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Undiversifiable risk Related: Systematic risk

Unemployment rate The ratio of the number of people classified as unemployed to the total labor force.

Unfunded debt Debt maturing within one year (short-term debt). See: funded debt.

Unilateral transfers Items in the current account of the balance of payments of a country's accounting books
that corresponds to gifts from foreigners or pension payments to foreign residents who once worked in the
country whose balance of payments is being considered.

Unique risk Also called unsystematic risk or idiosyncratic risk. Specific company risk that can be eliminated
through diversification. See: diversifiable risk and unsystematic risk.

Unit benefit formula Method used to determine a participant's benefits in a defined benefit plan by
multiplying years of service by the percentage of salary.

Unit investment trust Money invested in a portfolio whose composition is fixed for the life of the fund.
Shares in a unit trust are called redeemable trust certificates, and they are sold at a premium above net asset
value.
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Universal life A whole life insurance product whose investment component pays a competitive interest rate
rather than the below-market crediting rate.

Unleveraged beta The beta of an unleveraged required return (i.e. no debt) on an investment when the
investment is financed entirely by equity.

Unleveraged required returnThe required return on an investment when the investment is financed entirely
by equity (i.e. no debt).

Unlimited liability Full liability for the debt and other obligations of a legal entity. The general partners of a
partnership have unlimited liability.

Unmatched book If the average maturity of a bank's liabilities is less than that of its assets, it is said to be
running an unmatched book. The term is commonly used with the Euromarket. Term also refers to the
condition when a firm enters into OTC derivatives contracts and chooses to hedge that risk by not making
trades in the opposite direction to another financial intermediary. In this case, the firm with an unmatched
book hedges its net market risk with futures and options, usually. Related expressions: open book and short
book.

Unseasoned issue Issue of a security for which there is no existing market. See: seasoned issue.

Unsecured debt Debt that does not identify specific assets that can be taken over by the debtholder in case of
default.

Unsterilized intervention Foreign exchange market intervention in which the monetary authorities have not
insulated their domestic money supplies from the foreign exchange transactions.

Unsystematic risk Also called the diversifiable risk or residual risk. The risk that is unique to a company
such as a strike, the outcome of unfavorable litigation, or a natural catastrophe that can be eliminated through
diversification. Related: Systematic risk

Upstairs market A network of trading desks for the major brokerage firms and institutional investors that
communicate with each other by means of electronic display systems and telephones to facilitate block trades
and program trades.

Uptick A term used to describe a transaction that took place at a higher price than the preceding transaction
involving the same security.

Uptick trade Related:Tick-test rules

U.S. Treasury bill U.S. government debt with a maturity of less than a year.

U.S. Treasury bond U.S. government debt with a maturity of more than 10 years.

U.S. Treasury note U.S. government debt with a maturity of one to 10 years.

Utility The measure of the welfare or satisfaction of an investor or person.

Utility value The welfare a given investor assigns to an investment with a particular return and risk.

Utility function A mathematical expression that assigns a value to all possible choices. In portfolio theory the
utility function expresses the preferences of economic entities with respect to perceived risk and expected
return.
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Value-added tax Method of indirect taxation whereby a tax is levied at each stage of production on the value
added at that specific stage.

Value-at-Risk model (VAR) Procedure for estimating the probability of portfolio losses exceeding some
specified proportion based on a statistical analysis of historical market price trends, correlations, and
volatilities.

Value additivity principal Prevails when the value of a whole group of assets exactly equals the sum of the
values of the individual assets that make up the group of assets. Stated differently, the principle that the net
present value of a set of independent projects is just the sum of the net present values of the individual
projects.

Value date In the market for Eurodollar deposits and foreign exchange, value date refers to the delivery date
of funds traded. Normally it is on spot transactions two days after a transaction is agreed upon and the future
date in the case of a forward foreign exchange trade.

Value dating Refers to when value or credit is given for funds transferred between banks.

Value manager A manager who seeks to buy stocks that are at a discount to their "fair value" and sell them at
or in excess of that value. Often a value stock is one with a low price to book value ratio.

Vanilla issue A security issue that has no unusual features.

Variable A value determined within the context of a model. Also called endogenous variable.

Variable annuities Annuity contracts in which the issuer pays a periodic amount linked to the investment
performance of an underlying portfolio.

Variable cost A cost that is directly proportional to the volume of output produced. When production is zero,
the variable cost is equal to zero.

Variable life insurance policy A whole life insurance policy that provides a death benefit dependent on the
insured's portfolio market value at the time of death. Typically the company invests premiums in common
stocks, and hence variable life policies are referred to as equity-linked policies.

Variable price security A security, such as stocks or bonds, that sells at a fluctuating, market-determined
price.

Variable rate CDs Short-term certificate of deposits that pay interest periodically on roll dates. On each roll
date, the coupon on the CD is adjusted to reflect current market rates.

Variable rated demand bond (VRDB) Floating rate bond that can be sold back periodically to the issuer.

Variable rate loan Loan made at an interest rate that fluctuates based on a base interest rate such as the
Prime Rate or LIBOR.

Variance A measure of dispersion of a set of data points around their mean value. The mathematical
expectation of the squared deviations from the mean. The square root of the variance is the standard deviation.

Variance minimization approach to tracking An approach to bond indexing that uses historical data to
estimate the variance of the tracking error.

Variance rule Specifies the permitted minimum or maximum quantity of securities that can be delivered to
satisfy a TBA trade. For Ginnie Mae, Fannie Mae, and Feddie Mac pass-through securities, the accepted
variance is plus or minus 2.499999 percent per million of the par value of the TBA quantity.
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Variation margin An additional required deposit to bring an investor's equity account up to the initial margin
level when the balance falls below the maintenance margin requirement.

