greenshoe option-finance 52 term

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Greenshoe Option

What Does Greenshoe Option Mean?A provision contained in an underwriting agreement that gives the underwriter the right to sell investors moreshares than originally planned by the issuer. This would normally be done if the demand for a security issueproves higher than expected. Legally referred to as an over-allotment option.

A greenshoe option can provide additional price stability to a security issue because the underwriter has theability to increase supply and smooth out price fluctuations if demand surges.

Investopedia explains Greenshoe OptionGreenshoe options typically allow underwriters to sell up to 15% more shares than the original number set by the issuer, if demand conditionswarrant such action. However, some issuers prefer not to include greenshoe options in their underwriting agreements under certaincircumstances, such as if the issuer wants to fund a specific project with a fixed amount of cost and does not want more capital than it originallysought.

The term is derived from the fact that the Green Shoe Company was the first to issue this type of option.

Book buildingFrom Wikipedia, the free encyclopedia

Book building refers to the process of generating, capturing, and recording investor demand for shares during an IPO (or other securities during their issuance process) in

order to support efficient price discovery .[1] Usually, the issuer appoints a major investment bank to act as a major securities underwriter or bookrunner . The book is the off-

market collation of investor demand by the bookrunner and is confidential to the bookrunner, issuer, and underwriter . Where shares are acquired, or transferred via a

bookbuild, the transfer occurs off-market, and the transfer is not guaranteed by an exchanges clearing house. Where an underwriter has been appointed, the underwriter

bears the risk of non-payment by an acquirer or non-delivery by the seller.

Book building is a common practice in developed countries and has recently been making inroads into emerging markets as well. Bids may be submitted on-line, but the book

is maintained off-market by the bookrunner and bids are confidential to the bookrunner. The price at which new shares are issues is determined after the book is closed at the

discretion of the bookrunner in consultation with the issuer. Generally, bidding is by invitation only to clients of the bookrunner and, if any, lead manager, or co-manager.

Generally, securities laws require additional disclosure requirements to be met if the issue is to be offered to all investors. Consequently, participation in a book build may be

limited to certain classes of investors. If retail clients are invited to bid, retail bidders are generally required to bid at the final price, which is unknown at the time of the bid, due

to the impracticability of collecting multiple price point bids from each retail client. Although bidding is by invitation, the issuer and bookrunner retain discretion to give some

bidders a greater allocation of their bids than other investors. Typically, large institutional bidders receive preference over smaller retail bidders, by receiving a greater

allocation as a proportion of their initial bid. All bookbuilding is conducted off-market and most stock exchanges have rules that require that on-market trading be halted

during the bookbuilding process.

The key differences between acquiring shares via a bookbuild (conducted off-market) and trading (conducted on-market) are: 1) bids into the book are confidential vs

transparent bid and ask prices on a stock exchange; 2) bidding is by invitation only (only clients of the bookrunner and any co-managers may bid); 3) the bookrunner and the

issuer determine the price of the shares to be issued and the allocations of shares between bidders in their absolute discretion; 4) all shares are issued or transferred at the

same price whereas on-market acquisitions provide for a multiple trading prices.

[edit ]Process

During the fixed period of time for which the subscription is open, the bookrunner collects bids from investors at various prices, between the floor price and the cap price. Bids

can be revised by the bidder before the book closes. The process aims at tapping both wholesale and retail investors. The final issue price is not determined until the end of
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the process when the book has closed. After the close of the book building period, the book runner evaluates the collected bids on the basis of certain evaluation criteria and

sets the final issue price.

If demand is high enough, the book can be oversubscribed. In these case the greenshoe option is triggered.

Book building is essentially a process used by companies raising capital through public offeringsboth initial public offers (IPOs) or follow-on public offers (FPOs) to aid price

and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are

within the price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The issue price is determined after the bid

closure based on the demand generated in the process.

Book Building

What Does Book Building Mean?The process by which an underwriter attempts to determine at what price to offer an IPO based on demand from institutional investors.

Investopedia explains Book Building An underwriter "builds a book" by accepting orders from fund managers indicating the number of shares they desire and the price they arewilling to pay.

Sweat Equity

What Does Sweat Equity Mean?The equity that is created in a company or some other asset as a direct result of hard work by the owner(s).

Investopedia explains Sweat Equity

For example, the work you might put into rebuilding the engine on your 1968 Mustang to increase its value would be considered sweat equity.

Definition

Equity acquired by a company's executives on favorable terms , to reflect the value the executives have added and will

continue to add to the company .

