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AAA (triple A)
Highest debt grade in the rating system used by Standard & Poor's for securities on the financial markets.
abandon
To withdraw from a premium deal by paying a "penalty" or premium agreed upon in advance ( premium).
above par
A share that has a market value above its nominal value (agio). Opposite: below par.
acceptance
A time draft bill of exchange on which the drawee has written the word "accepted" over his signature. Acceptance also refers to the action of accepting a bill of exchange for payment. Opposite: draft.
acceptance credit
Short-term loan under which the bank permits the customer to draw bills up to a certain amount (credit line). The bills are then accepted and usually also discounted by the bank as agreed.
acceptance price
The price to be paid by the banks to issuers for the direct underwriting of a new securities issue. The difference between the issue price and the acceptance price is the banks' gross profit margin (commission).
accept order
On the Swiss Exchange: acceptance of an order that is already contained in the central order book.
account
Continuously updated record of transactions. Interest rates, charges, credit and with- drawal limits and additional facilities will differ according to account type.
account card / Kontokarte / carte de compte / carta di conto
Plastic card issued to bank customers for the efficient handling of transactions carried out over the counter or via ATMs. The necessary control data, such as the customer's PIN code, are stored in the magnetic strip.
The new accounting standards for banks entered into force in the 1996 financial year. The main changes relate to the breakdown of the balance sheet and income statement, the calculation of shareholders' equity and the reporting of provisions.
account-only check; collection-only check; crossed cheque (UK)
check bearing the endorsement "for clearing only" or "for crediting only" or similar. Such checks may not be paid out in cash but can only be credited to the beneficiary. The endorsement cannot be cancelled by crossing it out.
account statement / Kontoauszug / relevé de compte / estratto conto
A summary in writing of all account transactions within a given period. Depending on the type of account, interest is calculated on a monthly to yearly basis. Can be requested online via telebanking or Multimat.
Interest payments accrued since the last interest due date up to a specified date prior to the next due date.
accrued liabilities / Passiven, transitorische / passifs transitoires / ratei e risconti passivi
Accounting apportionment items entered on the liabilities side of the balance sheet, such as income already received during the past financial year but relating to the new financial year, or expenses incurred during the past year but not payable until the following year. Opposite of prepaid expenses and accrued income.
Accrued and deferred items carried in the balance sheet, e.g. expenses paid in the prior financial year which relate to the new financial year (transitory assets).
addendum / Allonge / allonge / allungamento
A supplement or appendix attached to a document (deed, bill of exchange, registered share) which can be used for endorsements.
adjust / adjustieren / ajuster / rettificare
To correct share prices when there are changes in capital structures; in particular, when subscription rights are reduced or in the case of stock splits or reverse splits.
adjustment on conversion / Konversionssoulte / soulte de conversion / saldo di conversione
Cash amount payable on conversion to the bondholder or
payable to the company by the bondholder if the adjustment is negative.
It is made up as follows:
1. accrued interest if the life of the new bonds begins after the coupon
due date of the old ones.
2. Interest differential if the terms overlap and interest rates differ.
3. Price difference if the new bonds are issued above or below par value.
admission board / Zulassungsstelle / instance d'admission / ufficio di ammissione
The authority responsible for the admission of domestic and foreign securities to a listing on the Swiss Exchange.
Official listing of a security on a stock exchange.
American Depositary Receipt. Negotiable registered certificate issued on the US market and evidencing title to non-US equity paper. ADRs are registered with the Securities and Exchange Commission (SEC) and quoted in USD. Holders of ADRs essentially enjoy the same ownership and membership rights as shareholders.
Guarantee furnished by a bank that in the event of non-performance of an agreement it will reimburse the customer for amounts paid.
receivables.
affidavit / Affidavit / affidavit / affidavit
Sworn or affirmed written statement to authenticate a claim, especially in securities trading, e.g. regarding the origin and ownership of securities.
after market / nachbörslich / après bourse / dopo borsa
Unofficial securities trading outside official hours. Swiss Exchange.
Bill of exchange which becomes payable at a certain date after presentation for acceptance (e.g. after one month).
agent / Agent / agent / agente
Legally independent businessman who is authorized by a third party (the principal) to act on that party's behalf, to act as intermediary or to conclude business transactions.
