contingent liabilities.

Reserve currency A foreign currency held by a central bank or monetary authority for the purposes of
exchange intervention and the settlement of inter-governmental claims.
122
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Reserve ratios Specified percentages of deposits, established by the Federal Reserve Board, that banks must
keep in a non-interest-bearing account at one of the twelve Federal Reserve Banks.

Reserve requirements The percentage of different types of deposits that member banks are required to hold
on deposit at the Fed.

Reset frequency The frequency with which the floating rate changes.

Residuals (1) Parts of stock returns not explained by the explanatory variable (the market-index return). They
measure the impact of firm-specific events during a particular period. (2) Remainder cash flows generated by
pool collateral and those needed to fund bonds supported by the collateral.

Residual assets Assets that remain after sufficient assets are dedicated to meet all senior debtholder's claims
in full.

Residual claim Related: equity claim

Residual dividend approach An approach that suggests that a firm pay dividends if and only if acceptable
investment opportunities for those funds are currently unavailable.

Residual losses Lost wealth of the shareholders due to divergent behavior of the managers.

Residual method A method of allocating the purchase price for the acquisition of another firm among the
acquired assets.

Residual risk Related: unsystematic risk

Residual value Usually refers to the value of a lessor's property at the time the lease expires.

Resistance level A price level above which it is supposedly difficult for a security or market to rise.

Restrictive covenants Provisions that place constraints on the operations of borrowers, such as restrictions on
working capital, fixed assets, future borrowing, and payment of dividend.

Retail Individual and institutional customers as opposed to dealers and brokers.

Retail credit Credit granted by a firm to consumers for the purchase of goods or services. See: consumer
credit.

Retail investors individual investors Small investors who commit capital for their personal account.

Retained earnings Accounting earnings that are retained by the firm for reinvestment in its operations;
earnings that are not paid out as dividends.

Retention rate The percentage of present earnings held back or retained by a corporation, or one minus the
dividend payout rate. Also called the retention ratio.

Retire To extinguish a security, as in paying off a debt.

Retracement A price movement in the opposite direction of the previous trend.

Return The change in the value of a portfolio over an evaluation period, including any distributions made
from the portfolio during that period.
123
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Return on assets (ROA) Indicator of profitability. Determined by dividing net income for the past 12 months
by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net
income/sales) multiplied by asset utilization (sales/assets).

Return on equity (ROE) Indicator of profitability. Determined by dividing net income for the past 12
months by common stockholder equity (adjusted for stock splits). Result is shown as a percentage. Investors
use ROE as a measure of how a company is using its money. ROE may be decomposed into return on assets
(ROA) multiplied by financial leverage (total assets/total equity).

Return on investment (ROI) Generally, book income as a proportion of net book value.

Return on total assets The ratio of earnings available to common stockholders to total assets.

Return-to-maturity expectations A variant of pure expectations theory which suggests that the return that an
investor will realize by rolling over short-term bonds to some investment horizon will be the same as holding
a zero-coupon bond with a maturity that is the same as that investment horizon.

Revaluation An increase in the foreign exchange value of a currency that is pegged to other currencies or
gold.

Revenue bond A bond issued by a municipality to finance either a project or an enterprise where the issuer
pledges to the bondholders the revenues generated by the operating projects financed, for instance, hospital
revenue bonds and sewer revenue bonds.

Revenue fund A fund accounting for all revenues from an enterprise financed by a municipal revenue bond.

Reverse price risk A type of mortgage-pipeline risk that occurs when a lender commits to sell loans to an
investor at rates prevailing at application but sets the note rates when the borrowers close. The lender is thus
exposed to the risk of falling rates.

Reverse repo In essence, refers to a repurchase agreement. From the customer's perspective, the customer
provides a collateralized loan to the seller.

Reverse stock split A proportionate decrease in the number of shares, but not the value of shares of stock
held by shareholders. Shareholders maintain the same percentage of equity as before the split. For example, a
1-for-3 split would result in stockholders owning 1 share for every 3 shares owned before the split. After the
reverse split, the firm's stock price is, in this example, worth three times the pre-reverse split price. A firm
generally institutes a reverse split to boost its stock's market price and attract investors.

Reversing trade Entering the opposite side of a currently held futures position to close out the position.

Revolving credit agreement A legal commitment wherein a bank promises to lend a customer up to a
specified maximum amount during a specified period.

Revolving line of credit A bank line of credit on which the customer pays a commitment fee and can take
down and repay funds according to his needs. Normally the line involves a firm commitment from the bank
for a period of several years.