The equity that is created in a company or some other asset as a direct result of hard work by the owner(s). Sweat equity is a term used to

describe the contribution made to a project by people who contribute their time and effort. It can be contrasted with financial equity which is themoney contributed towards the project. It is used to refer to a form of compensation by businesses to their owners or employees. The term is

sometimes used in partnership agreements where one or more of the partners contributes no financial capital. In the case of a startup company ,

employees might, upon incorporation , receive stock or stock options in return for working for below-market salaries (or in some cases no salary

at all) .[1]

The term is sometimes used to describe the efforts put into a start-up company by the founders in exchange for ownership shares of the

company. This concept, also called "stock for services" and sometimes "equity compensation" or "sweat equity" can also be seen when startup

companies use their shares of stock to entice service providers to provide necessary corporate services in exchange for a discount or for
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deferring service fees until a later date, see e.g. "Idea Makers and Idea Brokers in High Technology Entrepreneurship" by Todd L. Juneau et al.,

Greenwood Press, 2003, which describes equity for service programs involving patent lawyers and securities lawyers who specialize in start-up

companies as clients.

The term can also be used to describe the value added to real estate by owners who make improvements by their own toil. The more labor

applied to the home, and the greater the resultant increase in value, the more sweat equity that has been used.

In a successful model used by Habitat for Humanity , families who would otherwise be unable to purchase their own home (because their income level does not allow them to save for a down payment or qualify for an interest-bearing mortgage offered by a financial institution)

contribute up to 500 hours of sweat equity to the construction of their own home, the homes of other Habitat for Humanity partner families or by

volunteering to assist the organization in other ways. Once moved into their new home, the family makes monthly, interest-free mortgage

payments into a revolving "Fund for Humanity" which provides capital to build homes for other partner families.

Original Issue Discount - OID

What Does Original Issue Discount - OID Mean?The discount from par value at the time that a bond or other debt instrument is issued. It is the difference between the stated redemption priceat maturity and the issue price.

Investopedia explains Original Issue Discount - OIDAn original issue discount bond is a bond issued at a price below par. The most extreme example of an OID is a zero-coupon bond. OID isconsidered to be a form of interest, so tax issues can get a bit complicated.

Cumulative preference sharesCumulative preference shares will accumulate any dividend that is not paidwhen due.

Any unpaid dividend is added to the amount payable the following year and nodividends can be paid on ordinary shares until the entire backlog of unpaiddividends on cumulative prefs is cleared.

Unless a company is in a very poor financial condition, holders of cumulativeprefs can be fairly sure of getting the due pseudo-interest, although the timingis somewhat more uncertain than would be the case with bonds .

Noncumulative Preferred StockPreferred stock for which the publicly-traded company does not need to pay all dividends . If a company misses a dividend payment for anyreason, it no longer owes the dividend to noncumulative preferred stockholders. That is, all dividends that were "skipped" are treated as if theynever existed. Noncumulative preferred stocks are rare because they are unattractive to preferred stock investors .

Non-cumulative Preferred Stock

Preferred stock whose holders must forgo dividend payments when the company misses a dividend payment.
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Participating preferred stockPreferred stock that provides the holder with a specified dividend plus the right to additional earnings under specified conditions.Participating Preferred StockA stock , entitling the bearer to part ownership in the issuing company, and also to a certain minimum dividend . The dividend paid may be higher than the minimum depending upon company performance. In any case, these dividends must be paid before any dividends are paidon common stock , and if a company is unable to pay dividends on participating preferred stock, stockholders have the right to forcethe liquidation of the company. Private equity and venture capital firms often use participating preferred stock as a means of financingtheir investments . Unlike most other preferred stock owners, participating preferred stockholders sometimes have voting rights in the company.See also: Cumulative preferred stock , Non-cumulative stock , Convertible stock.

Participating Preferred Stock

What Does Participating Preferred Stock Mean?A type of preferred stock that gives the holder the right to receive dividends equal to the normally specified rate that preferred dividendsreceive as well as an additional dividend based on some predetermined condition. The additional dividend paid to preferred shareholders is commonly structured to be paid only if the amount of dividendsthat common shareholders receive exceeds a specified per-share amount.

Furthermore, in the event of liquidation, participating preferred shareholders can also have the right to receive the stock's purchasing price backas well as a pro-rata share of any remaining proceeds that the common shareholders receive.

Investopedia explains Participating Preferred Stock For example, suppose Company A issues participating preferred shares with a dividend rate of $1 per share. The preferred shares also carry aclause on extra dividends for participating preferred stock, which is triggered whenever the dividend for common shares exceeds that of thepreferred shares.

If, during its current quarter, Company A announces that it will release a dividend of $1.05 per share for its common shares, the participatingpreferred shareholders will receive a total dividend of $1.05 per share ($1.00 + 0.05) as well.

Participating preferred stock is rarely issued, but one way in which it is used is as a poison pill. In this case, current shareholders are issuedstock that gives them the right to new common shares at a bargain price in the event of an unwanted takeover bid.

GREEN WASHING

activities by a business or other organization that are intended to show that the organization isconcerned about the environment

Greenwashing

What Does Greenwashing Mean?When a company, government or other group promotes green-based environmental initiatives or images but actually operates in a way that isdamaging to the environment or in an opposite manner to the goal of the announced initiatives. This can also include misleading customersabout the environmental benefits of a product through misleading advertising and unsubstantiated claims.

