equity

Ownership interest in a corporation in the form of common stock or preferred

stock. It also refers to total assets minus total liabilities, in which case it is also
referred to as shareholder's equity or net worth or book value. In real estate, it is
the difference between what a property is worth and what the owner owes against
that property (i.e. the difference between the house value and the
remaining mortgage or loan payments on a house). In the context of
a futures trading account, it is the value of the securities in the account, assuming
that the account is liquidated at the going price. In the context of a brokerage
account, it is the net value of the account, i.e. the value of securities in the account
less any margin requirements.

dividend per share

DPS. The amount of dividend that a stockholder will receive for

each share of stock held. It can be calculated by taking the total amount
of dividends paid and dividing it by the total shares outstanding. If
a company issues a $1 million dividend and has 10 million shares, the
dividend per share is 10 cents ($1 million divided by 10 million shares).

total return swap

A type of swap where one party pays another based on a

set rate in return for payments based on the return of a given asset. This asset is
often a loan or a bond. This situation is beneficial if a party wants to benefit from
an asset, but doesn't want to purchase that asset. Total return swaps are often used
by hedge funds.

marginal cost of capitalGDR

The cost associated with raising one additional dollar of capital. The marginal
cost will vary according to the type of capital used. For example,
raising funds through the use of unsecured or subordinated debt, or through debt
that requires higher interest rates to offset risk, will be more expensive than debt
that is backed by collateral, such as a secured bond.
capped-style option

An option with an established profit cap. A capped-style option is automatically

exercised when the underlying security closes at or above the option's cap price for
a call, or at or below the option's cap price for a put.

HIPAA

Health Insurance Portability and Accountability Act. A law mandating that anyone
belonging to a group health insurance plan must be allowed
to purchase health insurance within an interval of time beginning when the
previous coverage is lost. The law protects employees, especially those with long
term health conditions who may be reluctant to leave jobs because they are afraid
pre-existing condition clauses will limit coverage of any such conditions under a
new insurance plan, from losing health insurance due a change in employment
status. The law also creates standards dealing with the privacy of health
information, which helps prevent improper use of one's medical record.

block trade

A large amount of securities being traded, typically at least

10,000 shares of stock or $200,000 in bonds. Normally, only institutional
investors undertake such large trades. Block trades can affect the market price of
the security, depending on the liquidity of the market.

circuit breaker

Any of a number of procedures implemented by a major stock or commodity

exchange when a certain index falls a predetermined amount in a session, to
prevent further losses. Examples include trading halts and restrictions on program
trading.

domestic rate

The interest rate of a domestic currency expressed in real terms. The

domestic rate is used in foreign exchange markets in interest rate
parity calculations, and is compared to the inflation-adjusted interest rate of the
foreign currency.

purchase acquisition

Accounting method used in any merger which is not treated as a pooling of

interests. The purchasing company treats the acquired as an investment, adding the
acquired's assets to its own balance sheet, and recording any
premium paid above market price as goodwill, to be charged against
future earnings.

living trust

A trust created for the trustor and administered by another party while the trustor is
still alive. A living trust can be either revocable or irrevocable. A living trust
avoids probate and therefore gets assets distributed significantly more quickly than
a will does. It also offers a higher level of confidentiality, as probate proceedings
are a matter of public record. Additionally, trusts are usually harder to contest than
wills. On the downside, a living trust takes longer to put together than a will, and
requires more ongoing maintenance. Although both a will and a living trust can be
modified or revoked at any time before death, such changes are slightly more time-
consuming for a living trust. Additionally, assets that a person wants to move to a
living trust, such as real estate and bank or brokerage accounts, have to be retitled.

principal-agent relationship

The arrangement that exists when one person or entity (called the agent) acts on
behalf of another (called the principal). For example, shareholders of
a company (principals) elect management (agents) to act on their behalf,
and investors (principals) choose fund managers (agents) to manage their assets.
This arrangement works well when the agent is an expert at making the necessary
decisions, but doesn't work well when the interests of the principal and agent differ
substantially. In general, a contract is used to specify the terms of a principal-agent
relationship.
short-term debt

Debt with a short maturity, usually one year or less.