The banks party to this agreement have undertaken vis-à-vis the Swiss Bankers Association to comply with the code of conduct and are subject to a system of stringent sanctions. The agreement first came into force in 1977 and has since undergone several amendments. The document sets out in detail the banks Obligation to identify business partners and ascertain the identity of beneficial owners, and forbids them to provide active assistance in cases of capital flight, tax evasion or similar instances. Today this agreement plays a major role in the fight against money laundering and was in fact used as the basis for the law governing money laundering.
allocation; apportionment / Zuteilung / attribution / assegnazione
1. Underwriting: after the subscription
period, full or proportional allocation (allotment) of the securities
subscribed.
2. Stock exchange: proportionately reduced allocation of securities
if supply and demand cannot be matched at a certain price.
allotment; apportionment (allotment subscribed) / Repartierung / répartition / ripartizione
Allocation of securities apportioned to the individual subscriber in the case of oversubscribed issues. If more applications for subscription are received than securities available, the individual allotments are reduced accordingly. allocation; apportionment (2).
allround fund / Allround fund / fonds de placement universel / fondi allround
Investment fund which is not restricted to any particular countries, regions or sectors and which invests globally.
Yield indicator. If the average return on a security or portfolio is larger than its expected return, the alpha is positive. If the average return is smaller than expected, the alpha is negative.beta.
amortization / Amortisation / amortissement / ammortamento
1. The gradual reduction of a debt by
means of equal periodic payments sufficient to meet current interest
and liquidate the debt at maturity.
2. In accounting, the systematic writing off of an account or asset over
its estimated life (depreciation).
annual accounts; financial statement / Jahresrechnung / comptes annuels / rendiconto annuale
The Swiss Code of Obligations requires that the annual accounts of a company include the balance sheet, income statement and the notes to the financial statement.
Written request addressed by a customer (buyer) to his bank to open a documentary credit (notification usually via a correspondent bank).
approximate-limit order / Zirka-Auftrag / ordre environ / ordine circa
A limited stock exchange order which allows the dealer a certain scope as regards execution.
A lien on real property which encumbers the land and all movables on it needed to fulfil the purpose of that property. To avoid subsequent disputes, the pledgor must as a rule submit a list of appurtenances to the land register office.
arbitrage / Arbitrage / arbitrage / arbitraggio
The practice of switching short-term funds from one investment or one market to another in order to exploit price or yield differentials. An arbitrage flow of funds will take place between two financial centres if the difference in their rates of interest is greater than the cost of hedging against the currency exchange risk. Cash-and-carry arbitraging refers to the buying of an instrument on the spot market and its simultaneous sale on the futures market.
Price at which securities, foreign exchange or foreign bank notes are offered for sale. Opposite: bid.
American expression for bonds whose owners have agreed to reduced interest payments or a reduced repayment of principal on the basis of a reorganization or rescheduling plan. bond issue in default.
asset allocation / Asset allocation / structure de portefeuille / asset allocation
Part of banking activity, mainly for institutional investors. Includes all measures opimizing the structure of a portfolio regarding instruments, duration, currency denomination etc. of investments.
Investment fun which applies the official investment policy of the custodian bank. Depending on the risk category, the asset allocation fund can invest solely in the money market and bonds (income-oriented) or in equities as well (capital-gains-oriented).
Reconciliation of the assets, liabilities and off-balance sheet operations of a bank in order to optimize profitability, liquidity and security within the possibilities offered by the law.
Specially created securities used for refinancing and collateralized by a pool of similar claims (e.g. mortgage loans) and where debt service payments are covered by the income generated by the pool.
Range of services offered by banks for the active management of a client's assets under a portfolio management mandate. Essentially synonymous with portfolio management but in practice often refers to the service provided to institutional investors.
assets / Aktiven / actif / attivo
Business accounting term for everything a company owns that has a monetary value, i.e. as shown in the balance sheet (liquid assets, credits, equipment and facilities, participations, etc). Opposite: liabilities.
Asset swap / Asset Swap / Swap d'actif / Asset Swap
Contractual agreement between two parties to exchange payments over a specific period of time. At least one payment is based on earnings from equities, a basket or an index.
assignee / Zessionar / cessionnaire / cessionario
The acquirer of title or interest transferred by an assignor.
assignment / Zession / cession / cessione
The transfer of a claim by written contract between the creditor (assignor) and the party acquiring the claim (assignee). blanket assignment, endorsement, undisclosed assignment.
assignment credit / Zessionskredit / crédit contre cession / credito contro cessione
Credit granted against the fiduciary assignment (with full rights, not merely a pledge) of one or several receivables to a bank. Lending on the security of accounts receivable. discount credit.
Term for the formal assignment of a stock, bond, or other transferable property or right. The owner or holder signs the assignment form on the reverse of the instrument, leaving the name of the new owner and the date of transfer blank.