Investopedia explains Greenwashing The general idea behind greenwashing is to create a benefit by appearing to be a green company, whether that benefit comes in the form of ahigher stock price, more customers or favored partnerships with green organizations. Even many energy companies - some of the world'sbiggest carbon emitters - have attempted rebrand themselves as environmentally friendly.

The tools used in greenwashing can include press releases about green projects or task forces put into place, energy reduction or pollutionreduction efforts, and rebranding of consumer products and advertising materials. In actuality, the company or group may be operating indamaging ways or may simply be unwilling to make a meaningful commitment to green initiatives.

Defining a Rights Issue and Why It's Used

A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. More specifically, this type of issuegives existing shareholders securities called " rights ", which, well, give the shareholders the right to purchase new shares at a discount to the
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market price on a stated future date. The company is giving shareholders a chance to increase their exposure to the stock at a discount price.But until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way they would tradeordinary shares. The rights issued to a shareholder have a value, thus compensating current shareholders for the future dilution of their existingshares' value.

Troubled companies typically use rights issues to pay down debt, especially when they are unable to borrow more money. But not allcompanies that pursue rights offerings are shaky. Some with clean balance sheets use them to fund acquisitions and growth strategies. For reassurance that it will raise the finances, a company will usually, but not always, have its rights issue underwritten by an investment bank.

A rights issue is an option that a company can opt for to raise capital under a secondary market offering or seasoned equity offering of sharesto raise money. The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have theprivilege to buy a specified number of new shares from the firm at a specified price within a specified time. [1] A rights issue is in contrast toan initial public offering (primary market offering), where shares are issued to the general public through market exchanges . Companies usuallyopt for a rights issue either when having problems raising capital through traditional means or to avoid interest charges on loans. [2]

Green Bond

What Does Green Bond Mean?A tax-exempt bond which is issued by federally qualified organizations and/or municipalities for the development of brownfield sites. Brownfieldsites are areas of land that are under utilized, have abandoned buildings, or are under developed. They often contain low levels of industrial

pollution.Green Bonds are short-hand for Qualified Green Building and Sustainable Design Project Bonds.

Investopedia explains Green Bond These bonds are created to encourage sustainability and the development of brownfield sites.The tax-exempt status makes purchasing a greenbond a more attractive investment when compared to a comparable taxable bond. To qualify for green bond status the development must takethe form of any of the following:

1) At least 75% of the building is registered for LEED certification;2) The development project will receive at least $5 million from the municipality or State; and3) The building is at least one million square feet in size, or 20 acres in size.

Reverse Mortgage

What Does Reverse Mortgage Mean?A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold. After accounting for the initial mortgage amount, the rate at whichinterest accrues, the length of the loan and rate of home price appreciation, the transaction is structured so that the loan amount will not exceedthe value of the home over the life of the loan.

Often, the lender will require that there can be no other liens against the home. Any existing liens must be paid off with the proceeds of thereverse mortgage.

Investopedia explains Reverse MortgageA reverse mortgage provides income that people can tap into for their retirement. The advantage of a reverse mortgage is that the borrower'scredit is not relevant, and is often unchecked, because the borrower does not need to make any payments. Because the home serves ascollateral, it must be sold in order to repay the mortgage when the borrower dies (in some cases, the heirs have the option of repaying themortgage without selling the home). These types of mortgages have large origination costs relative to other types of mortgages. These costsbecome part of the initial loan balance and accrue interest. Senior citizen borrowers with good credit should carefully analyze the options of amore traditional mortgage, such as a home equity loan, against a reverse mortgage.

Demographic dividend
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From Wikipedia, the free encyclopedia

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The demographic dividend is a rise in the rate of economic growth due to a rising share of working age people in a population. This usually occurs late in the demographic transition whenthe fertility rate falls and the youth dependency rate declines. During this demographic window of

opportunity, output per capita rises. It has been argued that the demographic dividend played a rolein the "economic miracles" of the East Asian Tigers [1] [2]and that the economic boom in Ireland inthe 1990s (the Celtic tiger ) was in part due to the legalization of contraception in 1979 andsubsequent decline in the fertility rate [3]. In Ireland the ratio of workers to dependents improveddue to lower fertility but was raised further by increased female labor market participation and areversal from outward migration of working age population to a net inflow. Africa, on the other hand continues to have high fertility and youth dependency rates, which contribute to its economicstagnation [4]. The magnitude of the demographic dividend appears to be dependent on the ability of the economy to absorb and productively employ the extra workers [5], rather than be a

pure demographic gift .

Phantom Stock Plan

What Does Phantom Stock Plan Mean?An employee benefit plan that gives selected employees (senior management) many of the benefits of stock ownership without actually givingthem any company stock. Sometimes referred to as "shadow stock."

Investopedia explains Phantom Stock PlanRather than getting physical stock, the employee receives "pretend" stock. Even though it's not real, the phantom stock follows the pricemovement of the company's actual stock, paying out any resulting profits.