A part of a company's balance sheet within the current liabilities section. Short-
term debt is usually due within one year. If a company has more short-term debt
than available cash or investments to cover the debt's payments, the company could
be forced to take on additional debt and could be in poor financial health.

403(b) plan

A retirement plan similar to a 401(k) plan, but one which is offered by non-profit
organizations, such as universities and some charitable organizations, rather
than corporations. There are several advantages to 403(b)
plans: contributions lower taxable income, larger contributions can be made to
the account, earnings can grow tax-deferred, and some plans allow loans.
Contributions can grow tax-deferred until withdrawal at which time the
money is taxed as ordinary income (which is sometimes a disadvantage).

working capital

Current assets minus current liabilities. Working capital measures how much
in liquid assets a company has available to build its business. The number can be
positive or negative, depending on how much debt the company is carrying. In
general, companies that have a lot of working capital will be more successful since
they can expand and improve their operations. Companies with negative working
capital may lack the funds necessary for growth. also called net current
assets or current capital.

callable

Able to be redeemed prior to maturity. The term usually applies

to bonds and convertible securities. The issuer of a callable security has to state
the conditions under which the security may be called at the time of issue. For
most securities, there is a certain initial time period in which the security cannot be
called. A bond will usually be called when market interest rates fall below
the yield being paid on the bond (bonds are usually called when the price rises to a
certain point). To reflect this risk, a callable security is usually priced lower than
a non-callable security.

debt/equity ratio

A measure of a company's financial leverage. Debt/equity ratio is equal to long-

term debt divided by common shareholders' equity. Typically the data from the
prior fiscal year is used in the calculation. Investing in a company with a higher
debt/equity ratio may be riskier, especially in times of rising interest rates, due to
the additional interest that has to be paid out for the debt. For example, if a
company has long-term debt of $3,000 and shareholder's equity of $12,000, then
the debt/equity ratio would be 3000 divided by 12000 = 0.25. It is important
to realize that if the ratio is greater than 1, the majority of assets are financed
through debt. If it is smaller than 1, assets are primarily financed through equity.

offering circular

A legal document offering securities or mutual fund shares for sale, required by
the Securities Act of 1933. It must explain the offer, including
the terms, issuer, objectives (if mutual fund) or planned use of the money (if
securities), historical financial statements, and other information that could help an
individual decide whether the investment is appropriate for him/her. also
called prospectus or circular.

barrier option

A type of exotic option that provides a payoff if the value of the

underlying reaches or does not reach a predetermined price or "barrier level".
Barrier options are characterized as "knock in" if the right to exercise the option is
met, or "knock out" if the right is not met. It is characterized as "up" if the price of
the underlying is above the barrier, and as "down" if it the price is below the
barrier.
green shoe

A provision in an underwriting agreement which allows members of

the underwriting syndicate to purchase additional shares at the original. This is a
useful provision for underwriters in the event of exceptional public demand. The
name comes from the fact that Green Shoe Company was the first to grant such
an option to underwriters. also called overallotment provision.

real capital

Capital, such as equipment and machinery, which is used to

produce goods. Real capital is distinguished from financial capital, which
is funds available to acquire real capital. Real capital appears on the asset side of
the balance sheet, while financial capital appears in either the liabilities section or
the shareholders' equity section.

parallel loan

An arrangement in which two companies in different countries borrow each

other's currency for a given period of time, in order reduce foreign
exchange risk for both of them. also called back-to-back loans.

Rule 144

An SEC rule specifying the conditions under which a holder of restricted or

controlled securities may publicly sell them. If certain conditions are met, the
holder must file a formal registration statement with the SEC, Form 144. This rule
allows executives who hold very large blocks of their company's stock to sell a
portion of that stock every 12 months.

cross-hedging

Hedging one instrument's risk with a different by taking a position is a

related derivatives contract. This is often done when there is no derivatives
contract for the instrument being hedged, or a suitable derivatives contract exists
but the market is highly illiquid. The success of cross-hedging depends completely
on how strongly correlated the instrument being hedged is with the instrument
which underlies the derivatives contract. Additionally, the credit quality of
the derivative and the instrument being hedged needs to be similar and their
markets need to be of similar liquidity, so that price changes are similar. Lastly,
the maturity of the derivatives contract must be at least as long as the maturity of
the desired hedge, otherwise the investor will be left with an
unhedged exposure for a period of time.

