AcquisitionsWhen a company buys a stake in another company. This is often done to help the acquiring company grow. Acquisitions can be hostile (when a company does not wish to be acquired) or friendly (when a company wishes to be acquired by the acquiring company) but in either case a company will(...)
After-tax-returnsThe return on investment after taking out all taxes. This figure provides a useful number for investors because different investments are taxed in different ways or not at all. The after-tax return will show what these differently taxed investments would be worth after taxes are taken out,(...)
Agency BondsAgency bonds are debt securities issued by either a government agency or a government sponsored entities (GSE). While the debt of government agencies is backed by the government, GSEs are not. However, GSEs are corporations that hold government charters because their businesses are(...)
AlphaA number that measures a security’s performance against that of the market, i.e., its return that cannot be explained by the movements of the market. It is derived from the capital asset pricing model, where a is the x-root of the security characteristic line. Thus a positive alpha indicates(...)
AltruismAn action is considered altruistic if it benefits others while harming oneself. Altruistic acts are considered acts of self-sacrifice, and therefore, they are generally regarded as the opposite of self-interested acts. The doctrine of altruism (sometimes called The Principle of Beneficence)(...)
American Depositary Receipts (ADRs)This is a way to buy shares in a foreign company while getting any dividends or gains in U.S. dollars. An ADR is a certificate issued by a U.S. bank representing shares in a foreign company. The actual security is held by the bank overseas. These are done to reduce costs that would be(...)
ArbitrageA trade that profits from exploiting the price differences between a financial instrument on different markets or identical financial instruments priced differently. To properly execute an arbitrage deal the sale and purchase of the asset must happen simultaneously. Due to(...)
Ask PriceThe price at which the owner of a security is willing to sell. Also known as the offer price or simply “the ask”, the ask price is the lowest price the owner will sell the security. The ask is the opposite of the bid price, which is the price a buyer is willing to pay for the security. These(...)
Asset allocationInvestment strategy that uses the three asset classes: equities, fixed-income, and cash, to personalize the amount of risk that an individual is willing to take given her goals. Asset allocation is different for different individuals because not everyone has the same goals, risk tolerance,(...)
AutonomyTo be autonomous is to be one’s own person, that is, to be directed by preferences, motivations, and characteristics that are a part of or ‘internal’ to one’s self. It may also refer to the capacity of a rational individual to make informed, self-determined decisions – to ‘self-rule.’Some(...)
Balance SheetA financial statement showing a company’s assets, liabilities, and shareholder’s equity. All balance sheets follow the same formula, Assets= Liabilities + Shareholder’s Equity. The balance sheet is one of the three main financial statements, the other two being the statement of cash flows(...)
Bear MarketA term referring to a declining financial market. A market is said to be in a bearish phase if the prices are falling over more than a two-month period (if under two months it is considered a correction). The amount of negativity in a bear market makes prices continually fall as investors(...)
BetaA number representing a security’s risk, or volatility. Beta is the slope of the security characteristic line, thus measuring the security’s risk against that of the market (when the market moves, the security moves by a factor of b). A beta greater than one indicates higher volatility, b = 1(...)
Bid PriceThis is the price that a buyer is willing to pay for a certain security. This is the opposite of ask price, or the price at which the owner of the security is willing to sell. These terms are used in nearly all financial markets including security, bond, derivative, and currency markets. (...)
Bid/Ask SpreadThis is the difference between the bid and ask prices. Basically, the spread is the difference between the lowest price an owner will sell for and the highest price a buyer is prepared to pay for the security. The primary reason for the difference in price is the amount of liquidity in the(...)
Black-Scholes ModelA formula that provides a standard method to price stock options. While it is not used in practice to price these derivatives, it provides a clear explanation for how the volatility of the product affects the price of an option. Fischer Black and Myron Scholes first introduced the model in a(...)
Block TransactionsThis is a very large buy or sell order placed for securities. These orders are so large that they would have a large effect on the stock price. To avoid this effect, the trades are often negotiated through an investment bank. This matching of buyer and seller enables the buyer and seller of(...)
Bond RatingsRatings given to bonds to show their risk of default. Bonds are rated on a scale ranging from AAA, which indicates a very low chance of default, to C or junk bonds, which are considered very risky. Ratings are done by private agencies such as Standard & Poor’s, Moody’s, and Fitch.
Bond YieldsYield refers to the profits made on an investment. When referring to bonds there are four different types of yields; the coupon, which is the fixed interest rate when the bond is issued, the current yield, the interest rate as a percentage of the current price of the bond, yield to maturity,(...)
BondsA type of debt investment in which an organization borrows money from investors with the agreement to pay back the money at a certain date with a certain interest rate. A bond’s interest rate is mainly determined by two factors: the quality of the issuing company’s credit and the duration of(...)
Book BuildingThe process of determining the price of an Initial Public Offering (IPO) based on demand from various investor groups. The process is performed by an underwriter or book runner, which is usually an investment bank. The book runner builds the book by looking at orders from institutional(...)
Book ValueThe value of a company based on the number of total assets minus intangible assets and liabilities. This tells the value of a company if it were to be liquidated. This usually differs from the market value of a company which fundamental investors look for in order to see if a company is(...)
BrokersA person or company that charges fees for buying and selling securities on behalf of investors. Investors decide what they want to do while brokers are the ones who actually carry out the buy or sell instructions on the investors’ behalf.
BubbleAn economic phenomenon whereby a security’s or commodity’s price rises far above its actual value. Examples include the American housing bubble of the early 2000s; the Dutch Tulipmania, sometimes considered the first bubble, when investors in the Netherlands began paying absurdly high sums for(...)
Buddhist EthicsBuddhism is a spiritual tradition founded in India around 500 BCE by Prince Siddartha Gautama, later to become Gautama Buddha (‘Buddha’ meaning “awakened one” in Sanskrit). Most Buddhist traditions (the main two being Theravada and Mahayana) share a common ethical code for lay followers,(...)
Budget DeficitThis occurs when an economic entity is spending more money than it is making. The result is a budget deficit. Budget deficits also refer to the same situation with the federal government.
Bull MarketA bull market is when prices of securities traded on the market are rising. Investors are optimistic in a bull market and continue to buy, driving up prices. This is the opposite of a bear market.
Business CycleRefers to the fluctuation of activity in the economy over a long period of time. The five stages include growth, peak, recession, trough, and recovery. Business cycles are incredibly hard to predict because they vary in length, frequency, and magnitude.
Buy sideThe sector of finance that invests funds for its clients. Examples of buy side institutions include hedge funds, mutual funds, pension funds, and private banks. These institutions make decisions on where to invest money based on their own research and the research from sell side institutions.
Buy side research analystBuy side analysts perform research on investments for the benefit of the investment management company that employs them. Their research is not publicly available and is valued by how many correct recommendations are made by the buy side analyst. These analysts work for pension funds, hedge(...)
Call OptionA contract permitting the owner to buy a financial asset at a specified price (strike price). The owner has a specific date or a period of time during which the owner may decide whether or not to exercise the option. The owner of a call option hopes that the stock price rises relative to the(...)
Callable BondsA type of bond that can be bought back by the issuer before it reaches its maturity date. For this option, the issuer has to pay a higher interest rate on the bond. Issuers would want to do this if interest rates in the market have dropped so they could buy back their bonds and refinance(...)