Phantom stock is a method for companies to give their management or employees a bonus if the company performs well financially. Phantom

stock provides a cash or stock bonus based on the value of a stated number of shares , to be paid out at the end of a specified period of time.

Phantom stock is essentially a cash bonus plan, although some plans pay out the benefits in the form of shares. Phantom stock is favored by

closely held or family-owned companies who want to incentivize management and other employees without granting them equity . Phantom

stock grants align employees' motives with owners' motives (that is, profit growth, increased stock prices) without granting employees an actual

ownership stake in the company. Phantom stock can, but usually does not, pay dividends . When the payout is made, it is taxed as ordinary

income to the employee and is deductible to the employer. Generally, phantom plans require the employee to become vested , either through

seniority or meeting a performance target.

Godfather Offer

What Does Godfather Offer Mean?An irrefutable takeover offer made to a target company by an acquiring company. Typically, the acquisition price's premium is extemelygenerous compared to the prevailing market price. Therefore, if the target company's management refuses the offer, shareholders may initiatelawsuits or other forms of revolt against the target company for not performing their fidiciary duty of looking out for the best interests of theshareholders.
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Investopedia explains Godfather Offer The offer is even harder for the target company's management to refuse when its stock price has been flat or declining for an extended periodof time, as long-time investors would jump at the opportunity to cash out at an elevated price.

Similar to the famous Godfather in the trilogy of movies, the bidding company is essentially making an offer the target company cannot afford torefuse.

Arbitrage

What Does Arbitrage Mean?The simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting pricedifferences of identical or similar financial instruments, on different markets or in different forms. Arbitrage exists as a result of marketinefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time.

Investopedia explains Arbitrage

Given the advancement in technology it has become extremely difficult to profit from mispricing in the market. Many traders have computerizedtrading systems set to monitor fluctuations in similar financial instruments. Any inefficient pricing setups are usually acted upon quickly and theopportunity is often eliminated in a matter of seconds.

Hedging Transaction

What Does Hedging Transaction Mean?A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging transactionspurchase opposite positions in the market in order to ensure a certain amount of gain or loss on a trade. They are employed by portfoliomanagers to reduce portfolio risk and volatility or lock in profits.

Investopedia explains Hedging TransactionHedging transactions are subject to ordinary gain and loss tax treatment. However, hedging losses of limited partners are usually limited to their taxable income for the year. Hedge funds use this sort of transaction extensively.

Double Hedging

What Does Double Hedging Mean?Hedging a position by using futures and options, thereby doubling the size of the hedge. The Commodity Futures Trading Commission (CFTC)considers double hedging to be a situation where a trader holds a long futures position in a commodity in excess of the speculative position limitto offset a fixed price sale, even though the trader has ample supplies of the commodity to honor all sales commitments.

Investopedia explains Double Hedging

Increasing the size of a hedge to a level that is greater than the exposure faced by a firm or individual may take it into the realm of speculation.For example, an investor with a stock portfolio of $1 million who wishes to hedge downside risk in the broad market can do so by buying putoptions of a similar amount on the S&P 500. Double hedging would occur if the investor also initiates an additional short position in the S&P500 using index futures contracts.

Super Hedging
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What Does Super Hedging Mean?A strategy that hedges positions with a self-financing trading strategy. In an incomplete market, such as options, the cost of such a strategymay prove too high. The idea of super hedging has been studied by academics, however it's a theoretical ideal and is difficult to implement inthe real world.

Investopedia explains Super Hedging A hedging transaction limits investment risk of an underlying asset by using options or futures. The options or futures are bought in opposingpostions to the underlying asset in order to lock in a certain amount of gain.

Speculation

What Does Speculation Mean?The process of selecting investments with higher risk in order to profit from an anticipated price movement.

Investopedia explains SpeculationSpeculation should not be considered purely a form of gambling, as speculators do make an informed decision before choosing to acquire the

additional risks. Additionally, speculation cannot be categorized as a traditional investment because the acquired risk is higher than average.More sophisticated investors will also use a hedging strategy in combination with their speculative investment in order to limit potential losseWhat is the difference between investing and speculating?

The main difference between speculating and investing is the amount of of risk undertaken in the trade. Typically, high-risk tradesthat are almost akin to gambling fall under the umbrella of speculation, whereas lower-risk investments based on fundamentalsand analysis fall into the category of investing. Investors seek to generate a satisfactory return on their capital by taking on anaverage or below-average amount of risk. On the other hand, speculators are seeking to make abnormally high returns frombets that can go one way or the other. It should be noted that speculation is not exactly like gambling because speculators dotry to make an educated decision on the direction of the trade, but the risk inherent in the trade tends to be significantly aboveaverage.

As an example of a speculative trade, consider a volatile junior gold mining company that has an equal chance over the near term of skyrocketing from a new gold mine discovery or going bankrupt. With no news from the company, investors would tend

to shy away from such a risky trade, but some speculators may believe that the junior gold mining company is going to strikegold and may buy its stock on a hunch. This would be speculation.

