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Difference from S&P A mutual fund's return minus the change in the Standard & Poors 500 Index for the
same time period. A notation of -5.00 means the fund return was 5 percentage points less than the gain in the
S&P, while 0.00 means that the fund and the S&P had the same return.

Differential disclosure The practice of reporting conflicting or markedly different information in official
corporate statements including annual and quarterly reports and the 10-Ks and 10-Qs.
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Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Differential swap Swap between two LIBO rates of interest, e.g. yen LIBOR for dollar LIBOR. Payments are
in one currency.

Diffusion process A conception of the way a stock's price changes that assumes that the price takes on all
intermediate values. dirty price. Related: full price

Dilution Diminution in the proportion of income to which each share is entitled.

Dilutive effect Result of a transaction that decreases earnings per common share.

Direct estimate method A method of cash budgeting based on detailed estimates of cash receipts and cash
disbursements category by category.

Direct lease Lease in which the lessor purchases new equipment from the manufacturer and leases it to the
lessee.

Direct paper Commercial paper sold directly by the issuer to investors.

Direct placement Selling a new issue not by offering it for sale publicly, but by placing it with one of several
institutional investors.

Direct quote For foreign exchange, the number of U.S. dollars needed to buy one unit of a foreign currency.

Direct search market Buyers and sellers seek each other directly and transact directly.

Direct stock-purchase programs The purchase by investors of securities directly from the issuer.

Dirty float A system of floating exchange rates in which the government occasionally intervenes to change
the direction of the value of the country's currency.

Dirty price Bond price including accrued interest, i.e., the price paid by the bond buyer.

Disbursement float A decrease in book cash but no immediate change in bank cash, generated by checks
written by the firm.

Disclaimer of opinion An auditor's statement disclaiming any opinion regarding the company's financial
condition.

Discount Referring to the selling price of a bond, a price below its par value. Related: premium.

Discount bond Debt sold for less than its principal value. If a discount bond pays no interest, it is called a
zero coupon bond.

Discount factor Present value of $1 received at a stated future date.

Discount period The period during which a customer can deduct the discount from the net amount of the bill
when making payment.

Discount rate The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is
temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the
Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.

Discount securities Non-interest-bearing money market instruments that are issued at a discount and
redeemed at maturity for full face value, e.g. U.S. Treasury bills.
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Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Discount window Facility provided by the Fed enabling member banks to borrow reserves against collateral
in the form of governments or other acceptable paper.

Discounted basis Selling something on a discounted basis is selling below what its value will be at maturity,
so that the difference makes up all or part of the interest.

Discounted cash flow (DCF) Future cash flows multiplied by discount factors to obtain present values.

Discounted dividend model (DDM) A formula to estimate the intrinsic value of a firm by figuring the
present value of all expected future dividends.

Discounted payback period rule An investment decision rule in which the cash flows are discounted at an
interest rate and the payback rule is applied on these discounted cash flows.

Discounting Calculating the present value of a future amount. The process is opposite to compounding.

Discrete compoundingM Compounding the time value of money for discrete time intervals.

Discrete random variable A random variable that can take only a certain specified set of discrete possible
values - for example, the positive integers 1, 2, 3, . . .

Discretionary account Accounts over which an individual or organization, other than the person in whose
name the account is carried, exercises trading authority or control.

Discretionary cash flow Cash flow that is available after the funding of all positive NPV capital investment
projects; it is available for paying cash dividends, repurchasing common stock, retiring debt, and so on.

Discriminant analysis A statistical process that links the probability of default to a specified set of financial
ratios.

Disintermediation Withdrawal of funds from a financial institution in order to invest them directly.

Distributed After a Treasury auction, there will be many new issues in dealer's hands. As those issues are
sold, it is said that they are distributed.

Distributions Payments from fund or corporate cash flow. May include dividends from earnings, capital
gains from sale of portfolio holdings and return of capital. Fund distributions can be made by check or by
investing in additional shares. Funds are required to distribute capital gains (if any) to shareholders at least
once per year. Some Corporations offer Dividend Reinvestment Plans (DRP).

Divergence When two or more averages or indices fail to show confirming trends.

Diversifiable risk Related: unsystematic risk.

Diversification Dividing investment funds among a variety of securities with different risk, reward, and
correlation statistics so as to minimize unsystematic risk.

Dividend A dividend is a portion of a company's profit paid to common and preferred shareholders. A stock
selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.

Dividend clawback With respect to a project financing, an arrangement under which the sponsors of a project
agree to contribute as equity any prior dividends received from the project to the extent necessary to cover
any cash deficiencies.

Dividend clientele A group of shareholders who prefer that the firm follow a particular dividend policy. For
example, such a preference is often based on comparable tax situations.
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Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Dividend discount model (DDM) A model for valuing the common stock of a company, based on the
present value of the expected cash flows.

Dividend growth model A model wherein dividends are assumed to be at a constant rate in perpetuity.

Dividend limitation A bond covenant that restricts in some way the firm's ability to pay cash dividends.

Dividend payout ratio Percentage of earnings paid out as dividends.

Dividends per share Amount of cash paid to shareholders expressed as dollars per share.

Dividend policy An established guide for the firm to determine the amount of money it will pay as dividends.