The person who transfers title or interest to a third party. assignment.
at best; at market / bestens / au mieux / al meglio
Expression meaning "at the lowest possible price" in the case of a purchase order and "at the highest possible price" in the case of a selling order. The buyer or seller does not prescribe any maximum or minimum price for the execution of the order. In the case of securities with a limited market, the order is carried out at the earliest opportunity.
at par / pari / pair / alla pari
From the Italian "alla pari" meaning at the same value. It indicates that the price of the instrument is equal to its face or nominal value. issue at par, par value price.
at the money / am Geld / à la monnaie / at the money
Situation where an option has an exercise price equal to or near the current price of the underlying. out of the money, in the money.
Another name for Tender.
Bank which, in addition to the central paying agency, has been given permission by public authorities or agencies to process decentralized payment transfers.
Machine that accepts banknote deposits for payment into a customer's account. Bancomat Plus.
average due date / mittlerer Verfall / échéance moyenne / scadenza media
Mean due date for several sums payable at different dates (frequently applies to a bill of exchange).
1. Bond issues: maturity derived from the date halfway
between the earliest and the latest date stipulated for repayment.
2. Export credits: term derived from the date halfway between the normal
semi-annual repayments, allowing for the time until such payments are
received.
Aliquot interest return
Bonds are normally bought one period before the first
coupon payment. This results in two problems. This affects the discount
period in the case of each cashflow and this represents a daily "accrual"
of interest for the bondholder. The buyer of a bond pays the agreed price
of the bond plus the accrued interest or the aliquot interest return.
Allocation effectiveness
Financial markets should operate in such a way as to
allocate savings to the most productive companies, i.e. so that they are
allocated effectively. Such opportunities are attractive for individual
investors, as they lead to maximum profit at minimum risk. If the managers of a financial institution invest
creditors’ funds into companies with a low yield or a high rate of risk,
then investors re-invest their funds or increase the price that they demand
for the funds (i.e. increase the interest rates) or limit the investments
made by the financial institutions into certain companies on their behalf.
American depositary receipts
American depositary receipts (ADR) are part of the GDR
group. They are traded only on stock exchanges in the US. ADRs were the
first to originate, with the term GDR being used when the receipts began
to be traded outside the US. Their popularity among US investors is based
on the fact that trading with ADRs is conducted in the same manner as
trading with US shares. Trade settlement is also conducted pursuant
to US regulations.
Annuity
An annuity represents several identical cashflows for a
certain time period.
Arbitrage
Market equilibrium is attained when identical securities, i.e. securities with the same risk/return profile, are being sold at the same price
(the one price law). If two such securities are being sold at two differing
prices (e.g. CZK 1100 and CZK 1120), then it can be expected that there
will be demand for the cheaper security. The increase in demand will lead
to an increase in its price, until the time when equilibrium is attained.
The process by which equilibrium is attained is called arbitrage. If there
are any arbitrage opportunities available, then prices are not in equilibrium.
Arbitrage profits ceases to exist when the transaction costs associated
with the purchase of the cheaper security and the sale of a the more expensive
security exceed the difference in the prices of both securities (i.e.
CZK 1120 – CZK 1100). Transaction costs result in the imprecise application
of the one price law. The lower transaction costs are, the more effective
the market mechanism will be.
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Bills of exchange
According to legal theory, a bill of exchange is defined
as a security fulfilling requirements exactly defined by law,
in particular an unconditional obligation or order of the issuer to pay
a determined financial amount at a certain time, at a certain place, and
ensuring its lawful holder the right to require this fulfilment from the
person who signed the bill of exchange.
Bills of lading
Under the terms of a freight transportation contract, the
carrier may be obliged to issue the sender a bill of lading upon accepting
the consignment. A bill of lading is a document evidencing the right to
demand that the carrier issue the consignment in accordance with the provisions
of this document.
Bond
A bond is a security connected with the holder’s right to demand
the payment of a due amount in the nominal value and the payout of returns
ensuing from it as at a certain date.
Bond at a discount
Is sold for a price lower than its nominal value.
Bond at a premium
Is sold for a price higher than its nominal value.
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Call option
The right to buy and accept a share – an option is a security, which represents the right of its holder either
to exercise or not exercise a transaction at a certain date. In the case
of a call option this means the right to buy or accept a share. The counterparty
is obliged to realise the trade should the other party wish it.