As an example of investing, consider a large stable multinational company. The company may pay a consistent dividend thatincreases annually, and its business risk is low. An investor may choose to invest in this company over the long-term to make asatisfactory return on his or her capital while taking on relatively low risk. Additionally, the investor may add several similar companies across different industries to his or her portfolio to diversify and further lower their risk.

Gambling Income

What Does Gambling Income Mean?Any income that is the result of games of chance or wagers on events with uncertain outcomes (gambling). This income is subject to taxation.

Investopedia explains Gambling IncomeGambling income includes any money earned playing slot machines, bingo or the lottery. It also includes money derived from betting on horseraces, boxing, sumo wrestlers and almost anything else.

Gambling Loss

What Does Gambling Loss Mean?A loss resulting from games of chance or wagers on events with uncertain outcomes (gambling). These losses can only be claimed againstgambling income.
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Investopedia explains Gambling LossGambling losses include the cash lost at the slot machines or when a "sure bet" comes up lame in the race. Total gambling losses claimedcannot exceed gambling income.

Floater

What Does Floater Mean?A bond or other type of debt whose coupon rate changes with market conditions (short-term interest rates). Also known as "floating-rate debt".

Investopedia explains Floater For example, a floater bond may have the coupon rate set at "T-bill rate plus 0.5%".

This type of instrument is more beneficial to the holder as interest rates are rising because it allows the holder to participate in the upwardmovement in rates. Conversely a floater is less advantageous to the holder when rates are decreasing because the rate at which they arereceiving interest is declining.

Inverse Floater

What Does Inverse Floater Mean?A bond or other type of debt whose coupon rate has an inverse relationship to short-term interest rates.

Investopedia explains Inverse Floater With an inverse floater, as interest rates rise, the coupon rate falls. When short-term interest rates fall, an inverse floater holder benefits in twoways:

1) The bond appreciates in price2) The yield increases

Reverse Floater

What Does Reverse Floater Mean?A floating-rate note in which the coupon rises when the underlying reference rate falls. The floating rate resets with each coupon payment andmay have a cap and/or floor. The underlying reference rate is often the London Interbank Offered Rate (LIBOR), the rate at which banks canborrow funds from other banks in the London interbank market, the most common benchmark for short-term interest rates.

Investopedia explains Reverse Floater

For example, the coupon on a reverse floater may be calculated as: principal*(10%-LIBOR).

Floaters (bonds or other types of debt whose coupon rate changes with short-term interest rates) are also known as "floating-rate debt."Reverse floaters offer guaranteed principal and are an option for investors looking to benefit from falling interest rates.

Repurchase Agreement - Repo

What Does Repurchase Agreement - Repo Mean?A form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on anovernight basis, and buys them back the following day.

For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction,(buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.


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Investopedia explains Repurchase Agreement - RepoRepos are classified as a money-market instrument. They are usually used to raise short-term capital.

Reverse Repurchase Agreement

What Does Reverse Repurchase Agreement Mean?The purchase of securities with the agreement to sell them at a higher price at a specific future date.

For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction (buyingthe security and agreeing to sell in the future) it is a reverse repurchase agreement.

Investopedia explains Reverse Repurchase Agreement Repos are classified as a money-market instrument. They are usually used to raise short-term capital.

Warrant Coverage

What Does Warrant Coverage Mean?An agreement between a company and its shareholders whereby the company issues warrants equal to some percentage of the dollar amountof the shareholder's investment.

Investopedia explains Warrant CoverageFor example, if an investor purchases 1,000,000 shares of stock at a price of $5 per share (a $5,000,000 investment), and the company grants20% warrant coverage, the company issues to the investor $1,000,000 in warrants or, in technical terms, warrants 200,000 additional shares atan exercise price of $5 per share.

This would not give the investor any additional downside protection as the underlying shares would be issued at the same price that is currentlypaid for the stock. However, the warrant coverage would give the investor additional upside in the event that the company goes public or is soldat a price above $5 per share.

Call Warrant

What Does Call Warrant Mean?A warrant that gives the holder the right to buy the underlying share for an agreed price, on or before a specified date.

Investopedia explains Call Warrant A warrant is similar to an option, the main difference is that warrants are issued by a company attempting to raise capital.

underlying shareOne of the actual shares related to options (the right to buy shares at a particular price within a particular period of time) or other derivatives such as futures. [1]

Warrants: A High-Return Investment Toolby Reem Heakal (Contact Author | Biography )

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Filed Under: Alternative Investments , Derivatives , Options , Stocks

A warrant is like an option . It gives the holder the right but not the obligation to buy an underlying security at a certain price, quantity and futuretime. It is unlike an option in that a warrant is issued by a company, whereas an option is an instrument of the stock exchange. The securityrepresented in the warrant (usually share equity) is delivered by the issuing company instead of by an investor holding the shares.