strong dollar

Dollar that can be exchanged for a large or increasing amount of foreign currency.
The strength of the dollar has an impact
on imports and exports because goods and services from a foreign nation are
usually purchased in the currency of the producing nation. For example, if the
dollar were strong, one would expect imports to be high and exports to
be low because the dollar will buy a lot in a different country while it
is expensive to purchase dollars with outside currencies. Alternatively, with a weak
dollar one would expect high exports and low imports. opposite of weak dollar

price to earnings ratio

The most common measure of how expensive a stock is. The P/E ratio is equal to
a stock's market capitalization divided by its after-tax earnings over a 12-
month period, usually the trailing period but occasionally the current or
forward period. The value is the same whether the calculation is done for the
whole company or on a per-share basis. The higher the P/E ratio, the more
the market is willing to pay for each dollar of annual earnings. The last
year's price/earnings ratio (P/E ratio) would be actual, while current year and
forward year price/earnings ratio (P/E ratio) would be estimates, but in each case,
the "P" in the equation is the current price. Companies that are not
currently profitable (that is, ones which have negative earnings) don't have a P/E
ratio at all. also called earnings multiple or (P/E ratio).

Long-Term Equity Anticipation Securities

Global Depositary Receipt. A negotiable certificate held in the bank of one country
representing a specific number of shares of a stock traded on an exchange of
another country. American Depositary Receipts make it easier for individuals
to invest in foreign companies, due to the widespread availability
of price information, lower transaction costs, and timely dividend distributions.
also called European Depositary Receipt.

after-hours trading

The practice of buying and selling securities during a period of time when the
major markets are officially closed. Once reserved for institutional
investors, individual investors may now participate. Stocks are traded after hours
on ECNs, which match buyers and seller with a computer system in order to
execute trades.

cash commodity

An actual physical commodity which is delivered at the completion of a contract,

as opposed to a futures contract on that commodity. A futures contract will specify
the number of units of the cash commodity that must be delivered, and also the
specific features of the cash commodity. also called actuals.

financial analyst

An employee of a bank, brokerage, advisor, or mutual fund who

studies companies and makes buy and sell recommendations, often specializing in
a single sector or industry. Financial analysts use a wide variety of techniques for
researching and making recommendations. The reports and recommendations they
publish are often used by traders, mutual fund managers, portfolio
managers and investors in their decision making processes. also called securities
analyst or analyst.

rate of exchange

Rate at which one currency may be converted into another. Generally, one unit of
the home currency is expressed in terms of another currency. For example, an
American bank may quote the exchange rate between the dollar and the Yen as the
number of dollars needed to buy one yen. also called exchange rate or foreign
exchange rate or currency exchange rate.
chart

A graph of the price movements of a given security over a given time period,
sometimes along with volume data. Charts are the main tool that technical
analysts use in order to plot data and predict prices. Technical analysts may use
several different types of charts in order to conduct their tests and look
for patterns in the data, including line charts, bar charts, and candlestick charts.

Reverse Take-Over

RTO. When a company buys out a larger company, but could also occasionally
refer to a private company taking over a publicly listed company. Typically,
a public company that is taken over by a private company will remain listed, and
the private company will use the acquisition as means of gaining a listing. A
reverse take-over is a relatively rare event.

One way for a company to become publicly traded, by acquiring a public

company and then installing its own management team and renaming the acquired
company. also called reverse acquisition.

current market value

The largest amount any buyer is currently willing to pay for a bond. This amount
might be at a premium (above face value) or a discount (below face value).

The present worth of a portfolio of securities, at latest market prices.