Capital adequacy
Characterises the risk of a bank having inadequate capital reserves in
view of the risks it is undergoing. Current ÈNB (Czech National Bank)
and BIS regulations define capital adequacy as the ratio between capital
and risk-weighted assets.
Capitalisation
When capitalising, i.e. when a company uses its own funds
to increase its registered capital, new shares are created, without the company gaining new
funds. During the course of this procedure shares are created by the transformation
of past years’ retained profit. Essentially, this is merely an accounting
procedure. The retained profit account in the balance sheet is reduced
by the nominal value of the issued shares while the company’s registered
capital account is increased by the same amount. Subsequently, the company
divides these additional shares among its shareholders in proportion to
the number of shares held by each shareholder.
Capital markets
Capital markets represent markets with shares, and markets with credits and loans whose original
maturity is greater than one year. Money market financial instruments are usually more
liquid than capital market financial instruments.
Collection
By entering the order of “collection”, the owner of the
account (the payer) gives the bank the account numbers of those entities
which he/she permits, by collection, to debit his/her account. With SIPO
and Èeský Telecom collections, the client doesn’t need to notify these
entities about entering an order for the collection.
Collection payment
see collection
Commodity markets
Commodity markets are classified as financial markets only in the case of the precious metals
(gold, silver and platinum) market. Gold is sometimes considered to be
currency. In that case it falls under the category of currency markets.
Construction savings
Saving in a building society is a form of saving where
a client deposits money to an account at a building society, for which
interest is added annually (usually in the amount of 3%) together with
a state subsidy. After 24 months and after fulfilling further conditions
determined by the building society, the client has a claim to a credit
(usually for 6%). The difference between the interest rate from the credit
and the interest rate from the deposit can amount to no more than 3%.
A credit can be provided by the building society and used by the participant
only to finance his housing needs. The building society can provide credits
to the participant which serve to cover the costs connected with his housing
needs even in cases where the participant does not yet have a claim to
receive the credit, and the building society can provide credit only up
to the target amount.
Coupon bond
Coupon bonds are debt instruments normally having a longer
maturity period than is the case with zero-coupon bonds. Ownership of these bonds entitles
the owner to receive regular income during the period between the issue
and the time at which the bond's nominal value is due. The regular payments
are called coupons. As is the case with discounted bonds, the coupon bond's nominal value is
repayable at maturity.
Coupons
A coupon may be issued as a bearer security in order to enable the right to a return on
shares, interim certificates, bonds or interim certificates to be exercised. Coupons are generally
paid on an annual or semi-annual basis.
Credit rating
The determination of the credit risk of long-term instruments of companies (i.e. of
debentures, credits and loans) is a complex process.
It is not surprising that professional investors and investment counsellors
try to find ways to simplify this problem. In the USA, where debt financing
is a more important source of financing companies than, say, in the United
Kingdom, there are a number of specialised companies which deal in ratings
of individual debt instruments. The most popular are Moody’s, Standard
and Poor, and Fitch and Co. Ratings are assigned to the country, companies
and certain debt issues. Companies are rated according to their size,
relative volume of debt to financing of its activity, and the share in
the profit determined to finance the debt. Also considered are factors
of a qualitative character. With different companies these indices are
included with different weighting, which can result in various ratings.
Currency (foreign-exchange) markets
This refers to debt, share or commodity markets, with the instruments being
denominated in foreign currency, as well as a money market in various
currencies (i.e. purchase of funds in one currency with funds in another
currency).
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Debt markets
Debt markets are markets with credits and loans and markets
with debt securities. These instruments have a limited maturity
(with the exception of bonds with infinite maturity, so-called perpetuities).
Derivatives
Derivatives are the common name for fixed term contracts
and optional term contracts. The market value of such a
fixed or optional derivative contract is derived from the market value
of the underlying asset (instrument). The asset may, for example, be a
physical commodity, a security, including government bonds, and a share index or a currency.
Direct trading
As a part of this manner of trading in the exchange business
system, operations among members of the stock exchange are registered
where the amount of securities is at least CZK 200,000. The price and amount
of the handled security is determined in advance by an agreement of both
contractual participants in direct trading. Thus in these operations the transaction
price is not created on the basis of comparison of an anonymous offer
and demand, because both participants of the transaction know each other
in advance. The price for which a direct transaction is concluded is not
the stock-market rate, and its variance with the valid rate is in no way
restricted.
Diversification
The process of diversification may be used to reduce certain
risks. Investors may decide to invest their funds into
a large number of companies instead of one company. Also, in the case
of a small volume of funds, they may invest into an investment fund or
a mutual fund, which itself has a significantly diversified portfolio.