Companies will often include warrants as part of a new-issue offering to entice investors into buying the new security. A warrant can alsoincrease a shareholder's confidence in a stock, provided the underlying value of the security actually does increase over time. (Warrants are

just one type of equity derivative. Find out about the others in 5 Equity Derivatives And How They Work .)

Certificate Of Deposit - CD

What Does Certificate Of Deposit - CD Mean?A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in anydenomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one monthto five years.

Investopedia explains Certificate Of Deposit - CDA certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds ondemand. Although it is still possible to withdraw the money, this action will often incur a penalty.

For example, let's say that you purchase a $10,000 CD with an interest rate of 5% compounded annually and a term of one year. At year's end,the CD will have grown to $10,500 ($10,000 * 1.05).

CDs of less than $100,000 are called "small CDs"; CDs for more than $100,000 are called "large CDs" or "jumbo CDs". Almost all large CDs, aswell as some small CDs, are negotiable.

Commercial Paper

What Does Commercial Paper Mean?An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meetingshort-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflectingprevailing market interest rates.

Investopedia explains Commercial Paper Commercial paper is not usually backed by any form of collateral, so only firms with high-quality debt ratings will easily find buyers withouthaving to offer a substantial discount (higher cost) for the debt issue.

A major benefit of commercial paper is that it does not need to be registered with the Securities and Exchange Commission (SEC) as long as itmatures before nine months (270 days), making it a very cost-effective means of financing. The proceeds from this type of financing can onlybe used on current assets (inventories) and are not allowed to be used on fixed assets, such as a new plant, without SEC involvement.

Treasury Bill - T-Bill
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What Does Treasury Bill - T-Bill Mean?A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26weeks).

T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest paymentslike conventional bonds, the appreciation of the bond provides the return to the holder.

Investopedia explains Treasury Bill - T-Bill For example, let's say you buy a 13-week T-bill priced at $9,800. Essentially, the U.S. government (and its nearly bulletproof credit rating)writes you an IOU for $10,000 that it agrees to pay back in three months. You will not receive regular payments as you would with a couponbond, for example. Instead, the appreciation - and, therefore, the value to you - comes from the difference between the discounted value youoriginally paid and the amount you receive back ($10,000). In this case, the T-bill pays a 2.04% interest rate ($200/$9,800 = 2.04%) over athree-month period.

Money Market: Certificate Of Deposit (CD)

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A certificate of deposit (CD) is a time deposit with a bank. CDs are generally issued by commercial banks but they can be bought through brokerages.They bear a specific maturity date (from three months to f ive years), a specified interest rate, and can be issued in any denomination, much like bonds.Like all time deposits, the funds may not be withdrawn on demand like those in a checking account.

Global Depositary Receipt - GDR

What Does Global Depositary Receipt - GDR Mean?1. A bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of aninternational bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches.

2. A financial instrument used by private markets to raise capital denominated in either U.S. dollars or euros.

Investopedia explains Global Depositary Receipt - GDR 1. A GDR is very similar to an American Depositary Receipt.

2. These instruments are called EDRs when private markets are attempting to obtain euros.

American Depositary Receipt - ADR

What Does American Depositary Receipt - ADR Mean?A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on aU.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help toreduce administration and duty costs that would otherwise be levied on each transaction.

Investopedia explains American Depositary Receipt - ADR This is an excellent way to buy shares in a foreign company while realizing any dividends and capital gains in U.S. dollars. However, ADRs donot eliminate the currency and economic risks for the underlying shares in another country. For example, dividend payments in euros would beconverted to U.S. dollars, net of conversion expenses and foreign taxes and in accordance with the deposit agreement. ADRs are listed oneither the NYSE, AMEX or Nasdaq

Asset Depreciation Range - ADR
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What Does Asset Depreciation Range - ADR Mean?An elective accounting method established by the Internal Revenue Code for tangible assets placed into service after 1970. Prior to the ADRsystem, there were over 100 asset classes for tangible property based on the taxpayer's business and industry. Because the ADR system didnot solve the problems it was intended to address, namely, disagreements between the IRS and taxpayers about accounting for the useful life,salvage value and repairs of assets, the Accelerated Cost Recovery System was introduced in 1981 to provide a less complicated way todetermine depreciation.

Investopedia explains Asset Depreciation Range - ADR Businesses had more flexibility under the ADR system to determine the useful life of an asset, because the asset depreciation range allowedthe taxpayer a 20% leeway above and below the IRS's established useful life for each asset class. Thus, if the established useful life of a deskwas considered to be 10 years, the taxpayer could depreciate it over anywhere from eight to 12 years. Depreciation methods allowed by theIRS have changed several times since the ADR system; today the taxpayer must depreciate that same desk over seven or 10 years, dependingon the depreciation system used.

Sleeping Beauty

What Does Sleeping Beauty Mean?A company that is prime for takeover but has not been approached by an acquiring company.