For a company, the number of shares outstanding multiplied by the

current stock price.

watermark

An image on paper currency designed to differentiate officially

sanctioned bills from counterfeit bills.

conversion price
The price at which a given convertible security can be converted to common stock.
The conversion price is specified when the security is issued. The number
of shares to be received is the principal amount of the securitydivided by the
conversion price (after the conversion price is adjusted for stock splits and
dividends).

bulge bracket

The firms in an underwriting syndicate who were responsible for placing the
largest amounts of the issue with investors. Since these firms are the most
responsible for a security's successful issuance, their names appear first in the
advertisement conveying the details of the security issue, called the tombstone.

asked price

The lowest price that any investor or dealer has declared that he/she will sell a
given security or commodity for. For over-the-counter stocks, the ask is the best
quoted price at which a Market Maker is willing to sell a stock. For mutual funds,
the ask is the net asset value plus any sales charges. also called or asking
price or offering price or ask.

basket

A group of several securities created for the purpose of simultaneous buying and
selling. Baskets often play a role in index arbitrage, program trading and hedging.

A collection of consumer goods and services that are tracked in the process of
calculating a consumer price index. also called market basket.

analyst

An employee of a bank, brokerage, advisor, or mutual fund who

studies companies and makes buy and sell recommendations, often specializing in
a single sector or industry. Analysts use a wide variety of techniques for
researching and making recommendations. The reports and recommendations they
publish are often used by traders, mutual fund managers, portfolio
managers and investors in their decision making processes. also called financial
analyst or securities analyst.

short call option

A stock option strategy in which an investor sells a call on shares that are either
currently owned (covered call) or not yet owned (naked call). The two types of
short calls carry different risks. For a naked call, the breakeven point is
the premium received plus the strike price. For a covered call, the breakeven point
is the strike price minus the premium.

market breadth

The fraction of the overall market that is participating in the market's up or down
move. Looking at this parameter allows investors to reduce the impact of the large
cap stocks which influence market indices the most, and instead
examine price trends of a diverse range of stocks. This parameter is important in
the context of technical analysis, as a measure of market sentiment.
Market breadth is also used to refer to the number of independently issued
price forecasts for a certain number of stocks (less common). also called breadth.

double auction market

A system in which buyers enter competitive bidders and sellers enter

competitive offers simultaneously, as opposed to the over-the-counter market,
where trades are negotiated. Examples are the NYSE and the AMEX. A
double auction market can also be carried out by open outcry, in which buyers and
sellers call out prices that they are willing to buy and sell at, and a match is made if
a buyer and seller call out the same price. Double auction markets usually feature a
large number of buyers and sellers, and thus participants tend to incur lower
transaction costs than in the over-the-counter market. also called auction market.

withholding

An amount of an employee's income that an employer sends directly to the federal,

state, or local tax authority as partial payment of that individual's tax liability for
the year. When a person starts a new job, he/she is required tofill out a W-4
form on which he/she can indicate his/her filing status and the number
of allowances he/she is claiming.

inflation risk

The possibility that the value of assets or income will decrease as inflation shrinks
the purchasing power of acurrency. Inflation causes money to decrease in value at
some rate, and does so whether the money is invested or not.

457 plan

A tax-exempt deferred compensation program made available to employees of

state and federal governments and agencies. A 457 plan is similar to a 401(k) plan,
except there are never employer matching contributions and the IRS does not
consider it a qualified retirement plan. Participants can defer some of
their annual income (up to an annual limit), and contributions and earnings are tax-
deferred until withdrawal. Distributions start at retirement age but participants can
also take distributions if they change jobs or in certain emergencies. Participants
can choose to take distributions as a lump sum, annual installments or as
an annuity. Distributions are subject to ordinary income taxes and
the amounts cannot be transferred into an IRA.

currency convertibility

The ability to exchange money for gold or other currencies.

Some governments which do not have large reserves of hard currency foreign
reserves try to restrict currency convertibility, since they are not in a position to
handle large currency market operations to support their currency when necessary.

cashless exercise

A method of converting options into stock that requires no

initial cash payment to cover the strike price. Essentially,
a broker briefly loans enough money to exercise the options, and a portion of the
stock is soldimmediately after exercise in order to repay the broker. In this respect
it is essentially buying on margin. The broker is willing to enter this arrangement
when that broker feels that the option holder will honor his/her commitment and
quickly sell his/her stocks to settle the debt to the broker.