A bank is another such institution, which arranges for diversification.
A financial system allows for portfolios to be diversified in many ways.
However, not all types of risks may be diversified. Company profits depend
on the management’s ability and the overall economic and legal state of
the economy. The general level of economic activity changes according
to the business cycle. To a certain degree corporate profits are dependent
on each other, and diversification cannot decrease this risk. This risk
can be limited to a certain degree by expanding the investment scope to
include foreign financial markets. But even here a certain degree of
interdependency is apparent between individual countries’ business cycles.
Countries with a limited number of manufacturing sectors may be strongly
influenced by the collapse of a certain commodity market. In an extreme
case the collapse of an important financial segment could result in the
collapse of that country’s financial system (so-called systematic risk), which could have a serious impact on economic
activity and international trade.
Dividend return
This quantity is calculated by dividing the gross dividend
(net dividend plus tax) by the company’s market capitalisation (market
capitalisation is equal to the number of shares multiplied by their momentary market price).
This return may be used to compare with other interest rates. The use
of the dividend return is limited, as it does not take into account future
changes in the dividend.
Duration
Duration is the weighted average of the present values
of cashflows (coupons and the principal values), where the weighing
factor is the period between the present time and the date of the individual
cashflows.
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Earnings per share
Earnings per share – calculated as earnings divided by the number
of shares. It has more relevance for the shareholder as an estimate of
possible dividends.
Effective portfolio
An effective portfolio is every such portfolio having a
lower risk than all other portfolios with a comparable (identical)
expected return.
Eurodollar
Eurodollars are deposited in the accounts of banks (i.e.
dollar claims and deposits), which are non-residential banks from the
viewpoint of the US. The result is that a eurodollar is not subject to
supervision and regulation in the countries where it is traded. A eurodollar
is also not directly dependent on US interest rates, even though, to a
certain extent, it is connected to the US banking system and is managed
within banks in the same manner as all other currencies. For a transaction
to be designated as a eurodollar transaction, the residency of the mediator
is the decisive factor, rather than the residency of the primary creditor
or of the final debtor. For example, a US citizen lends funds to a bank
in London, which in turn lends these funds to the US: this transaction
is a eurodollar operation. On the other hand, if funds go via a US bank
in New York, this means that we are dealing with a domestic dollar operation.
The affect of eurodollar transactions on the banking system is specified
below.
Euromarket
A euromarket is a market on which securities and debts are traded, which are denominated in euro currencies.
Euro currency markets, of which the eurodollar market is the biggest, were established at
the end of the Second World War, when the currencies became convertible
and when securities began to be truly traded on an international scale.
The preposition “euro” appeared almost accidentally and is rather confusing,
as it has no connection to Europe. A market with euro-securities exists
in all major financial centres, with London having the biggest share of
this trading activity.
Exchange rate risk
The risk of loss of profits as a result of changes in foreign
exchange rates in relation to a currency in which accounts are kept.
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Financial intermediation
Financial intermediaries (especially banks) were established
in order to facilitate savings flows. The primary function of such a financial
intermediation is the pairing of lenders with borrowers. Companies can
borrow funds directly from the public via advertisements or may contact
persons and other companies who they believe to have surplus funds. However,
both these methods are expensive. Investors do not have sufficient knowledge
of the market and the price for obtaining this information on an individual
basis is high. Furthermore, companies do not need to borrow funds everyday,
but merely when starting a new project or in order to finance existing
projects.
Financial markets
Financial markets allow those with a financial deficit
(companies, governments, local authorities or international organizations)
access to cash for the purpose of financing their activities. Financial
markets are classified into debt markets, share markets, commodity markets (of commodity markets only the precious
metals market is included as part of financial markets) and currency markets (normally including the gold market).
Forwards
This represents the buyer’s commitment to buy a certain
quantity of an underlying asset on a certain day for an agreed price (exercise
price) and the seller’s commitment to sell the given quantity of the asset
under the same conditions. The conditions of the contract are specified
in detail within an agreement. Forward contracts are only traded on OTC (over-the-counter)
markets, not on stock exchanges. The quantity, price and delivery date
are thus set during the course of the agreement, with the contract being
negotiated directly between the seller and the buyer.
Forward yield curve
This is based on the theory that the return for a certain
time period is the same for various combinations of bonds having the same overall maturity period. Thus,
the expected yield is identical regardless of the bonds into which the
investor invests. In this way the forward yield curve represents the expected
spot yield curve in the future.