Capital Adequacy RatioA measure of a bank’s capital in terms of its risk weighted assets.The bank’s capital is divided up between two levels of capital, tier one and tier two. Tier one is the core capital of the bank, its equity and disclosed reserves. Tier two capital is the second most reliable form of(...)
Capital Asset Pricing Model (CAPM)The capital asset pricing model provides a mathematical measure of investment risk and shows how diversification reduces investment risk. The model offers a technique to calculate the total risk of a diversified portfolio based on: (1) the risk of the individual investments in the portfolio(...)
Capital GainsThe increase in value of a capital investment. This means it is worth more than the purchase price but the gain is not realized until the asset is sold. Capital gains are taxable.
Care, Ethics ofUnlike deontological and utilitarian normative ethical theories, which emphasize impartial principles, the ‘ethics of care’ approach to normative ethics emphasizes our relationships, and our interdependence, with other people.Proponents of this approach to ethics, first developed by feminist(...)
Cash FlowThis is the flow of cash into or out of a company, investment, or project. For companies, cash flow can be found in the statement of cash flows.
Categorical ImperativeThis is a requirement in Kantian deontological theory that we should act only according to the maxims that can be regarded as universal laws, that is, we should act only according to the maxims that all people will follow.
Caveat EmptorLatin term meaning “Let the Buyer beware”. This term adheres to the basic premise that when it comes to a transaction, the buyer is the one held entirely responsible for the transaction, as well as the product(s) that come with it. In other words, it is the buyer’s responsibility to choose(...)
Certificate of DepositsAlso known as CDs, Certificates of Deposit are savings instruments issued by banks. The investor receives interest payments for a period of time (generally one month to five years). CDs are considered as safe investments because they do not decline in principal value. In addition, CDs are(...)
Churning AccountsChurning is an unethical and illegal practice of excessive trading on an investor’s account by the broker to generate commission. This excessive trading results in very little or no gain for the investor but the broker makes money on the commission for each trade. Also referred to as(...)
Circuit BreakersThis refers to measures taken by stock exchanges to prevent large and rapid price decreases from the selling of stock. For example, if the NYSE has seen an index fall of 20%, it would shut down trading for an hour to try and prevent a free fall in that market.
ClearinghouseThis is the third party that is responsible for settling accounts, clearing trades, and regulating trading data for a futures exchange. Clearinghouses act as middlemen between all parties. For example, at the end of the day, all future accounts must be adjusted for the losses or gains that(...)
Closed End Fund (CEF)This is a publicly traded investment fund that raises an initial amount of capital through an Initial Public Offering (IPO). The listing on an exchange turns the fund into a publicly traded stock. The company’s stock operates like any other corporation’s stock, from supply and demand(...)
CoercionActs done as a result of coercion are acts done against one’s desires or against one’s will. Coercion limits a person’s or group’s freedom to act, often by threat of force or other forms of pressure (incentives, rewards, threats of penalty, etc.). To put it another way, when a person is(...)
CollarsThe term collar refers to two different financial terms. The first being an option strategy used to hedge risk. The strategy is used after a long position in an equity has a large price rise. Collars are when the investor purchases both out of the money call and put options to hedge against(...)
Commercial Paper (CP)A short-term debt instrument issued by a corporation meant for meeting short term liabilities. Commercial Paper does not last longer than one year and does not have to be registered with the SEC, which makes CP more cost effective. Commercial paper also is not backed by any collateral. (...)
CommoditiesCommodities are goods that are largely uniform and can be exchanged with other commodities of the same type. Examples would include corn, sugar, oil, etc. Commodities are traded through exchanges and frequently as futures contracts.
Commodity and Futures Trading Commission (CFTC)The Commodity Futures Trading Commission was created to regulate the trading of futures contracts. Created in 1974, the CTFC protects the public from fraud and manipulation.
Common Good, TheMost basically, the common good is a ‘good’ that benefits the community at large. The common good is often contrasted with private, or self-interested goods, such as the accumulation of personal wealth; conflicts between the common good and private goods sometimes arise.Philosophically, the(...)
Conflict of InterestWhen a clash between a professional or public obligation and one’s private interests occurs, the situation is referred to as a conflict of interest.Conflicts of interest jeopardize an individual’s ability to act ethically by interfering with his or her capacity to exercise good judgment. This(...)
ConscienceOne’s personal sense of right and wrong is sometimes referred to as one’s conscience. It has also been described as a kind of moral sense, faculty, or awareness.Having a conscience involves evaluating, from a moral perspective, the situations, persons, actions, and decisions that one faces. (...)
Consent of the GovernedThe consent of the governed is the concept that a government must have the consent of the population to exercise its authority. According to this principle, the government has no legal or moral right to perform actions which have not been approved (typically through legal documentation) by the(...)
ConsequentialismConsequentialist theories, unlike virtue and deontological theories, hold that only the consequences, or outcomes, of actions matter morally. According to this view, acts are deemed to be morally right solely on the basis of their consequences. The most common form of consequentialism is(...)
Corporate BondsDebt security issued by corporations for the purpose of raising capital. Corporate bonds are issued with a maturity date of over one year (maturity dates of less than one year are known as commercial paper) and usually pay interest payments, known as the coupon. Interest rates are determined(...)
Corporations, Moral Status ofDo corporations, like people, have moral responsibility? What, to put it more broadly, is the moral status of a corporation? These questions have received various responses from a variety of thinkers, some of which will be discussed here.Corporations are a special kind of entity. Although(...)
Cross-Currency SwapA transaction where two parties exchange cash flows in different currencies. Usually the cash flows are fixed to a notional amount, which can also be exchanged. The parties will fix an exchange rate or peg each payment to the current exchange rate. At the end of the swap period, the two(...)
Default RiskThe risk that an entity will be unable to honor its debt obligations. Entities with higher risk of default will try to attract investors with a higher rate of return. Default risk is measured in FICO scores, which are provided by credit rating agencies including Standard & Poor’s, Moody’s and(...)
DeflationDeflation is the opposite of inflation. Deflation is the general decline in the price of goods and services. Causes of deflation include a reduction in the supply of money or credit into the economy, or a large decrease in government or personal spending. Deflation may be cause by(...)
Delta (D)The first derivative of an option price in regard to the price of the underlying security. It therefore measures how quickly the price of an option changes depending on the price of the underlying stock. Delta always takes a value between 0 and 1 for long call and short put options, and -1 and(...)
Demandingness ObjectionThe demandingness objection refers to an argument against varieties of consequentialism. Tim Mulgan presents the argument in the following form: Consequentialism makes demand D. D is an unreasonable demand for a moral theory to make. Therefore, consequentialism makes unreasonable demands.1The(...)
DeontologyDeontological theories (derived from the Greek word for duty, deon) base morality on certain duties, or obligations, and claim that certain actions are intrinsically right or wrong, that is, right or wrong in themselves, regardless of the consequences that may follow from those actions. What(...)
DepreciationIn accounting, depreciation is the expense associated with an asset getting old. For example, a machine might have a useful life of ten years. Every year the machine will lose 1/10th of its value due to depreciation. Depreciation can also refer to a currency losing its value relative to(...)