Venture capital An investment in a start-up business that is perceived to have excellent growth prospects but
does not have access to capital markets. Type of financing sought by early-stage companies seeking to grow
rapidly.

Vertical acquisition Acquisition in which the acquired firm and the acquiring firm are at different steps in the
production process.

Vertical analysis The process of dividing each expense item in the income statement of a given year by net
sales to identify expense items that rise faster or slower than a change in sales.

Vertical merger A merger in which one firm acquires another firm that is in the same industry but at another
stage in the production cycle. For example, the firm being acquired serves as a supplier to the firm doing the
acquiring.

Vertical spread Simultaneous purchase and sale of two options that differ only in their exercise price. See:
horizontal spread.

Virtual currency option A new option contract introduced by the PHLX in 1994 that is settled in US$ rather
than in the underlying currency. These options are also called 3-Ds (dollar denominated delivery).

Visible supply New muni bond issues scheduled to come to market within the next 30 days.

Volatility A measure of risk based on the standard deviation of investment fund performance over 3 years.
Scale is 1-9; higher rating indicates higher risk. Also, the standard deviation of changes in the logarithm of an
asset price, expressed as a yearly rate. Also, volatility is a variable that appears in option pricing formulas. In
the option pricing formula, it denotes the volatility of the underlying asset return from now to the expiration
of the option.
Std Deviation Rating Std Deviation Rating
up to 7. 99 1 20. 00-22. 99 6
8. 00-10. 99 2 23. 00-25. 99 7
11. 00-13. 99 3 26. 00-28. 99 8
14. 00-16. 99 4 29. 00 and up 9
17. 00-19. 99 5
Volatility risk The risk in the value of options portfolios due to the unpredictable changes in the volatility of
the underlying asset.

Volume This is the daily number of shares of a security that change hands between a buyer and a seller.

Voting rights The right to vote on matters that are put to a vote of security holders. For example the right to
vote for directors.

WACC See: Weighted average cost of capital.

Waiting period Time during which the SEC studies a firm's registration statement. During this time the firm
may distribute a preliminary prospectus.

Wall Street Generic term for firms that buy, sell, and underwrite securities.

Wall Street analyst Related: Sell-side analyst.

Wallflower Stock that has fallen out of favor with investors; tends to have a low P/E (price to earnings ratio).
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Wanted for cash A statement displayed on market tickers indicating that a bidder will pay cash for same day
settlement of a block of a specified security.

Warehouse receipt Evidence that a firm owns goods stored in a warehouse.

Warehousing The interim holding period from the time of the closing of a loan to its subsequent marketing to
capital market investors.

Warrant A security entitling the holder to buy a proportionate amount of stock at some specified future date
at a specified price, usually one higher than current market. This "warrant" is then traded as a security, the
price of which reflects the value of the underlying stock. Warrants are issued by corporations and often used
as a "sweetener" bundled with another class of security to enhance the marketability of the latter. Warrants are
like call options, but with much longer time spans -- sometimes years. In addition, warrants are offered by
corporations whereas exchange traded call options are not issued by firms.

WashGains equal losses.

Wasting asset An asset which has a limited life and thus, decreases in value (depreciates) over time. Also
applied to consumed assets, such as gas, and termed "depletion."

Watch list A list of securities selected for special surveillance by a brokerage, exchange or regulatory
organization; firms on the list are often takeover targets, companies planning to issue new securities or stocks
showing unusual activity.

Weak form efficiency A form of pricing efficiency where the price of the security reflects the past price and
trading history of the security. In such a market, security prices follow a random walk. Related: Semistrong
form efficiency, strong form efficiency.

Weekend effect The common recurrent low or negative average return from Friday to Monday in the stock
market.

Weighted average cost of capital Expected return on a portfolio of all the firm's securities. Used as a hurdle
rate for capital investment.

Weighted average coupon The weighted average of the gross interest rate of the mortgages underlying the
pool as of the pool issue date, with the balance of each mortgage used as the weighting factor.

Weighted average life See:Average life.

Weighted average maturity The WAM of a MBS is the weighted average of the remaining terms to maturity
of the mortgages underlying the collateral pool at the date of issue, using as the weighting factor the balance
of each of the mortgages as of the issue date.

Weighted average remaining maturityThe average remaining term of the mortgages underlying a MBS.

Weighted average portfolio yield The weighted average of the yield of all the bonds in a portfolio.

Well diversified portfolioA portfolio spread out over many securities in such a way that the weight in any
security is small. The risk of a well-diversified portfolio closely approximates the systemic risk of the overall
market, the unsystematic risk of each security having been diversified out of the portfolio.

White knight A friendly potential acquirer of a firm sought out by a target firm that is threatened by a less
welcome suitor.
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Whole life insurance A contract with both insurance and investment components: (1) It pays off a stated
amount upon the death of the insured, and (2) it accumulates a cash value that the policyholder can redeem or
borrow against.

Wholesale mortgage banking The purchasing of loans originated by others, with the servicing rights
released to the buyer.

Wi When issued.

Wi wi Treasury bills trade on a wi basis between the day they are auctioned and the day settlement is made.
Bills traded before they are auctioned are said to be traded wi wi.

Wild card option The right of the seller of a Treasury Bond futures contract to give notice of intent to deliver
at or before 8:00 p.m. Chicago time after the closing of the exchange (3:15 p.m. Chicago time) when the
futures settlement price has been fixed. Related: Timing option.

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