covered arbitrage

Arbitrage involving investments denominated in different currencies,

using forward cover to reduce or eliminate currency risk.

broad-base index

An index whose purpose is to reveal the performance of the entire market, such as
the S&P 500, Wilshire 5000,AMEX Major Market
Index or Value Line Composite Index. Different broad-base indices have different
approaches to ensuring that the index captures the entire breadth of market activity.
The Wilshire 5000 takes the most all-inclusive approach by including all
the stocks listed on the New York Stock Exchange and almost all the stocks listed
on the NASDAQ and American Stock Exchange. The S&P 500 includes
500 companies that are together considered a good indicator for the US stock
market, based on the industries the companies operate in, theirpositions within
the industry, and their market capitalizations. The S&P 500 is a market-weighted
index, so only 10% if its components make up about 75% of its value. The Value
Line Composite Index takes an in between approach by tracking 1700 issues. The
Value Line Composite is thought to be a better indicator of speculative stocks than
of more stable stocks.

effective duration

The duration for a bond with an embedded option when the value is calculated to
include the expected change in cash flow caused by the option as interest
rates change. This measures the responsiveness of a bond's price to interest
rate changes, and illustrates the fact that the embedded option will also affect the
bond's price.

exotic option

A category of options which includes complicated components and complex

payoffs. Its payoff or other keyvalues often depend on outside factors which vary
over time, such as exchange rate. Because of their complexity, exotic options are
often traded over the counter rather than through an exchange. Asian-style options
are one type of exotic options. opposite of plain vanilla option.

National Association of Securities Dealers

NASD. Merged with the NYSE Regulation, Inc. in 2007 to form

the organization now known as the Financial Industry Regulatory
Authority (FINRA).

VWAP

Volume Weighted Average Price. A measure of the price at which the majority of
a given day's trading in a given security took place. Calculated by taking
the weighted average of the prices of each trade. The method is used by
institutional traders, who often break a given trade into multiple transactions.

Depository Trust Company

A central repository through which members

electronically transfer stock and bond certificates (a clearinghousefacility).
The Depository Trust Company was set up to provide an infrastructure for
settling trades in municipal, mortgage-backed and corporate securities in a cost-
efficient and timely manner. It is also the world's largest securities depository,
holding about $20 trillion of assets in custody at any time. It is a member of
the Federal Reserve system, registered with the Securities and Exchange
Commission (SEC) and owned by the Depository Trust and Clearing
Corporation (DTCC). The DTCC in turn is owned by
several banks, brokerages, trading houses and trading exchanges.

book to market ratio

A stock's book value divided by its market value. Book value is calculated from
the company's balance sheet, while market value is based on the price of its stock.
A ratio above 1 indicates a potentially undervalued stock, while a ratio below 1
indicates a potentially overvalued stock. Technology companies and other
companies in industries which do not have a lot of physical assets tend to
have low book to market ratios.

credit bureau

An agency which collects and sells information about the creditworthiness of

individuals. A credit reporting agency does not make any decisions about whether
a specific person should be extended credit or not. However, it does collect
information that it considers relevant to a person's credit habits and history, and
uses this information to assign a credit score to indicate how creditworthy a person
is. When a prospective credit or approaches a credit reporting agency to inquire
about a particular person, they are sold a credit report which contains all the
information relevant to the person and the credit score calculated by the agency
(some creditors might have an ongoing subscription to credit bureau). The
prospective creditor then uses that information to decide whether to extend the
applicant the desired credit or not. Same as credit bureau. also called consumer
reporting agency.

direct quote

A foreign exchange rate of one currency, usually the domestic currency, per unit of
a different currency. In termsof U.S. dollars, a direct quote is the number of a
foreign currency that one dollar could buy. For example, a direct quote for
the Euro could be US$1.50 = 1 Euro.

