| banker's acceptance | A money market asset consisting of an order to a bank by a customer to pay a sum of money at a future date.
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| call option | The right to buy an asset at a specified exercise price on or before a specified expiration date.
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| capital gains | The amount by which the sale price of asecurity exceeds the purchase price.
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| capital markets | Includes longer-term, relatively riskier securities.
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| certificate of deposit | A bank time deposit.
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| commercial paper | Short-term unsecured debt issued by large corporations.
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| contingent claims | Claims whose value is directly dependent on or is contingent on the value of some underlying assets.
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| current yield | A bond's annual coupon payment divided by its price. Differs from yield to maturity.
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| derivative assets | Securities providing payoffs that depend on or are contingent on the values of other assets such as commodity prices, bond and stock prices, or market index values. Examples are futures and options.
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| equivalent taxable yield | The pretax yield on a taxable bond providing an after-tax yield equal to the rate on a tax-exempt municipal bond.
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| Eurodollars | Dollar-denominated deposits at foreign banks or foreign branches of American banks.
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| exercise (strike) price | Price set for calling (buying) an asset or putting (selling) an asset.
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| federal funds | Funds in a bank's reserve account.
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| futures contract | Obliges traders to purchase or sell anasset at an agreed-upon price on a specified future date. The long position is held by the trader who commits to purchase. The short position is held by the trader who commits to sell. Futures differ from forward contracts in their standardization, exchange trading, margin requirements, and daily settling (marking to market).
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| index fund | A mutual fund holding shares in proportion to their representation in a market index such as the S&P 500.
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| limited liability | The fact that shareholders have no personal liability to the creditors of the corporation in the event of bankruptcy.
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| London Interbank Offered Rate | (LIBOR) Rate that most creditworthy banks charge one another for large loans of Eurodollars in the London market.
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| market-value-weighted index | An index of a group ofsecurities computed by calculating a weighted average of the returns of each security in the index, with weights proportional to outstanding market value.
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| money market | Includes short-term, highly liquid, and relatively low-risk debt instruments.
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| municipal bonds | Tax-exempt bonds issued by state and local governments, generally to finance capital improvement projects. General obligation bonds are backed by the general taxing power of the issuer. Revenue bonds are backed by the proceeds from the project or agency they are issued tofinance.
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| preferred stock | Nonvoting shares in a corporation, paying a fixed or variable stream of dividends.
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| price-earnings ratio | The ratio of a stock's price to its earnings per share. Also referred to as the P/E multiple.
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| price-weighted average | Weighted average with weights proportional to security prices rather than total capitalization.
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| put option | The right to sell an asset at a specified exercise price on or before a specified expiration date.
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| repurchase agreements | Short-term, often overnight, sales of government securities with an agreement to repurchase the securities at a slightly higher price. A reverse repo is a purchase with an agreement to resell at a specified price on a future date.
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| residual claim | Refers to the fact that shareholders are at the bottom of the list of claimants to assets of a corporation in the event of failure or bankruptcy.
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| Treasury bonds | Debt obligations of the federal government that make semiannual coupon payments and are issued at or near par value.
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| Treasury notes | Debt obligations of the federal government that make semiannual coupon payments and are issued at or near par value.
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| yield to maturity | A measure of the average rate of return that will be earned on a bond if held to maturity.
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