DerivativesA security whose price is derived from an underlying financial asset. For example, the value of a stock option draws its value from the underlying stock’s price. Common derivatives include futures, options, forwards, and swaps.
DesertThe idea that a person is deserving of something, whether good or bad, captures the philosophical meaning of desert. It is importantly associated with other concepts in philosophy, including punishment, justice, praise, blame, and goodness. The following illustrates how desert relates to(...)
Discount RateThe interest rate charged by the Federal Reserve Bank to banks looking to borrow funds from it. Another definition for discount rate is the present value of future cash. It means that money in the future must be discounted by an interest rate to become relevant in today’s dollars due to the(...)
DisinflationDisinflation is a decrease in the rate of inflation. Although sometimes confused with deflation, prices do not actually drop nor does disinflation signal an economy in trouble, rather it is simply slowing inflation.
DividendsA payment from the company to ordinary shareholders. Dividends can be paid in different forms including cash and stock. Companies that have relatively low growth try to make their stock more appealing with higher dividend payments to its shareholders
Double (Moral) StandardAn ethical or moral code which allows for greater freedom to one person or group than to another. In other words, a double standard is a set of principles which apply more strictly to one group than to another.
Dow Jones Industrial AverageA stock market index that tracks thirty large, publicly traded companies. The index uses an arithmetic formula, whereby the prices of the thirty stocks are summed then divided by a number known as the Dow divisor.
Dow TheoryTheory based off a series of editorials written by Charles H. Dow, founder of the Wall Street Journal and co-founder of Dow Jones and Company. The theory states six facts. (1) The equity market has three movements: the primary movement which lasts the longest, the medium swing which lasts(...)
DutyThe term duty is used interchangeably with the term obligation. The concept identifies something (an action) that we are required, or bound, to do. An individual may have a variety of duties, including professional, familial, civic, and/or religious duties.In ethics, discussions of duty(...)
Earnings Per Share (EPS)This is the company’s profit per share of stock. EPS is considered to be the most important part of determining a share’s value. EPS is used in many valuation tools for investors to decide whether or not to invest in a company.
Efficient Market HypothesisThe Efficient Market Hypothesis (EMH) states that it is impossible to outperform the stock market on a consistent basis. EMH claims that a stock’s price reflects all information. Therefore, there are no undervalued or overvalued stocks because the price on the stock exchange is the fair(...)
EgalitarianismEgalitarianism is the moral and political doctrine that people ought to be treated as equals in some respect. Egalitarianism can have many forms and address many issues. A gender egalitarian, for example, believes that men and women deserve to be treated equally; their biological and social(...)
Elliot Wave TheoryThe theory proposed by Ralph Nelson Elliot in the 1930s, says the stock market moves up and down in a series of predictable waves. The theory suggests that these waves can be predicted by observation and study to find the pattern. These predictable waves are said to move up in a series of(...)
Emerging Market BondsDebt securities issued by corporations or governments in countries with developing economies. These bonds carry a higher risk of default because of political and economic conditions in developing nations and carry currency risk. However, because of these risks the returns are usually higher(...)
Emerging MarketsThese are markets in developing countries. Generally, emerging markets do not have comprehensive or strictly applied standards or regulations, currency stability, or political stability. Emerging markets are targeted by investors for their potentially higher returns versus developed markets.
Enterprise Value (EV)An alternative to market capitalization as a way to measure a company’s value. It is calculated as the dollar value of all the company’s outstanding shares plus the company’s debt, minority interests, and preferred shares, minus total cash and cash equivalents. This evaluation of a(...)
EqualityEquality in ethical and political thought centers on the belief that all human beings deserve the same moral consideration and the same treatment. This principle is sometimes also addressed in terms of moral worth – the principle of equality states that all humans, in other words, have the(...)
EquitiesThese are financial securities that represent a share of ownership in a firm. Examples of equities would include common or preferred stock. Ownership of equity is effectively ownership of what is left of a company after all debts are paid to creditors. People choose to own equity in a(...)
Ethical EgoismEthical egoism is the moral doctrine that everyone ought to act to promote his or her own interests exclusively. In contrast to psychological egoism, ethical egoism makes a claim about how people should behave rather than how they actually behave. Perhaps the most notable advocates of ethical(...)
EudaimoniaAristotelian virtue ethics is centered around the concept of eudaimonia, which is commonly translated as ‘happiness’ or ‘flourishing.’‘Happiness’ as it is understood today, however, does not sufficiently capture the ancient meaning of the term. Unlike our everyday concept of happiness,(...)
EurobondEurobonds are bonds issued in a currency other than the currency of the market in which it is issued. These bonds are named after the currency that they are dealt in, such as Eurodollar bonds for U.S. dollars and Euroyen bonds for bonds denominated in the Japanese yen.
EurodollarsThese refer to deposits made in U.S. dollars at banks outside of the United States. Traditionally these banks were in Europe (hence the name Eurodollar) but have expanded all across the globe. These deposits are not regulated by the federal reserve. They therefore, offer higher margins for(...)
EvilIn some ethical traditions (religious traditions in particular), a distinction is made between ‘bad,’ or ‘wrong,’ and ‘evil.’ Acts, in addition to people, organizations, or other entities are deemed to be evil when they are extremely immoral or destructive.In the Christian theological(...)
Evolutionary EthicsThe discipline of evolutionary ethics has developed in response to the growth of scientific inquiry and the overlap between evolutionary theory and moral philosophy. The primary goal of evolutionary ethics is to arrive at conclusions by applying principles of evolutionary theory to clarify(...)
Exercise PriceAlso known as the strike price, this is the price at which a security can be bought (call) or sold (put) when exercising an option. The price is determined when the option is formed and is the key to determining the value of an option.
Federal Deposit Insurance Corporation (FDIC)Created in 1933 with the Glass-Steagall Act, the Federal Deposit Insurance Corporation is a government corporation that insures individuals’ deposits in banks up to $250,000. The purpose of the FDIC is to encourage financial stability and confidence in the financial system.
Financial Accounting Standards Board (FASB)The FASB is a group of seven accounting professionals that maintain the financial accounting standards in the United States. The standards that the FASB issues are called the Generally Accepted Accounting Principles (GAAP). Companies must follow these standards in their financial reports.
Financial FuturesFutures that track financial instruments instead of physical items, such as commodities. As opposed to commodities futures, where the underlying can always be delivered, financial futures often track undeliverable products, such as interest on a Eurodollar.
Flow TradingWhen a firm does trades on behalf of its clients, it is called flow trading. This type of trading is different from proprietary trading in which the firm trades for its own direct gain and uses its own equity.
Foreign Direct Investment (FDI)When a foreign company invests in a domestic company. An example of this would be a company, such as Yahoo!, in the U.S., investing in Baidu, a company in China. FDI includes foreign investments into private domestic companies, as well as investments to start up local companies.
Foreign Exchange RiskThis is the risk associated with an investment losing value due to changes in the currency exchange rates. This risk applies to investors making international investments or companies that commonly import and export goods.
Forward RatesThe amount it will cost to deliver an asset in the future; it is the price that is used to determine the price of a forward contract. Forwards involve physical delivery of an asset at an assigned date.