Federal Open Market Committee

FOMC. A 12-member committee which sets credit and interest rate policies for
the Federal Reserve System. This committee consists of 7 members of the Board of
Governors, and 5 of the 12 Federal Reserve BankPresidents. This group, headed by
the Chairman of the Federal Reserve Board, sets interest rates either directly (by
changing the discount rate) or through the use of open market operations (by
buying and selling government securities which affects the federal funds rate).
The discount rate is the rate at which the Federal Reserve Bankcharges member
banks for overnight loans. The Fed actually controls this rate directly, but it tends
to have little impact on the activities of banks because these funds are available
elsewhere. This rate is set during the FOMC meetings by the regional banks and
the Federal Reserve Board. The federal funds rate is the interest rate at which
banks loan excess reserves to each other. While the Fed can't directly affect this
rate, it effectively controls it through the way it buys and sells Treasuries to banks.
There are 8 scheduled FOMC meetings during the course of each year. However,
when circumstances dictate, the Fed can make inter-meeting rate changes.

production possibility frontier

PPF. A curve that compares the trade offs between two goods produced by
an economy in order to demonstrate the efficient use of resources. Points along the
curve are considered efficient and obtainable, and show the maximum amount of
one good that can be produced in relation to another. Points within the curve are
considered obtainable but inefficient. Points outside the curve are considered
impossible to obtain. A classic example considers an economy that can produce
either guns or butter, and shows how a government can spend a finite amount of
resources on guns (defense), butter (non-defense) or a combination of the two.

corporate spread duration

The price sensitivity of a corporate bond to a 100 basis point change in

its spread over LIBOR. Because a change in the option-adjusted spread affects
the amount of cash flows received by the option holder.
A corporatebond option investor maintaining a long position has to decide if the
option should be executed because changesin the market price of the bond alters
the return on the investment. For example, if the spread between the corporate
bond option and Treasuries narrows, the price of the bond may rise to the point at
which the optionissuer could initiate the call.

market maker

A brokerage or bank that maintains a firm bid and ask price in a

given security by standing ready, willing, and able to buy or sell at publicly quoted
prices (called making a market). These firms display bid and offer prices for
specific numbers of specific securities, and if these prices are met, they will
immediately buy for or sell from theirown accounts. Market makers are very
important for maintaining liquidity and efficiency for the particularsecurities that
they make markets in. At most firms, there is a strict separation of the market-
making side and the brokerage side, since otherwise there might be
an incentive for brokers to recommend securities simply because the firm makes a
market in that security.
circular flow of income

A model that indicates how money moves throughout an economy,

between businesses and individuals.Investors spend their income by
consuming goods and services from businesses, paying taxes and investing in
the stock market. Businesses use the money spent by individuals while consuming
and the money raised from selling stock to pay for capital to run
their business, purchase material to manufacture products and to payemployees.
All expenditures from individuals become the income of the businesses, and the
expenditures of the businesses become the income of the individuals.

U.S. Treasury Securities

Negotiable U.S. Government debt obligations, backed by its full faith and
credit. Exempt from state and localtaxes. U.S. Treasury Securities are issued by the
U.S. government in order to pay for government projects. Themoney paid out for
a Treasury bond is essentially a loan to the government. As with any loan,
repayment ofprincipal is accompanied by a specified interest rate. These bonds are
guaranteed by the "full faith and credit" of the U.S. government, meaning that they
are extremely low risk (since the government can simply print money to pay back
the loan). Additionally, interest earned on U.S. Treasury Securities is exempt from
state and local taxes.Federal taxes, however, are still due on the earned interest.
The government sells U.S. Treasury Securities byauction in the primary market,
but they are marketable securities and therefore can be purchased through
abroker in the very active secondary market. A broker will charge a fee for such
a transaction, but the governmentcharges no fee to participate in auctions. Prices
on the secondary market and at auction are determined byinterest rates. U.S.
Treasury Securities issued today are not callable, so they will continue
to accrue interest until the maturity date. One possible downside to U.S. Treasury
Securities is that if interest rates increase during the term of the bond, the money
invested will be earning less interest than it could earn elsewhere. Accordingly,
theresale value of the bond will decrease as well. Because there is almost no risk
of default by the government, thereturn on Treasury bonds is relatively low, and
a high inflation rate can erase most of the gains by reducing thevalue of the
principal and interest payments. There are three types of securities issued by the
U.S. Treasury (bonds, bills, and notes), which are distinguished by the amount of
time from the initial sale of the bond tomaturity. also called Treasuries.
odd-lot theory