Fundamental analysis
Fundamental analysis monitors the extent to which the price
of shares corresponds to their actual (intrinsic) value.
It attempts to provide answers to the question of which shares are overvalued
and which are undervalued, i.e. which shares to buy or sell. It makes
use of an exact arithmetic method of assessing the company’s financial
indicators. It studies the company’s performance in the past on the basis
of the company’s activities as a whole.
Futures
A futures contract is the only important derivative contract, and has a series of characteristics
identical to those of the forward contract. Futures, like forwards, represent
the buyer’s commitment to buy a certain quantity of the underlying asset
on a certain day in the future for an agreed price (exercise price) and
the seller’s commitment to sell the given asset under the same conditions.
However, unlike forwards, futures are only traded on stock exchanges (option and term exchanges), not on OTC markets. The
contract conditions, including the standardisation of the asset, are specified
in detail by the stock exchange on which the given contract is traded.
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Global depositary receipts
Global depositary receipts are instruments used on capital markets. The essence of this instrument is simple.
Part of a domestic issuer’s ordinary shares are purchased via a manager by a foreign bank
(a so-called depositary bank), to which the ownership rights associated
with the ownership of the original shares pass. This may be a new share
issue or shares from the secondary market. The foreign bank then issues a corresponding
number of GDR in respect of these shares, with the number of receipts
issued in respect of one share being determined in advance.
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Hedging
Directly securing against risk, founded on the pairing of different flows – the
aim being to attain a state where the flows on the asset side match the
flows on the liability side.
Hold
A strategy applied in securities trading – indicates the strategy of holding
a security.
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Information effectiveness
Information effectiveness depends on the degree to which
the market price reflects all the available relevant information. If a
financial instrument is undervalued in view of the given public information
momentarily available, investors try to buy the security, expecting that the price will increase to the
equilibrium price. The driving force of information effectiveness is the
competition that exists among investors, who try to maximise their profits.
Insurance
The purpose of insurance is to protect the client from
a financial loss resulting from a certain event. One manner of classifying
insurance is the type of insurance event, e.g. personal accident, fire,
or theft. The type of insurance has an impact on the insurance c ompany’s
risk and cashflow. On the contrary, long-term insurance
encompases contributions spanning many years. Insurance is generally based
on the aggregation of independent insurance events.
Interim certificates
If the subscriber has failed to repay the whole rate of
issue of the subscribed stock before the company is entered in the Companies
Register (the so-called outstanding share), after it is entered into the
Register the company issues an interim certificate to the subscriber,
which will replace all the shares of one type subscribed by him and not
paid.
Investment coupon
An investment coupon is a registered security, which entitles its holder to buy shares intended for sale in exchange for the investment coupons.
ISIN
Issues of publicly tradable securities are designated with the ISIN code (International
Securities Identification Number). This international system is regulated
by the ISO-6166 standard. ISIN is a twelve-digit alphanumeric code, where
the first two characters represent the abbreviation of the issuer’s country
of origin (CZ – Czech Republic). This abbreviation is contained in ISO
3166. The next nine digits represent the basic number, with the last number
representing the control number. In the Czech Republic use is made of
only the last six digits of the basic number, i.e. the first three numbers
of the basic number are zeros. Issues are classified by the basic number
into circuits according to the business activities performed by the company.
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KOBOS
KOBOS (Continual Exchange Trading System) is founded on
the principle of the continuous conclusion of transactions in connection
to the immediate supply and demand for securities. Trade in KOBOS is concluded on the basis
of comparing and pairing orders, which are entered by the trader directly
into KOBOS in real time (generally speaking, stock exchange trades are
made in real time with a time priority). Trading in KOBOS ties in with
trading at a fixed price as part of the harmonogram of the stock exchange
day. The reason for this is the fact that the opening price in KOBOS is
equal to the price reached during trading at a fixed price (fixing). When
concluding these transactions use is made of the principle of price, followed
by time priority, whereby the price, and within a set of identical prices,
the time when the order was placed, is the decisive factor when pairing
(satisfying orders).
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LIBID
Report on interbank activity and on the euro currency activity
is normally related to LIBOR and LIBID. LIBID - London Interbank Bid Rate.