ForwardsA contract in which the price of a commodity is decided upon before the delivery date. Commonly used to “lock-in” prices. These contracts differ from futures contracts in that they are not exchange traded and are not standardized. In addition, losses normally accrue over the entire length(...)
Free Cash Flow (FCF)A valuation method calculated by subtracting capital expenditures from operating cash flow. FCF gives the amount of cash that a company has left over after paying to maintain its assets. This number is considered very important because this represents the amount of money left over to(...)
Free MarketA Free Market is a market free from governmental regulation and intervention (in the form of tariffs, regulatory codes, workers' and environmental rights, etc.) except to enforce contracts and protect property rights. A free market is allegedly “self-regulated,” ethically speaking, by market(...)
Free WillFree will is described as the capacity for rational agents (namely humans) to choose one course of action over other possible alternatives. The main questions around Free Will are: (1) Do we have it? (2) If we do have it, to what extent? (3) If we do not have it, what are the alternatives?(...)
FreedomFreedom is generally described as a state absent of coercion, interference or determination by any internal or external force or authority. The concept of freedom can be applied to many (or most) spheres of human activity, including political, economic, relational and metaphysical realms.The(...)
Fundamental ResearchThis research involves trying to find the intrinsic value of a security. Research would include looking at everything that would affect a security’s value from financial statements to economic conditions and interest rates. Qualitative factors are also researched, for example how well the(...)
FuturesA contract used for the buying or selling of an asset at a certain date for a specified price. This derivative instrument is between two parties that agree to perform a transaction in the future. It can involve financial instruments or commodities that will be delivered in the future for an(...)
Gamma (G)The first derivative of delta in regards to the price of the underlying security, and therefore the second derivative of the option in regards to the price of the underlying. All long positions have positive gamma (because delta increases as the price increases) and short positions have(...)
Gamma Scalping/TradingAlso known as volatility trading, traders attempt to construct delta (and gamma) neutral positions. For instance, one could first create a straddle of call and put options that have D = 0. If the market moves sufficiently in either direction, then the value of the position will become(...)
GenerosityGenerosity, which might best be described as a disposition to give freely or overflowing goodwill, is a traditional virtue. The term ‘generosity’ is derived from the Latin word generositas, which means ‘noble-mindedness,’ and is associated with the Greek notion of magnanimity, or ‘greatness(...)
Golden Rule, The“Treat others as you would like to be treated” is a moral principle known as the golden rule. In one form or another, this principle is associated with the ethical codes in most religious traditions.According to the International Encyclopedia of Ethics, the principle has “a long and rich(...)
GoodThe term ‘good’ is not specific to ethics in particular, although it plays an important role in morality. Good may be used to refer to anything – it is a general term that expresses positive value about something or assigns positive value to something. Nevertheless, in philosophy the term(...)
GoodwillA type of intangible asset. Goodwill can include a patent, brand stature, or other intangible assets. Goodwill usually appears on a company’s balance sheet after they have purchased another company and paid more than book value.
GreedGreed, or avarice, is a vice of character that consists in an excessive desire to acquire things, including, but not limited to, money, wealth, or possessions.In some religious traditions – Christianity, in particular – greed is viewed as a sin.Secular and religious traditions alike view greed(...)
GuiltTwo senses of the concept guilt arise in moral contexts. In the first sense, guilt is simply the state of having done something wrong. We might say, for example, that a person is guilty of wrongdoing if he has committed a robbery. This usage of the term ‘guilt’ extends beyond moral contexts(...)
HappinessThroughout the history of philosophy, various philosophers (and various schools of philosophical thought) have sought to define happiness. It is most often associated with pleasure or well-being.In most moral theories, happiness, understood in terms of pleasure, plays a role as an important(...)
HarmHarm can be accounted for in several ways. Most basically, and uncontroversially, it involves bodily injury. One can also be harmed if damage or injury is done to one’s interests, or if a violation against one’s rights occurs (See Rights).‘Do not harm’ is, for most all moral systems, a(...)
Hedge FundsHedge funds use aggressive investment strategies including short, long, leveraged, and derivatives to try generating high returns. Hedge funds are open to a limited number of investors and usually require a high initial investment. Hedge funds are similar to mutual funds in that professional(...)
HedgingThe act of reducing the risk in an investment. An example of this would be to take a short position on a stock you own, making you less exposed to a downturn in the market. When the long position falls, the short position in the same stock will rise, thus reducing the risk of a large decline(...)
High Frequency Trading (HFT)High Frequency Trading involves strategies that are based on very short positions. HFT uses powerful computers to make large numbers of orders at very fast speeds. Instead of taking positions and looking for a profit in weeks or months, HFT traders try to make profits on fractions of a(...)
Holding Period ReturnThe amount of return from a particular investment thus far. Calculated as a percentage in a per dollar basis, it is difficult to use this to compare to other investments since it is not on a per time basis.Holding Period Return = Income + (End of Period Value – Initial Value) / Initial(...)
Ideal & Nonideal TheoryJohn Rawls conceives of justice as fairness as a work of ideal theory. Ideal theory “assumes strict compliance and works out the principles that characterize a well-ordered society under favorable circumstances.”1 Nonideal theory, on the other hand, “is worked out after an ideal conception of(...)
ImmoralistAn immoralist is a skeptical individual who believes it is preferable to act immorally when morality does not serve his or her self-interest. Thrasymachus of Plato’s Republic is one clear example of an immoralist.In “The Reconciliation Project,” Gregory Kavka attempts to reconcile morality and(...)
ImpartialityThe principle of impartiality is central to both deontological and utilitarian ethical theories, both of which call for an impartial appraisal of a situation, followed by the morally appropriate response. These impartial moral theories require an individual to set aside personal interests and(...)
Income StatementWhen a private company becomes public, it does an Initial Public Offering. It is the first sale of stock by a company to the public. IPOs may be used by smaller companies looking for more capital to expand or by older companies looking to go public. During an IPO the company will hire an(...)
IndexA formula that tracts the progress of a basket of stocks. Some such as the S&P 500 or Dow Jones are commonly used as benchmarks for the American economy.
Index ArbitrageA process whereby one makes risk-free profit (arbitrage) through index futures. Because the forward price of a portfolio is strictly less than its nominal price, one can short the future at that nominal price while buying the index-replicating portfolio. When the future is settled one sells(...)
Index FuturesAn example of a financial future. The future tracks a specific index; the price of the future at expiration is the same as the price of the index on that day.
InflationInflation is the general increase in the price of goods and services. When inflation rises, purchasing power falls. Two theories for the causes of rising inflation include demand-pull, which says that demand rises faster than supply so prices go up, and cost-push, which says that the(...)
Initial Public Offering (IPO)When a private company becomes public, it does an Initial Public Offering. It is the first sale of stock by a company to the public. IPOs may be used by smaller companies looking for more capital to expand or by older companies looking to go public. During an IPO the company will hire an(...)
Insider TradingThe practice of buying and selling securities on the basis of information that is not available to the public is known as insider trading. It is illegal and, because it violates principles of fairness, it is also immoral.The U.S. Securities and Exchange Commission (SEC) identifies detection(...)