Dividend rate The fixed or floating rate paid on preferred stock based on par value.

Dividend reinvestment plan (DRP) Automatic reinvestment of shareholder dividends in more shares of a
company's stock, often without commissions. Some plans provide for the purchase of additional shares at a
discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the Long
term using dollar cost averaging. The DRP is usually administered by the company without charges to the
holder.

Dividend rights A shareholders' rights to receive per-share dividends identical to those other shareholders
receive.

Dividend yield (Funds) Indicated yield represents return on a share of a mutual fund held over the past 12
months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not
redemption charges.

Dividend yield (Stocks) Indicated yield represents annual dividends divided by current stock price.

Dividends per share Dividends paid for the past 12 months divided by the number of common shares
outstanding, as reported by a company. The number of shares often is determined by a weighted average of
shares outstanding over the reporting term.

DM Deutsche (German) marks.

Doctrine of sovereign immunity Doctrine that says a nation may not be tried in the courts of another country
without its consent.

Documented discount notes Commercial paper backed by normal bank lines plus a letter of credit from a
bank stating that it will pay off the paper at maturity if the borrower does not. Such paper is also referred to as
LOC (letter of credit) paper.

Dollar bonds Municipal revenue bonds for which quotes are given in dollar prices. Not to be confused with
"U.S. Dollar" bonds, a common term of reference in the Eurobond market.

Dollar duration The product of modified duration and the initial price.

Dollar price of a bond Percentage of face value at which a bond is quoted.

Dollar return The return realized on a portfolio for any evaluation period, including (1) the change in market
value of the portfolio and (2) any distributions made from the portfolio during that period.

Dollar roll Similar to the reverse repurchase agreement - a simultaneous agreement to sell a security held in a
portfolio with purchase of a similar security at a future date at an agreed-upon price.
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Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
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Dollar safety margin The dollar equivalent of the safety cushion for a portfolio in a contingent immunization
strategy.

Dollar-weighted rate of return Also called the internal rate of return, the interest rate that will make the
present value of the cash flows from all the subperiods in the evaluation period plus the terminal market value
of the portfolio equal to the initial market value of the portfolio.

Domestic International Sales Corporation (DISC) A U.S. corporation that receives a tax incentive for
export activities.

Domestic market Part of a nation's internal market representing the mechanisms for issuing and trading
securities of entities domiciled within that nation. Compare external market and foreign market.

Don't know (DK, Dked) "Don't know the trade." A Street expression used whenever one party lacks
knowledge of a trade or receives conflicting instructions from the other party.

Double-declining-balance depreciation Method of accelerated depreciation.

Double-dip lease A cross-border lease in which the disparate rules of the lessor's and lessee's countries let
both parties be treated as the owner of the leased equipment for tax purposes.

Double-tax agreement Agreement between two countries that taxes paid abroad can be offset against
domestic taxes levied on foreign dividends.

Doubling option A sinking fund provision that may allow repurchase of twice the required number of bonds
at the sinking fund call price.

Dow Jones industrial average This is the best known U.S.index of stocks. It contains 30 stocks that trade on
the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest
U.S.companies are performing. There are thousands of investment indexes around the world for stocks,
bonds, currencies and commodities.

Down-and-in option Barrier option that comes into existence if asset price hits a barrier.

Down-and-out option Barrier option that expires if asset price hits a barrier.

Downgrade A classic negative change in ratings for a stock, and or other rated security.

Draft An unconventional order in writing - signed by a person, usually the exporter, and addressed to the
importer - ordering the importer or the importer's agent to pay, on demand (sight draft) or at a fixed future
date (time draft), the amount specified on its face.

Drop, the With the dollar roll transaction the difference between the sale price of a mortgage-backed pass-
through, and its re-purchase price on a future date at a predetermined price.

Drop lock An arrangement whereby the interest rate on a floating rate note or preferred stock becomes fixed
if it falls to a specified level.

Dual syndicate equity offering An international equity placement where the offering is split into two
tranches - domestic and foreign - and each tranche is handled by a separate lead manager.

Dual-currency issues Eurobonds that pay coupon interest in one currency but pay the principal in a different
currency.

Due bill An instrument evidencing the obligation of a seller to deliver securities sold to the buyer.
Occasionally used in the bill market.
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Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
licoreis@terra.com.br
Dupont system of financial control Highlights the fact that return on assets (ROA) can be expressed in terms
of the profit margin and asset turnover.

Duration A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.

Dutch auction Auction in which the lowest price necessary to sell the entire offering becomes the price at
which all securities offered are sold. This technique has been used in Treasury auctions.

Dynamic asset allocation An asset allocation strategy in which the asset mix is mechanistically shifted in
response to -changing market conditions, as in a portfolio insurance strategy, for example.

Dynamic hedging A strategy that involves rebalancing hedge positions as market conditions change; a
strategy that seeks to insure the value of a portfolio using a synthetic put option.

EAFE index The European, Australian, and Far East stock index, computed by Morgan Stanley.

Earning power Earnings before interest and taxes (EBIT) divided by total assets.

Earnings Net income for the company during the period.

Earnings before interest and taxes (EBIT) A financial measure defined as revenues less cost of goods sold
and selling, general, and administrative expenses. In other words, operating and non-operating profit before
the deduction of interest and income taxes.

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