Sunday, April 4, 2010

Common Financial Terms - Part VI

Synthetic Put

A transaction involving the purchase of a call option on a stock that has already been shorted. This enables the holder to protect against an increase in the price of the underlying stock. If the stock price decreases, the call is not exercised and the investor profits minus the premium. If the stock price increases, the call is exercised and the investor breaks even minus the premium and short interest.

Global Depositary Receipt

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

Knock-out Option

An option that becomes worthless in the event that the underlying commodity or currency crosses a certain price level.

Capital Net Worth

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

Married Filing Separately

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

Forward Outright Rate

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

Contract For Difference

CFD. A contract between two people that mirrors the situation of trading a security, without actually buying or selling the security. The two parties make a contract that the seller will pay the buyer the difference in price after a certain period of time if the designated security's price increases, and the buyer will in return pay the seller the difference in price if the security's price decreases. CFDs are traded in over the counter markets in many countries, although they are not allowed in the United States.

Sawbuck

Slang term for the U.S. ten dollar paper currency. The slang is derived from the Roman numeral for ten, "X". The "X" looks like the shape of a sawbuck, a device used to hold wood in place for sawing it into pieces.

Fed

The 7-member Board of Governors that oversees Federal Reserve Banks, establishes monetary policy (interest rates, credit, etc.), and monitors the economic health of the country. Its members are appointed by the President subject to Senate confirmation, and serve 14-year terms. also called the Federal Reserve Board.

Financial Terms - Part I
Financial Terms - Part II
Financial Terms - Part III
Financial Terms - Part IV
Financial Terms - Part V

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