LIBOR
LIBOR - London Interbank Offer Rate. LIBOR is the arithemic
average of the interest rates on deposits in excess of GBP 10 million
for a certain period, offered at 11:00 a.m. by London’s reference banks
(usually National Westmister, Bank of Tokyo, Deutsche Bank, Banque Nationale
de Paris and Morgan Guaranty Trust) to London clearing banks. Big banks
pay slightly less than LIBOR for the funds they borrow and then lend these
funds to smaller banks at a profit. Small banks lend funds to companies,
which pay a certain premium over LIBOR. The widely accepted LIBOR is advantageous,
because perhaps all interest rates of short and medium-term credits and
loans on the na euro currency market are set on the basis of LIBOR. Interest
rates for maturities of one day (overnight) through to one year for all
the main euro currencies are published in the Financial Times on a daily
basis.
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Maturity
The time when securities are due.
Money markets
Money markets are part of debt markets, in that these markets are markets with
credit and loans having an original maturity of up to one year, and markets
with debt securities (bonds and bills).
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Off Shore Banking
Offshore means simply having an entity in a jurisdiction foreign to ones own which has assets. This entity can be a trust, a corporation, a limited liability company or even your own personal bank account. Offshore banking is a special type of banking that is operated by several offshore centers all over the world. Offshore centers are financial systems where banks have external assets and liabilities that are out off proportion to the current account transactions of their domestic economies. Offshore banking transactions are carried out in foreign currencies and transacted between foreigners. But they get all the facilities like a local investor and also get the extra benefit - free of various constraints and taxes. Offshore banking system has mainly implemented to attract foreign investors as well as to strengthen own country economy by giving various facilities to the foreign investors. International Chamber of Commerce regulates the rules and regulations of offshore banking.
Going offshore is done for a purpose. It can be a means of legally decrease ones tax load, or for retirement planning estate planning, concern over ones own government attempting to misappropriate ones funds, little to no faith in ones own banks, the loss of ones right to privacy or one may just be moving to another country. One of the greatest advantages of having offshore accounts is the privacy it allows. I know that I have the money and unless I tell someone else no one else will ever know. I must become a private person when it comes to dealing with my financial affairs.
An offshore financial center (OFC) collects, borrows or
receives funds from nonresidents and channels them again nonresident borrowers.
Today the offshore banking provides the wide choice of international investors
to rise from an individual to multinational Giant Corporation.
Operational effectiveness
A condition of the aliquot effectiveness of primary markets is the operational effectiveness of secondary markets. A market is said to be operationally
effective if only a small difference eyxists between the return on the
sale of securities and the costs of buying the security, i.e.
if transaction costs are low. This difference, which is called the spread
in the case of market makers, is the profit earned by financial intermediaries.
At any given moment a market maker quotes the price at which he is willing
to buy a financial instrument (bid price) and the price at which he is
willing to sell the same financial instrument (asked price). The spread
represents the difference between these two prices.
Optimal portfolio
An optimal portfolio is a portfolio that gives the greatest
ratio of additional return (= expected return - interest) to risk. We can combine this portfolio in an arbitrary
ratio with a risk-free investment and we will always attain the same ratio
of additional return to risk.
Options
Options, unlike forwards, futures and swaps, give their owner the right, rather than the
obligation, to buy or sell a certain asset by a certain date or over a
certain period of time in the future at an agreed price (exercise price,
strike price), with the seller of the option being obliged to sell or
buy the given asset under the same conditions. The conditions of the contract
are specified in detail within an agreement. Options are traded on OTC
(over-the-counter) market as well as on stock exchanges. An option may
be divided into options for spot assets (the owner of the option has the right
to buy or sell the given asset) according to the type of underlying asset
or futures options (the owner of the option has the right to buy or sell
the given asset via futures).
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Non-realized capital gains (or book losses) on securities. Difference between current price and original purchase price.
parity prices
Prices quoted for all US equities traded on the Swiss Exchange. Equal to equity prices on NYSE translated at current exchange rates.
An acceptance which varies from the terms of the bill itself, e.g. one calling for payment of only part of the amount, or at a different time.
Breakdown of the annual dividend into interim dividend and final dividend at the end of the financial year. Normal practice in the UK and USA, but not permissible in Switzerland.
Bonds which not only confer on the holder the right to receive interest at a fixed rate but also embody the claim to a share in the net profit of the issuing company.
A security incorporating the right to participate in the ownership (equity) of a corporation, but without some of the rights granted to shareholders (e.g. the right to vote at shareholders meetings). In Switzerland, participation certificates serve a similar function to dividend-right certificates and are issued for the purpose of raising capital. As is the case with capital stock, participation certificates form part of the equity capital of a company.