Reward-to-volatility ratio Ratio of excess return to portfolio standard deviation.

Riding the yield curve Buying long-term bonds in anticipation of capital gains as yields fall with the
declining maturity of the bonds.

Right A short-lived (typically less than 90 days) call option for purchasing additional stock in a firm, issued
by the firm to all its shareholders on a pro rata basis.
124
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Rights offering Issuance of "rights" to current shareholders allowing them to purchase additional shares,
usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the
offering. Rights are often transferable, allowing the holder to sell them on the open market to others who may
wish to exercise them. Rights offerings are particularly common to closed end funds, which cannot otherwise
issue additional common stock.

Rights-on Shares trading with rights attached to them.

Rings Trading arenas located on the floor of an exchange in which traders execute orders. Sometimes called a
pit.

Risk Typically defined as the standard deviation of the return on total investment. Degree of uncertainty of
return on an asset.

Risk-adjusted profitability A probability used to determine a "sure" expected value (sometimes called a
certainty equivalent) that would be equivalent to the actual risky expected value.

Risk arbitrage Speculation on perceived mispriced securities, usually in connection with merger and
acquisition deals. Mike Donatelli, John Demasi, Frank Cohane, and Scott Lewis are all hardcore arbs. They
had a huge BT/MCI position in the summer of 1997, and came out smelling like roses.

Risk averse A risk-averse investor is one who, when faced with two investments with the same expected
return but two different risks, prefers the one with the lower risk.

Risk classes Groups of projects that have approximately the same amount of risk.

Risk controlled arbitrage A self-funding, self-hedged series of transactions that generally utilize mortgage
securities as the primary assets.

Risk indexes Categories of risk used to calculate fundamental beta, including (1) market variability, (2)
earnings variability, (3) low valuation, (4) immaturity and smallness, (5) growth orientation, and (6) financial
risk.

Risk lover A person willing to accept lower expected returns on prospects with higher amounts of risk.

Risk management The process of identifying and evaluating risks and selecting and managing techniques to
adapt to risk exposures.

Risk neutral Insensitive to risk.

Risk prone Willing to pay money to transfer risk from others.

Risk premium The reward for holding the risky market portfolio rather than the risk-free asset. The spread
between Treasury and non-Treasury bonds of comparable maturity.

Risk premium approach The most common approach for tactical asset allocation to determine the relative
valuation of asset classes based on expected returns.

Riskless rate The rate earned on a riskless investment, typically the rate earned on the 90-day U.S. Treasury
Bill.

Riskless rate of return The rate earned on a riskless asset.

Riskless arbitrage The simultaneous purchase and sale of the same asset to yield a profit.
125
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Riskless or risk-free asset An asset whose future return is known today with certainty. The risk free asset is
commonly defined as short-term obligations of the U.S. government.

Risky asset An asset whose future return is uncertain.

Risk-adjusted return Return earned on an asset normalized for the amount of risk associated with that asset.

Risk-free asset An asset whose future return is known today with certainty.

Risk-free rate The rate earned on a riskless asset.

Roll over Reinvest funds received from a maturing security in a new issue of the same or a similar security.

Rollover Most term loans in the Euromarket are made on a rollover basis, which means that the loan is
periodically repriced at an agreed spread over the appropriate, currently prevailing LIBO rate.

Round lot A trading order typically of 100 shares of a stock or some multiple of 100. Related: odd lot.

Round-trip transactions costs Costs of completing a transaction, including commissions, market impact
costs, and taxes.

Round-turn Procedure by which the Long or short position of an individual is offset by an opposite
transaction or by accepting or making delivery of the actual financial instrument or physical commodity.

R squared (R2) Square of the correlation coefficientthe proportion of the variability in one series that can be
explained by the variability of one or more other series.

Rule 144a SEC rule allowing qualified institutional buyers to buy and trade unregistered securities.

Run A run consists of a series of bid and offer quotes for different securities or maturities. Dealers give to and
ask for runs from each other.

Rule 415 Rule enacted in 1982 that permits firms to file shelf registration statements.

Safe harbor lease A lease to transfer tax benefits of ownership (depreciation and debt tax shield) from the
lessee, if the lessee could not use them, to a lessor that could use them.

Safekeep For a fee, bankers will hold in their vault, clip coupons on, and present for payment at maturity
bonds and money market instruments.

Safety cushion In a contingent immunization strategy, the difference between the initially available
immunization level and the safety-net return.

<<

. 27
( 34 .)



>>