Institutional InvestorsA non-bank entity that buys or sells securities in large enough quantities to get different treatment from other investors. For example institutional investors are charged lower commission fees. These entities also have fewer protective regulations because it is assumed that they know what(...)
IntegrityAlthough it has been defined in a variety of ways, the notion of integrity is one of the central concepts of virtue ethics. It is not, however, a concept employed exclusively in discussions of virtue. Broadly speaking, the term refers to the quality of the moral character of an individual. (...)
Interest-rate swapA trade in which one party pays a fixed interest rate on a notional sum, while the other party pays a floating rate, usually set by LIBOR.
Internal Rate of ReturnThis is the interest rate that a project is expected to generate. Also calculated as the discount rate that makes the net present value of all cash flows equal to zero. With all things equal, an investment with a higher IRR should generate a greater return. Note that IRR is the interest(...)
International BondsA debt security issued in a different country or currency. These bonds are influenced by currency risk as well as the risk of default. Examples include Eurobonds, foreign bonds, and global bonds.
International Finance Corporation (IFC)The IFC is a member of the World Bank Group and works to promote private sector investment in developing countries. The ways they do this include financing private sector projects in developing countries and providing advice to businesses and governments in poorer countries.
International Monetary Fund (IMF)An international organization created to monitor economic development, lend funds to struggling countries, and provides training for countries who ask. The IMF is home to all members of the U.N. and helps facilitate international trade.
Intrinsic ValueThis is the true value of a company. This value usually differs from the market value. Investors hope to profit from the difference. There are many different methods of finding the intrinsic value, hence there may be variation in intrinsic values for one company. Intrinsic value can also(...)
IntuitionistsIntuitionists, as proponents of this theory are sometimes called, support their theory by pointing to several sources of evidence.For example, moral reasoning often comes ‘after the fact’ in moral judgments. In other words, we often come to moral judgments quickly, on the basis of a first(...)
Investment BankA financial institution that acts as an underwriter for corporations issuing securities. I-Banks also offer advisory services for investors, assist in mergers and acquisitions, and private equity placements. Investment banks are on the “sell side” of finance meaning they give advice to buy(...)
Investment Grade BondsBonds that have a low risk of default. These bonds are said to be the bonds with the highest credit ratings (besides treasury bills that are not rated) meaning that they have the lowest risk of default. Ratings for investment grade usually rang from AAA (lowest chance of default) to BBB(...)
Investment ManagementThe process of buying, selling, holding, and allocating investments within a portfolio in order to obtain the best returns. Investment management can be done by a single individual or it can be done by a group of professionals at a large fund. Strategies can differ from one fund to the next(...)
Junk BondsAlso known as speculative grade bonds, these bonds have a much higher risk of default. Because of this high risk of default, the potential yields on these bonds are much higher than bonds with better credit ratings. Speculative grade bonds are seen as bonds with credit ratings BB and below. (...)
Just Savings PrincipleJohn Rawls is credited with providing the first thorough discussion of what the current generation owes to future people. He argues that the main duty owed to our successors is the saving of sufficient material capital to maintain just institutions over time. Rawls calls this duty the “just(...)
Justice as FairnessJustice as fairness refers to the conception of justice that John Rawls presents in A Theory of Justice. This conception of justice concerns society’s basic structure—that is, “society’s main political, constitutional, social, and economic institutions and how they fit together to form a(...)
Justice, Circumstances ofJohn Rawls describes the circumstances of justice as “the normal conditions under which human cooperation is both possible and necessary.”1 Unless the circumstances of justice are met by the society in question, using justice as fairness to derive just social policies is a misapplication of(...)
Justice, Concept of & Conception ofJohn Rawls makes a crucial distinction between the concept of justice and specific conceptions of justice. He defines the concept of justice as “a proper balance between competing claims from a conception of justice as a set of related principles for identifying the relevant considerations(...)
Kondratieff Wave TheoryA theory suggesting that capitalist economies will experience periods of growth and deep recession around a 50 year period. The theory states that a period of high growth will be followed by a recession, a recovery where the economy will plateau, and then an economic crisis will cause (...)
Letters of CreditA letter from a bank guaranteeing that the seller will be paid for the goods a buyer has purchased. If the buyer is unable to pay, the bank will honor the buyer’s obligation. Letters of credit are commonly used in international business as both parties trust the bank to make the payments.
LeverageThis refers to the use of borrowed capital to increase the return on investment. It also refers to the amount of debt a company uses to fund its assets. A company that is highly leveraged refers to a company that has a great deal more debt than equity. Leverage is essentially used to(...)
Leveraged Buyout (LBO)An LBO is when a company uses considerable amounts of debt (leverage) to buy another company. The acquired company’s assets are sometimes used as collateral for the loans. The ratio is usually around 90% debt to 10% equity during an LBO. Because of the small amount of capital, the bonds(...)
LiabilitiesThese are economic obligations of an entity. Liabilities include loans that the company has taken out, expenses, and deferred revenues. Current liabilities must be paid in one year while long-term liabilities are longer than one year.
LibertyOf central importance to liberalism – both as an economic and a political system – is the notion of liberty. Liberal theorists, however, disagree as to the nature of liberty in liberal societies.One formulation of liberty – the negative formulation – views liberty as, simply, the absence of(...)
LiquidityHow easily an asset can be sold without losing significant value. Highly liquid assets can be bought and sold quickly while illiquid assets would lose value. If an entity has no liquid assets it cannot quickly sell the assets to pay off unexpected liabilities.
Liquidity RatiosA ratio that indicates how well a company can pay off short-term liabilities. The higher the ratio, the more likely the company is able to pay it off. The higher the ratio, the more liquid the company’s assets are.
Lockean ProvisoThis proviso is an ‘enough and as good’ clause on original acquisition, stating that we can only appropriate unowned property if we leave enough and as good for others.
London Interbank Offering Rate (LIBOR)The rate at which banks can borrow funds from other banks in the London Interbank market. The British Bankers’ Association decide on LIBOR rates on a daily basis
Margin RequirementsMargin requirements are relevant to the use of borrowed funds to purchase securities. It is the amount of an investor’s own capital that she is required to put in while making an investment with the use of borrowed funds. Investors today can usually invest 50% of their own money and match it(...)
Mark-to-MarketThis is a way of valuing assets or a company based on what the market will pay for the asset or company. Mark-to-market is considered a better way to evaluate assets. If based on the fact that if the company goes under, the market value, not the historic value, is what you will be able to(...)
Market CapitalizationThis figure represents how much a corporation is worth on the markets. It is calculated by multiplying the stock price of a company by the number of shares of stock outstanding.
MaximsMaxims are simple or basic rules that guide action. They are often easily recognizable and easy to remember. Folk sayings are examples of maxims. “A penny saved is a penny earned,” for example, is a maxim which offers a simple rule of frugality.In philosophy, the term is frequently(...)
MergersThis is when two companies come together and become one company. A merger usually entails an exchange of stock. Mergers add value only if the two companies are worth more together than apart.
Mezzanine FinanceA hybrid of debt and equity financing often used to finance expansions. A lender gives a loan to a company, with the ability to covert the debt into equity. The debt can be converted by the lender into equity of the borrowing company if the loan is not paid back in time. Advantages of(...)