A technical analysis theory based on using odd-lot trading behavior as a

contrary indicator, under the assumptionthat odd lots are traded primarily by small
investors who are on average less experienced than institutional investors. The
theory has declined in popularity as historical data has failed to support it.

participation certificate

Financing in which an individual buys a share of the lease revenues of an

agreement made by a municipal or governmental entity, rather than
the bond being secured by those revenues. This form of financing can be used by
the municipal or government entity to circumvent restrictions that might exist on
the amount of debt they might be able to take on. As of now, the
only agencies to issue or guarantee such certificates are Freddie Mac, Fannie
Mae, Ginnie Mae and Sallie Mae.

wash sale

Stock approved by the Federal Reserve and an investor's broker as being suitable
for providing collateral formargin debt. Depositing marginable stocks (or any other
marginable securities) in a margin account is an effective way for an investor to
reduce financing charges. However, the criteria to ensure that securities are
suitable as collateral for margin debt can be quite strict. The Federal Reserve has a
minimum set of standardsfor marginable stock, but a broker can choose to set
stricter standards.

Repatriation

Capital flow from a foreign country to the country of origin. This usually refers to
returning returns on a foreigninvestment in the case of a corporation, or
transferring foreign earnings home in the case of an individual.

overnight limit

The maximum amount of currency positions that can be carried over from
one trading day to another. The overnight limit is set by the Central
Bank regulation the financial institution where the positions are held.
gift tax

A graduated tax assessed against a person who gives money or an asset to another
person without receiving fair compensation. A significant amount of each gift is
tax-free. There are no exclusion limits on gifts given to a spouse unless the spouse
is not a U.S. citizen. The recipient of the gift does not report income except when
the gift is a property or stock. The recipient still has to pay taxes if he or she makes
a profit from the gift.

U.S. Government Agency Security

A security, usually a bond, issued by a U.S. government-sponsored agency.

The offerings of these agencies are backed by the government, but not guaranteed
by the government since the agencies are private entities. Such agencies have been
set up in order to allow certain groups of people to access low cost financing e.g.
students and home buyers. Some prominent issuers of agency
securities are Student Loan Marketing Association (Sallie Mae), Federal National
Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage
Corporation(Freddie Mac). Agency securities are usually exempt from state
and local taxes, but not federal tax. also calledagency security.

permitted currency

A minor foreign currency that is allowed to be converted into a major currency,

such the U.S. dollar.

adjustable rate

Any interest rate that changes on a periodic basis. The change is usually tied
to movement of an outsideindicator, such as the prime interest rate. Movement
above or below certain levels is often prevented by a
predetermined floor and ceiling for a given rate. For example, you might see a rate
set at "prime plus 2%". This means that the rate on the loan will always be 2%
higher than the prime rate, which changes regularly to take intoaccount changes in
the inflation rate. For an individual taking out a loan when rates are low, a fixed
rate loanwould allow him or her to "lock in" the low rates and not be concerned
with fluctuations. On the other hand, ifinterest rates were historically high at the
time of the loan, he or she would benefit from a floating rate loan, because as the
prime rate fell to historically normal levels, the rate on the loan would decrease.

knock-out option
An option that becomes worthless in the event that the
underlying commodity or currency crosses a certain pricelevel.

capital net worth

Total assets minus total liabilities of an individual or company. For a public

company, the excess of assets overliabilities consist of retained earnings, common
stock and additional paid-in surplus; here also called owner's
equity or shareholders' equity or net assets. For an individual, the excess of assets
over liabilities is most likely to come from savings and any
additional contributions to income that they have received.
Some economists saynet worth is not very useful, since financial
statements value most assets and liabilities at historical cost, which is usually not a
good indicator of true value. also called capital net worth.

married filing separately

A tax filing status indicating that a married couple is filing two separate tax
returns, one for each individual. Married couples have the option of filing jointly or
separately. Although filing jointly often results in less taxes, filing separately is
sometimes preferable when one partner has significant medical expenses, casualty
losses, or miscellaneous itemized deductions.

forward outright rate

The forward rate of a foreign exchange contract, often expressed as U.S.

dollars per foreign currency.