Investopedia explains Sleeping Beauty A company may be considered a sleeping beauty because it has large cash reserves, undervalued real estate, or huge potential.

Securitization

What Does Securitization Mean?The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of therepackaged instruments to investors. The process can encompass any type of financial asset and promotes liquidity in the marketplace.

Investopedia explains SecuritizationMortgage-backed securities are a perfect example of securitization. By combining mortgages into one large pool, the issuer can divide the large

pool into smaller pieces based on each individual mortgage's inherent risk of default and then sell those smaller pieces to investors.The process creates liquidity by enabling smaller investors to purchase shares in a larger asset pool. Using the mortgage-backed securityexample, individual retail investors are able to purchase portions of a mortgage as a type of bond. Without the securitization of mortgages, retailinvestors may not be able to afford to buy into a large pool of mortgages.

Lobster Trap

What Does Lobster Trap Mean?A strategy used by a target firm to prevent a hostile takeover. In a lobster trap, the company passes a provision preventing anyone with morethan 10% ownership from converting convertible securities into voting stock.

Investopedia explains Lobster TrapExamples of convertible securities include convertible bonds, convertible preferred stock, and warrants.

Lehman Brothers

What Does Lehman Brothers Mean?A firm that was once considered one of the major players in the global banking and financial services industries, but declared bankruptcy onSeptember 15, 2008, after a catastrophic collapse caused by a mix of subprime mortgage exposure as well as negative rumors and allegedshort selling in the market. The fall of Lehman Brothers marked the beginning of the publics awareness of the forthcoming credit crisis andrecession of the late 2000s.


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Investopedia explains Lehman BrothersThe bankruptcy of Lehman Brothers was, at the time, the largest bankruptcy filing in U.S. history. Although the stock market was in modestdecline prior to these events, the Lehman bankruptcy, coupled with the earlier collapse of Bear Stearns, greatly eroded confidence and led toa precipitous declines across the major U.S. indexes in late September and early October 2008.

Lehman Aggregate Bond Index

What Does Lehman Aggregate Bond Index Mean?An index used by bond funds as a benchmark to measure their relative performance. The index includes government securities, mortgage-backed securities, asset-backed securities and corporate securities to simulate the universe of bonds in the market. The maturities of the bondsin the index are more than one year.

Investopedia explains Lehman Aggregate Bond Index The index constructed by Lehman Brothers is considered to be the best total market bond index, as it is used by more than 90% of investors inthe United States. Along with the aggregate index, Lehman also has bond indexes tailored to European and Asian investors. This index cannotbe purchased, but it is tracked by bond index funds; there also has an iShare exchanged-traded fund (ETF) that tracks the index. The LehmanAggregate Bond Index trades on the PSE under the ticker AGG

Leading Lipstick Indicator

What Does Leading Lipstick Indicator Mean?An indicator based on the theory that a consumer turns to less expensive indulgences, such as lipstick, when she (or he) feels less thanconfident about the future. Therefore, lipstick sales tend to increase during times of economic uncertainty or a recession.

Investopedia explains Leading Lipstick Indicator This term was coined by Leonard Lauder (chairman of Estee Lauder), who consistently found that during tough economic times, his lipstick

sales went up. Believe it or not, the indicator has been quite a reliable signal of consumer attitudes over the years. For example, in the monthsfollowing the September 11 terrorist attacks, lipstick sales doubled.

Lipstick Effect

What Does Lipstick Effect Mean?

A theory that states that during periods of recession or economic downturn, consumers will eschew purchases of big-ticket luxury items andseek material solace in smaller indulgences, such as premium lipstick.

Also known as the "leading lipstick indicator".

Investopedia explains Lipstick Effect

The lipstick effect is one of the reasons that the restaurant and entertainment industries typically do well amid recessions. Cash-strappedconsumers want to treat themselves to something that will allow them to forget their financial problems, but they cannot afford to escape toBermuda. Therefore, they often settle for dining out and going to a movie.

Bellwether
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What Does Bellwether Mean?A leading indicator of trends.

Investopedia explains Bellwether A bellwether stock is a stock that is used to gauge the performance of the market in general. General Motors was an example of a bellwether stock, hence the saying "What's good for GM is good for America."

Accounting Noise

What Does Accounting Noise Mean?The distortion that is caused in a companys financial statements due to accounting rules and regulations that must be followed. Accountingnoise makes it difficult for investors to easily ascertain a companys true financial condition. Accounting noise can make a company's financialreports look better or worse.

Investopedia explains Accounting NoiseAccounting noise can be seen as either a consequence of necessary rules regarding generally accepted accounting principles (GAAP) or aresult of management's attempts to massage the numbers to present a rosier financial picture of the firm. Paying attention to the footnotes canhelp an investor cut through the accounting noise and get the real story.

For example, a company that has recently undergone a significant merger may look very unprofitable on the income statement because themerger may cause serious one-time charges for the company; it may be useful for investors to cut through the accounting noise to get a moreaccurate picture of the company's prospects.