Money Market AccountsA savings account that offers a more competitive interest rate but also requires larger than normal balances in the account. Some accounts also limit the number of withdrawal you can make during a certain time period.
Money MarketsThe part of the financial market where highly liquid financial instruments are traded. Money markets are used by many companies to acquire short term funding, from several days to just under a year. Investors park money in money markets to earn higher interest rates while exposed to low(...)
Moody's Bond RatingsMoody’s is an independent company that rates bonds based on credit rating. The higher the risk, the worse the rating (but giving a potentially higher return). The grades go from AAA to C, with anything under BB being considered a junk bond and less than investment grade (because of the high risk).
Moral AbsolutismMoral absolutism is an ethical view claiming essentially that all forms of human conduct can be classified as either being right or wrong in any context. Regardless of intention or purpose, committing bad actions are always going to be bad, and they cannot be justified. In other words, certain(...)
Moral AgencyNormal adult humans are widely considered to be paradigms of moral agents. To be a moral agent means to be responsible for one’s moral actions. It means to be a being capable of acting with reference to right and wrong, and rationality is often associated with this capability.We tend to(...)
Moral CharacterMoral character is perhaps best described as the totality of a person’s dispositions or characteristics that play a role in how the person, morally speaking, behaves. To put it another way, to have a particular moral character is to have (or to lack) certain virtues and vices of character.In(...)
Moral CommunityAll entities that are regarded as moral agents or as having moral worth are said to be members of the moral community and are thus entitled to ethical consideration. To put it another way, members of the moral community are owed some degree of consideration in our moral deliberation.What(...)
Moral DilemmaWhen a conflict between moral requirements or obligations occurs, and a person thereby has reasons to perform two different actions, but the performance of both actions is impossible, the situation is referred to as a moral dilemma.It is sometimes the case that ‘all things considered’ one(...)
Moral JudgmentJudgments involve our intuitions and/or our capacity to reach decisions through reasoning. Moral judgments refer to judgments that have moral content; they are used to evaluate situations, courses of action, persons, behavior, etc.The basis of moral judgments is a topic of some philosophical(...)
Moral RelativismMoral relativists hold that there are moral facts, but that they are either relative to (a) the individual (this is known as personal moral relativism) or they are relative to (b) the moral norms, or conventions, of the culture from which they came (this is known as cultural moral(...)
Moral Sense, Theory ofProponents of the theory of moral sense claim that the basis of morality is in moral sentiments, or a special moral sense. To put it another way, we intuitively perceive things to be moral or immoral with what might be called “a sense for the moral,” just as we use our sense of hearing to(...)
Moral SkepticismThose who deny that an objective foundation, or basis, of morality exists are commonly referred to as moral skeptics. Moral skepticism can take various forms.Moral nihilists, for example, claim that there simply are no moral facts. Moral nihilists point to irresolvable moral disagreements(...)
Moral StandardA moral standard refers to the norms which we have about the types of actions which we believe to be morally acceptable and morally unacceptable. Specifically, moral standards deal with matters which can either seriously harm or seriously benefit human beings. The validity of moral standards(...)
Mosaic TheoryThe use of information from many sources to construct a portfolio strategy. It is also used as a defense in insider trading cases. Defendants can argue that they traded not on the basis of nonpublic information, but on a broad base of carefully collected public information.
MotiveA motive is something – often desire(s) or emotion(s) – that move us to action. In many cases, the motivation behind one’s actions is narrowly self-interested. Our motives are not, however, necessarily self-interested, nor are they always so.In ethical contexts, perhaps more so than in other(...)
Municipal BondsA debt security issued by a state and local governments. These entities will borrow money from investors who are seeking to take advantage of the tax-exempt nature of the municipal bonds. “Munis” as they are called help fund state projects such as roads, bridges, or schools. Municipal bonds(...)
Mutual FundsA pool of money raised from investors and invested in assets according to pre-determined objectives set in the mutual fund’s prospectus. These funds are regulated by the Securities and Exchange Commission and are managed by the an investment company that hires portfolio managers who control(...)
NasdaqThe National Association of Securities Dealers Automated Quotations is a stock exchange based in the United States. It includes stocks too small to be included on the NYSE.
New York Stock Exchange (NYSE)Begun in 1792 on Manhattan, the New York Stock Exchange is now the largest stock exchange by market capitalization in the world.
Nietzschean VirtuesMany of the virtue ethics theorists – including Aristotle, Confucius, and the modern ‘moral sentiment theorists’ David Hume and Adam Smith – regard virtues as characteristics that help us to be congenial and to get on well with other people. This makes sense, of course, because the aim of(...)
Normative EthicsVirtue, deontological, and consequentialist (utilitarianism, for example), theories are all instances of normative ethical theories. These theories aim to arrive at standards or norms of behavior, and in doing so provide a framework for ethical thinking. Normative theories attempt to tell us(...)
On-the-run TreasuriesThe most recently issued 10-year Treasury notes. They are called “on-the-run” because they are the most liquid Treasuries available.
Option Pricing TheoryThe option pricing model was first developed by Myron Scholes and Fischer Black and extended by Robert Merton.For a standard stock option, option pricing theory expresses the value of an option as a function of five factors: the stock price, the exercise price, the time until expiration, the(...)
OptionsThis is a contract permitting the owner to buy (call option) or sell (put option) a financial asset at a specified price (strike price). The owner has a specific date or a specified amount of time to choose whether or not to exercise the option. Options can be used to speculate, which gives(...)
Over-the-counter marketA securities market that is not listed on an exchange. Because of this, trades are performed over the telephone or electronic network in this decentralized market.
PanicWhen buy-side institutions and individuals lose faith in some aspect of the financial or economic system and sell securities en masse. Examples include the stock market decline of 1929, which induced the Great Depression, and the Panic of 1819.
PaternalismPolicies, practices, or acts which, interfere with, infringe upon, or otherwise limit the autonomy of a person in the name of that person’s ‘best interests’ are paternalistic in nature.A distinction can be made between ‘hard’ and ‘soft’ paternalism. Soft paternalism claims that paternalistic(...)
Political PluralismPolitical pluralism begins with the basic claim that there exists a variety of differing value systems in the world today and thus a variety of positions regarding this claim. The overall concern of political pluralism is what sort of limits are governments able to put on people’s freedoms in(...)
Portfolio ManagerThe individual responsible managing a portfolio of assets with the goal of obtaining the highest returns from these assets as possible. Managers receive investment ideas from external sell side firms as well as internally from their own analysts. Managers decide on asset allocation and stock(...)
PragmatismPrimarily a theory of meaning and truth, pragmatism is a philosophical view that claims truth lies in ‘whatever works,’ which is to say, whatever makes for a better life or society; it also claims that the meaning of a proposition lies in the practical consequences of accepting it. To put it(...)
Praise & BlameThe concepts of praise and blame are closely associated to the concepts of desert, punishment, and moral responsibility.When a person (or group of people) perform (or fail to perform) an action, we often respond to their action by assigning praise or blame, that is, we respond by holding them(...)
Predominant EgoismIn “The Reconciliation Project,” Gregory Kavka coined the term “predominant egoism” as a more plausible alternative to psychological egoism. Whereas psychological egoism states that human beings always act to promote their self-interest, predominant egoism claims that they predominantly (but(...)
