There is typically a lag of about three months between the time the weighted average coupon of an MBS pool has crossed the threshold for refinancing and an acceleration in prepayment speed is...
To see how the ledger items change over item, we can choose a base year balance sheet or income statement and then express each item relative to the base year. Such statements are referred to as...
A reverse repurchase agreement between mortgage firms and securities dealers. Under the agreement, the firm sells federal agency-guaranteed MBS and simultaneously agrees to repurchase them at a...
A legal constraint known as the impairment of capital rule is designed to protect the firmís creditors. It stipulates that dividends cannot exceed the amount of retained earnings listed on the...
The argument that specifies that the various agency costs create a complex environment in
which total agency costs are at a minimum with some, but less than 100%, debt financing.
A theory that the timing of loan payments should be tied to the timing of a borrowerís expected income.
Swap) A swap where yield on a Treasury bond is exchanged for either a fixed rate or a floating rate on each payment date. For example, agreement to exchange a LIBOR rate for Treasury rate (e.g., the...
A discipline concerned with determining value and making decisions. The finance function allocates resources, which includes acquiring, investing, and managing resources.
A swap in which a money manager exchanges one bond for another bond that is similar in terms of coupon, maturity, and credit quality, but offers a higher yield.
A finance company owned by a manufacturer that provides financing to buyers of the firmís products. For example, General Motors Acceptance Corporation is a captive finance company.
An icon-based interface, wherein the user clicks on an icon to initiate a task. Contrast with
selecting activities from a menu-driven interface or running a command on the command line.
In case of liquidation of a firmís assets, the rule requires satisfaction of certain claims prior to the satisfaction of other claims.
The use of financial ratios and fundamental analysis to estimate firm specific credit quality examining items such as leverage and coverage measures, with an evaluation of the level and stability of...
An estimate of liquid funds needed to cover deposit outflows or loan demand in excess of trend or seasonal factors. D
The accounting rate of return (ARR) method (which is one of the methods for capital budgeting decision) computes a rate of return for a project based on a ratio of average project income to...
Refers to the fact that the merger of two firms decreases the probability of default on either firm's debt.
Schedule of depreciation rates allowed under certain tax provisions.
Part or whole return that is an outlier or not due to systematic influences (market wide influences). Said differently, abnormal returns are above those predicted by the market movement alone.
Is the ISDN (integrated services digital network) interface that consists of two 64 kilobit B channels and a 16 kilobit signaling channel.
The option of terminating an investment earlier than originally planned or agreed.
Establishes priority of claims under liquidation. Once the corporation is determined to be bankrupt, liquidation takes place. The distribution of the proceeds of the liquidation occurs according to...
A butterfly spread in which the distance between strike prices is not equal.
The replacement of one asset or position with another that has equivalent risk and a higher expected rate of return. This is an implicit instead of an explicit arbitrage.
Elgers (1980) proposed accounting-based beta forecasting. Accounting-based beta forecasts rely upon the relationship of accounting information such as the growth rate of the firm, earning before...
A means of compensating the broker of a program trade using benchmark prices for issues to be traded in determining
commissions or fees.
Return on a stock beyond what would be the expected return that is predicted by market movements alone.
A repo with no definite term. The agreement is made on a day-to-day basis and either the borrower or the lender may choose to terminate. The rate paid is higher than on overnight repo and is subject...
The change in the price of a derivative due to a change in volatility. Also sometimes called kappa or lambda. Based upon the call option formula defined in option pricing model.
A theory suggesting that banks make only shortterm, self-liquidating loans that match the maturity of bank deposits.
Absolute cost advantages can place competitors at a cost disadvantage, even if the scale of operations is similar for both firms. Such cost advantages can arise from an advanced position along the...
The after-tax rate of return on an asset minus the rate of inflation.
A devaluation that is designed to cheapen a nation's currency and thereby increase its exports at other countries' expense and reduce imports. Such devaluations often lead to trade wars.
The incremental costs of having an agent make decisions for a principal.
An option that pays a unit of the asset if the option is in-the-money or zero otherwise.
Publicly traded issues that may be collateralized by mortgages and
The view that shareholders prefer capital gains over dividends, and hence low payout ratios, because capital gains are effectively taxed at lower rates than dividends.
Under this translation method, monetary items (e.g. cash, accounts payable and receivable, and long-term debt) are translated at the current rate while non-monetary items (e.g. inventory, fixed...
The difference in total post- and pre-merger market value minus the cost of the merger.
Finance that is not generated by the firm, finance that stem from new borrowing or a stock issue.