Conversely, an underperforming company could engage in earnings manipulation, creating accounting noise to hide its poor performance.

Circuit Breaker

What Does Circuit Breaker Mean?Refers to any of the measures used by stock exchanges during large sell-offs to avert panic selling. Sometimes called a "collar."

Investopedia explains Circuit Breaker After an index has fallen a certain percentage, the exchange might activate trading halts or restrictions on program trading. For example, if theDow Jones Industrial Average falls by 10%, the NYSE might halt market trading for one hour. There are other circuit breakers for 20% and 30%falls.

Bear Tack

What Does Bear Tack Mean?A fall in the price of a stock, sector, or market, or investor sentiment that assumes a fall will happen soon. A bear tack is usually used todescribe bearish movement in the short to medium term.

Investopedia explains Bear Tack In sailing, a tack is a maneuver in which a boat turns its bow to put the wind on the opposite side of the boat. A bear tack is a buzz word that isderived from this sailing term to explain a change in movement of a security or index.

Bear

What Does Bear Mean?An investor who believes that a particular security or market is headed downward. Bears attempt to profit from a decline in prices. Bears aregenerally pessimistic about the state of a given market.


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Investopedia explains Bear For example, if an investor were bearish on the S&P 500 they would attempt to profit from a decline in the broad market index. Bearishsentiment can be applied to all types of markets including commodity markets, stock markets and the bond market.

Although you often hear that the stock market is constantly in a state of flux as the bears and their optimistic counterparts, "bulls", are trying totake control, do remember that over the last 100 years or so the U.S. stock market has increased an average 11% a year. This means thatevery single long-term market bear has lost money

Non-Financial Asset

What Does Non-Financial Asset Mean?An asset with a physical value such as land, property or some type of object.

Investopedia explains Non-Financial Asset Unlike financial assets such as stocks and bonds, which are intangible, non-financial assets are physical and have values based upon their physical properties.

Financial Asset

What Does Financial Asset Mean?An asset that derives value because of a contractual claim. Stocks, bonds, bank deposits, and the like are all examples of financial assets.

Investopedia explains Financial Asset Unlike land and property--which are tangible, physical assets--financial assets do not necessarily have physical worth.

Asset

What Does Asset Mean?1. A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide futurebenefit.

2. A balance sheet item representing what a firm owns.

Investopedia explains Asset 1. Assets are bought to increase the value of a firm or benefit the firm's operations. You can think of an asset as something that can generatecash flow, regardless of whether it's a company's manufacturing equipment or an individual's rental apartment.

2. In the context of accounting, assets are either current or fixed (non-current). Current means that the asset will be consumed within one year.Generally, this includes things like cash, accounts receivable and inventory. Fixed assets are those that are expected to keep providing benefitfor more than one year, such as equipment, buildings and real estate.

Financial Asset Securitization Investment Trust - FASIT

What Does Financial Asset Securitization Investment Trust - FASIT Mean?A financing tool that allows for the securitization of non-mortgage assets and usually involves debt obligations with short maturities such ascredit card receivables, home equity loans and car loans. Financial Asset Securitization Investment Trust (FASIT) is similar to Real EstateMortgage Investment Conduits (REMIC), created under the Small Business Job Protection Act of 1996.


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Investopedia explains Financial Asset Securitization Investment Trust - FASIT FASITs are often attractive securitization vehicles because of their inherent flexibility. To qualify as a FASIT, an entity has to: elect to be treatedas one, hold only eligible assets and have a single owndership interest, among other requirements.

Anticipated Holding Period

What Does Anticipated Holding Period Mean?The time period for which a limited partnership expects to hold a specific asset. A firm will disclose its anticipated holding period onassets through its prospectus. After the specified time period, the partnership will typically sell the holding, and the capital invested will berepaid to investors through a lump-sum distribution.

Investopedia explains Anticipated Holding Period Before a broker recommends a potential investment to an individual, he or she should evaluate and disclose the selling firms anticipatedholding periods on underlying assets. The anticipated holding period on assets can affect how investments are graded and thereforerecommended to customers. For example, the anticipated holding period on underlying assets can affect mutual funds share classes.

FINRA the Financial Industry Regulatory Agency enforces rules governing broker-dealers, including that they must have reasonablegrounds for believing that a recommended transaction/investment is suitable for a customer based on his or her financial situation, needs andinvestment objectives.

Back Up The Truck

What Does Back Up The Truck Mean?Slang that refers to the purchase of a large position in a stock or other financial asset by an investor or trader. Typically, when someone iswilling to back up the truck on a financial asset, this implies that they're extremely bullish on that asset's performance.

Investopedia explains Back Up The Truck For example, if an analyst recommends that it is time to start backing up the truck on XYZ stock, this means that he or she is extremelyconfident and upbeat about how well XYZ stock will be doing in the foreseeable future.

The term refers to the imagery derived from a truck backing up to a warehouse or some other commercial building to load up goods.

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