Term of the day

[ROHAN KACHALIA]

[FONT="Book Antiqua"]Hello guys, another effort from my side. Here I will be posting a term related to the markets daily. So all those who are willing to learn stock markets and various other markets can learn the meanings, terms and then can do a detail search for themselves.

P.S. Valuable contribution from other members and mods will be highly appreciated.

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SOURCE:INVESTORWORDS.COM

[ROHAN KACHALIA]

Term of the day

Cross Rate

The exchange rate between two currencies that are not the official currencies of the country that the exchange was quoted in. Cross rates usually do not involve the U.S. dollar. For example, an investor in the United States could get the cross rate of the Euro to the Canadian Dollar.

[ROHAN KACHALIA]

Term of the day

Abnormal Return

The difference between the return on a stock (or entire portfolio) and the performance of an index, such as the S&P 500. The abnormal return is equal to the market return – the normal return. For example, a stock that provided a return of 10% over the same period of time in which an index provided a 6% return would have an abnormal return of 10% – 6% = 4%. If the abnormal return is negative then it has underperformed the index.

[ROHAN KACHALIA]

Term of the day

Market Risk

Risk which is common to an entire class of assets or liabilities. The value of investments may decline over a given time period simply because of economic changes or other events that impact large portions of the market. Asset allocation and diversification can protect against market risk because different portions of the market tend to underperform at different times. also called systematic risk.

[ROHAN KACHALIA]

Term of the day

Gun Jumping

Trading on information which has not yet be revealed to the public, also called jumping the gun.

[ROHAN KACHALIA]

Term of the day

Lookback Option

Call or put option whose strike price is not determined until the option is exercised. At the time of exercise, the holder can exercise the option at any underlying price that has occurred during the option's life. In the case of a call, the buyer will choose the lowest price, and in the case of a put, the buyer will choose the highest price. The premium on such options tends to be high since it gives the buyer great flexibility, and the writer has to take on a lot of risk.

[ROHAN KACHALIA]

TERM OF THE DAY

Debt Equity Swap

A transaction in which a corporation exchanges existing bonds (debt) for newly issued stock (equity). For example, XYZ company can in essence cancel a portion of their debt and transfer the equivalent balance to equity. A debt-equity swap can help a company that is in financial trouble by canceling some of its outstanding debt. Other companies may take advantage of this process if the current value of their stock is high, allowing them to trade more debt for less stock.

[ROHAN KACHALIA]

TERM OF THE DAY

Capital Structure

The permanent long-term financing of a company, including long-term debt, common stock and preferred stock, and retained earnings. It differs from financial structure, which includes short-term debt and accounts payable.

[ROHAN KACHALIA]

TERM OF THE DAY

M0

The amount of cash in circulation. This includes all coins and printed money.

[ROHAN KACHALIA]

TERM OF THE DAY

WACC

Weighted Average Cost of Capital. An average representing the expected return on all of a company's securities. Each source of capital, such as stocks, bonds, and other debt, is assigned a required rate of return, and then these required rates of return are weighted in proportion to the share each source of capital contributes to the company's capital structure. The resulting rate is what the firm would use as a minimum for evaluating a capital project or investment.