Price Earnings Ratio (P/E Ratio)A stock valuation method. PER takes the market value per share and divides it by the earnings per share. This ratio shows how much investors are willing to pay per dollar of earnings. High P/E ratios can mean that a stock is overvalued or that the stock will have a future growth in earnings(...)
Price to Free Cash FlowA ratio that is used to estimate a firm’s future financial health by comparing the firm’s market value to its cash flow. This is another valuation tool that is similar to the P/E ratio but removes the non-cash factors. When comparing companies they should be in the same industry because the(...)
Private BanksBanks that provide asset management services to very wealthy individuals by offering a wider range of investment options. These banks also offer services for a client’s entire financial situation, such as trust and inheritance issues.
Private EquityEquity that is not listed on a public exchange. Investors in private equity can buyout public companies and make them private or invest directly into private companies. Private equity investments are often made in order to turn around a company that is in trouble or to obtain a large amount(...)
Proprietary TradingProprietary trading is when a firm trades its own funds to make gains on the market directly instead of through commission. Proprietary trading is considered to be riskier as the firm is using its own equity.
PrudenceSince antiquity, prudence has been regarded as an important virtue; it is one of the four cardinal, or principle, virtues. A prudent person is one who exercises sound judgment in his or her practical affairs. Prudence is ‘practical wisdom.’In contrast to the prevailing everyday notion of(...)
Psychological EgoismPsychological egoism is the claim that all individuals act to promote their own interests, and that this aim is the ultimate goal of all individual behavior. This claim does not suggest that individuals always succeed in this endeavor; it only claims that individuals always intend to promote(...)
PunishmentIn response to the wrongdoing of an individual, or group, a deliberate penalty is often imposed by an individual or institution (such as a family, church, corporation, or state). The penalty often involves the infliction of harm – or some degree of unpleasantness – upon the wrongdoer.As ‘do(...)
Put OptionA contract allowing the owner to sell a financial asset at a specified price. The owner has a specific date or a period of time to choose whether or not to exercise the option. The owner of a put option hopes that the price of the stock falls relative to the strike price. This allows the(...)
QuantsFinancial professionals who use quantitative methods and models to trade or invest. They often have PhDs in Math, Physics or Computer Science. Derivative pricing, specifically options pricing, originally drew a number of quantitative academics into the financial industry in the 1970s.
RationalityAll normative ethical theories, in some sense, assume that moral agents are rational agents. To put it another way, it is assumed that moral acts should be supported by generally accepted reasons.While the presence of rationality in moral discourse is explicit in some normative theories – for(...)
Realistic UtopiaRawls perceives political philosophy as “realistically utopian: that is, as probing the limits of practical political possibility.”1 Rawls considers it vital to establish that it is not unreasonable to hope for a just and stable pluralist constitutional liberal democracy. In his words, “Our(...)
ResponsibilityThe issue of responsibility raises questions about moral agency as well as accountability. It also raises questions about the distinction between moral, professional, and legal responsibility.To begin with, in order to be held responsible for something, morally speaking, the actor, or agent,(...)
Return on Equity (ROE)ROE is net income divided by shareholder’s equity. This percentage shows how much profit a company can generate with the money shareholders have invested. It is a measure of how efficiently a company is using equity to generate profits. Comparisons of ROE of companies in the same industry(...)
RightsRights are particular guarantees. An individual who holds a right is thereby entitled to whatever that right guarantees.Human rights are moral rights to which all humans are entitled in virtue of their humanity. The United Nations’ Universal Declaration of Human Rights includes, amongst(...)
Risk Adjusted ReturnsLooks at the return that an investment has and includes the amount of risk involved in the investment. The risk is usually expressed as a number rating. Investors must always compare the amount of risk involved when comparing two investments.
Road ShowsRoad shows occur when a company is issuing an Initial Public Offering (IPO). It involves a member of the top management of the company and her investment banker traveling around the country presenting the company to potential investors. Road shows are crucial for an IPO to work properly.
Russell IndicesRussell Investments began calculating stock markets indices in 1984, the most famous of which is the Russell 3000. Unlike the Dow Jones Industrial Average, the Russell indices can be replicated as a stock portfolio. The stocks in the average are the 3,000 largest stocks trading in the US by(...)
Samurai BondsA bond issued in Japan by a non-Japanese company. These bonds are issued in the yen and are subject to Japanese regulations. Companies can use these bonds to break into Japanese markets or hedge their risk against currency exchange rates.
Secondary OfferingSecondary offerings are subsequent issues of new stock for sale to the public after an Initial Public Offering has occurred. Secondary Offerings are usually used when a company needs more capital for growth or is refinancing its debt. A secondary offering dilutes the ownership position of(...)
SecurityAn instrument representing financial value. Stocks, Bonds, Futures, Options, and Swaps are all examples of securities. Securities are usually tied to the price of some underlying product, such as commodities, a corporation, or another security or basket of securities.
Security Characteristic LineA regression on the plot of an security’s risk-adjusted performance plotted against the risk-adjusted performance of a portfolio, usually an index meant to represent the market. Thus it seeks to measure how a security reacts to movement in the market.
Sell sideThe sell side generally refers to investment banks and brokerages. Sell side firms sell their services to those on the buy side. For instance, sales and trading divisions of investment banks recommend investment ideas and execute any resulting trades for commissions.
Sell side research analystSell side analysts work and produce research for investment banks and brokerages that in turn, give the research to their clients as part of their services. Sell side analysts gather primary data, speak to managements of companies they cover, and produce research from publicly available(...)
Semi-Strong EMHA derivative of the EMH theory, Semi-Strong EMH states that stock prices already reflect all public information making it meaningless to look over a company’s financials or pay attention to news headlines about a company to make stock predictions. This theory is more widely accepted than(...)
ShameShame is a social emotion in that it arises in a person when he or she recognizes that the act he or she has committed will be viewed negatively by other members of the social community. Oftentimes, shame, or the avoidance of shame, is a powerful form of motivation for ethical behavior.A(...)
Shorting EquitiesThis involves borrowing stock and selling it, with the intention of buying the same stock back at a lower price and returning it to the stock lender. The investor is believes the price of the stock will fall, in which case the investor will purchase these shares at a lower price, making a(...)
S&P IndicesThe rating agency Standard & Poor’s calculates indices representing various segments of the American and international markets. Its most famous index, often used as a gauge of US economic health, is the S&P 500. Similar to the Russell 3000, the S&P 500 can be reconstructed as a stock portfolio.
Speculative Grade BondsAlso known as junk bonds, these bonds have a much higher risk of default. Because of this high risk of default, the potential yields on these bonds are much higher than bonds with better credit ratings. Speculative grade bonds are seen as bonds with credit ratings BB and below. Ratings are(...)
State of NatureThe state of nature refers to how human beings behave in the absence of a civil society. In other words, the state of nature describes how people interacted prior to the establishment of any government or other social institutions.Claims about the state of nature and the quality of life(...)
States of AffairsIn consequentialist and utilitarian theories, the outcomes or consequences of an action are often referred to as ‘states of affairs,’ meaning the general state of things in the world.On the utilitarian model, for example, an action is right if and only if it brings about the best state of(...)
Stock ExchangesA place where securities are bought and sold. Examples would include the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), or the Toronto Stock Exchange (TSX).
Strike PriceThis is the fixed price that a derivative contract can be exercised. For example with a call option, the strike price would be the price at which the party can buy the security, regardless of the market value of the underlying security.
Strong EMHA derivative of the EMH theory, Strong EMH states that stock prices reflect all information, public and private. This means that it is effectively impossible to use information for an effective trading strategy since all the information is already included in the stock price. This theory(...)
Subordinated BondsAlso known as junior security or subordinated loan, subordinated bonds are bonds that have lower priority for repayment than other forms of debt. This means that in the case of default, the subordinated debt will be paid off after normal debt. Subordinated bonds have a higher risk than(...)
SupererogationMoral actions were once thought to be of only three types: required, forbidden, or permissible (i.e., neither required nor forbidden). Required acts are good to do, forbidden acts are bad to do, and permissible acts are morally neutral. This trinity seemed well-established until J.O. Urmson(...)
SwapA transaction where two parties exchange cash flows with different stipulations attached to them. Two of the most common types are cross-currency swaps and interest rate swaps.
Syndicated LoansA loan offered by a group of lenders in order to spread the risk of default across a larger group. The borrower may be a corporation, a country, or a large project. The value of the loans tend to be much larger for the lenders to come together and make it a syndicated loan.
Technical AnalysisEvaluating securities based on market activity, not by intrinsic value. Technical analysts will use graphs and charts of market activity to try and find patterns that they can use to predict the future value of the stock. This is considered the opposite of Fundamental analysis.
TelosIn ancient Greek, the ultimate end, purpose, or goal of an action is referred to as the telos of an action. In moral philosophy, and in philosophy generally, the term is still employed.Broadly speaking, teleological accounts of ethics focus on means and ends of human action. On this view an(...)
The GreeksA number of terms, mostly denoted by Greek letters, that measure an option’s (or a position’s) sensitivity to the price of the underlying security, time decay, and volatility. They are delta, gamma, theta, and vega. Amusingly, vega is not a Greek letter, but is still lumped in with “the(...)
Time Value of MoneyThe idea that money now is worth more than money in the future because money now has the potential to grow. This growth could come from interest from a bank account or an investment that grew. For example $100 today earning 10% per annum would be worth $110 in one year.
Treasury BillsAlso known as T-Bills, these are short-term debt obligations issued by the U.S. government. These bills mature in one year or less and do not make fixed interest payments. T-Bills are issued at a discount from face value and return the face amount at maturity. Treasury bills are backed by the(...)
Treasury BondsAlso known as T-bonds, these are debt obligations issued by the U.S. government. They have a fixed interest rate, which is paid semi-annually and have a maturation date of greater than 10 years. Advantages of the T-Bond include its backing by the U.S. government, the fact that the(...)
Treasury NotesTreasury notes are medium-term debt obligations issued by the U.S. government. T-note maturities range up to 10 years. T-notes make semiannual interest payments known as coupon payments. Interest payments on T-notes are taxed on the federal level but not the state level.
Trust/trustworthinessOften regarded as indispensible to human relationships and interactions, trust is an attitude that we have towards other individuals, groups, and/or institutions. It involves a kind of expectation or reliance on others.Part of what it is to trust another person, group, or institution is to(...)
UniversalizabilityJudgments or principles of which it can be said that everyone should judge or act in the same way, are universalizable judgments or principles. In other words, they are independent of any particular point of view.‘Do not kill’ or ‘Do not break promises’ or ‘Do not cheat’ might be examples of(...)
UtilitarianismUtilitarianism states that actions are morally right if and only if they maximize the good (or, alternatively, minimizes the bad). Classical utilitarians like Jeremy Bentham and John Stuart Mill (as well as many contemporary utilitarians) take ‘the good’ to be pleasure or well-being. Thus,(...)
Utopianism, Problem ofAccording to Thomas Nagel, “An ideal, however attractive it may be to contemplate, is utopian if reasonable individuals cannot be motivated to live by it.”1 When given serious consideration, utopian ideals generate what he calls the "problem of utopianism.” While a given political or moral(...)
Value in the MarketsIn the world of finance, generating wealth is undeniably among the driving values, if not the chief value. Yet regardless of the extent to which the value of generation of wealth is highlighted, it is not, nor can it be, the only value in the market. After all, fairness and honesty are(...)
Value Line Index FuturesThe Kansas City Board of Trade introduced these first index futures in 1982. Unlike other indices, the Value Line Index used a geometric formula, thus ensuring that its value would always under-perform an arithmetic formula for calculating the same index. The futures became infamous when(...)
ValuesValues guide action. In other words, when we value something – or when we have a particular set of values – we think that what we value (or the values we have) give us reasons to act in particular way. As the philosopher David Ozar puts it, “to value something is to consider it a candidate(...)
Veil of IgnoranceA hypothetical mental state, in John Rawls version of Social Contract Theory, in which we imagine ourselves as being situated behind a “veil of ignorance” in which we are ignorant of our particular characteristics such as sex, race, IQ, financial status, family background, religious ideology,(...)
Virtue EthicsVirtue ethics takes its philosophical root in the work of the ancient Greek philosopher Aristotle. Virtue theories claim that ethics is about agents, not actions or consequences. Living an ethical, or good life, then, consists in the possession of the right character traits (virtues) and(...)
Wall Street JournalOne of the best-respected sources of information about the economy and markets, the Wall Street Journal was founded in 1889. Dow Jones and Company publishes it. In 2007 the News Corporation bought Dow Jones, adding the Wall Street Journal to Rupert Murdoch’s holdings.
War of All Against AllThomas Hobbes perceived the state of nature to be a state of utter chaos. Hobbes argued that there could be no morality in the state of nature because everyone would be fighting for individual survival. To Hobbes, moral notions had no place in the state of nature because everyone has an equal(...)
Weak EMHWeak EMH is a derivative of the EMH theory. The theory states that stock prices fully reflect all market trading data, such as the history of past prices, trading volume, or short interest. This version of the hypothesis implies that trend analysis is futile. This form of EMH is the(...)
Well-being/welfarismIn contrast to the popular use of the term, which is typically related to health, ‘well-being’ in philosophical contexts is used to describe an intrinsic, or ultimate, good for a person (this is not to say that health is not, or cannot be, included in the philosophical account of(...)
Yankee BondsBonds issued by foreign banks in U.S. dollars. Foreign banks must first register their bonds with the Securities and Exchange Commission before they can sell them in U.S. markets.
Yield CurveA graph showing the relationship between bond interest rates (y-axis) and the time to maturity. The curve will take different shapes depending on anticipated future interest rates. The curve is monitored closely as people try to predict changes in economic growth from the curve. A steep(...)
Yield to Maturity (YTM)The potential rate of return if a bond is held until its maturity date. This calculation includes the price, par value, coupon, and time to maturity of the bond. YTM also assumes that all payments will be made on time.
Zero Coupon BondsA type of bond that does not have an interest payment (a coupon). These bonds pay off profits at their maturity date. Some bonds are issued as zero coupon while others are bonds with the coupon removed and resold. Also known as an accrual bond, these are traded at a price much lower than(...)