The value of the security as printed on its face. Thus also called face value or nominal value. Ordinarily not identical with the market value. Swiss law prescribes a minimum par value of CHF 0.01 per share, whereas in the United States and Canada shares may be issued without par value.
par value price / Parikurs / cours au pair / corso alla pari
Price of a security which is equal to its nominal or face value.
payable in advance / pränumerando / payable par anticipation / pagabile anticipatamente
Expression denoting that interest is payable at the beginning of the interest period (year, six months, etc). Opposite: payable in arrears.
payable in arrears / postnumerando / payable à terme échu / pagabile posticipatamente
Term used to denote that interest is payable (and credited) at the end of the interest period (year, six months, etc). Opposite: payable in advance.
pay-as-you-go pension funding system; unfunded pension plan
Financing method used by pension funds under which employees contributions during a particular period cover the benefits paid out to the retirement beneficiaries during that period. Opposite of funded pension scheme. The Swiss state old age and surviving dependants' pension scheme (AHV) is a pay-as-you-go system.
paying agent; paying office
An office appointed by the issuer of stocks or bonds to carry out all transactions arising from the placement and circulation of the given security.
1. Zahlungsauftrag; Vergütungsauftrag
/ ordre de paiement / ordine di pagamento
An order to the bank from a customer instructing it to make payment
in favour of a third party.
2. Anweisung / assignation / assegno
Authorization to transfer money, securities or other fungibles for the
account of the authorizing party to another person entitled to receive
the said in his own name (Article 466, Swiss Federal Code of Obligations).
Article 1147 stipulates that payment orders not designated as bills
of exchange but made out expressly to the order of a beneficiary and
otherwise meeting the requirements of a drawn bill are bill-like payment
orders.
payment transfers; payment operations
Money debt payments. Payment transfers are said to be cashless when effected as accounting entries only, i.e. without transferring physical money.
Payment for the securities allotted under subscriptions to new or conversion issues.
pay-off diagram / Pay-off-Diagramm / diagramme pay-off / diagramma di pay off o dei pagamenti
Graphic representation of the correlation between the amount paid for a financial derivative on maturity and the spot price of the underlying.
Percentage of a firm's profits that is distributed to shareholders in the form of dividends. A low ratio points to a conservative financial policy, allowing more reserves to be formed.
Stocks issued at a price of less than one dollar, usually for the purpose of attracting buyers who feel that they are getting a bargain by being able to buy a lot of shares for little money. Usually highly speculative shares and often of questionable value.
price/earnings ratio.
Bond, usually issued by a bank, guaranteeing specific monetary payment to a beneficiary if the purchaser or maker fails to perform or acts in violation of a contract. In the United States, a performance bond puts the issuer under obligation to render the performance himself.
permanent holdings / dauernde Beteiligungen / participations permanentes / partecipazioni permanenti
Long-term participations in the capital of other companies, e.g. through the acquisition of shares (an equity interest). Unlike the purchase of fixed-interest securities, which is effected primarily in order to benefit from the expected return and/or possible capital gains, permanent holdings are aimed at exerting an influence on the management of the company in which an equity participation is held or at attaining similar objectives. Depending on the circumstances, permanent holdings are used to obtain a certain equity quota (minority or majority holding). Article 25 of the Swiss Banking Law Ordinance requires that permanent holdings of the Swiss banks be shown separately from other assets carried in the balance sheet under securities. Article 25c stipulates that supplementary notes have to be provided detailing the presentation of permanent holdings.
perpetual bonds / ewige Renten / rentes perpétuelles / rendite perpetue
Funded government bonds that need never be redeemed (but may be, at the discretion of the government); only the payment of interest is guaranteed. Issued most commonly in France and the United Kingdom, where such bonds are known as consols (short for consolidated annuities). They were first issued in Britain in the 18th century to consolidate the national debt. Issues without fixed maturities were recently placed on the Euromarket (perpetual floating rate notes).
personal account / Privatkonto / compte privé / conto privato
Bank account operated as a current account by private individuals with special interest and withdrawal conditions. savings account, retirement savings account.
personal loan / Privatkredit / prêt personnel / prestito personale
Credit granted to a private person for non-commercial purposes solely on the basis of that person's creditworthiness, income and financial circumstances. consumer loan, instalment loan.
Credit institutions specialized in granting personal or consumer loans and financing instalment purchasing (hire-purchase in UK).
PIN code / PIN-Code / code CIP / codice PIN
Personal alphanumeric code for the electronic identification of a customer using an account card. plastic money. PIN stands for personal identification number.
The issuing of securities by the borrower (debtor) himself at his own risk. The banks act as subscription-receiving offices and obtain a placement commission for any subscriptions effected through their good offices. firm underwriting.
place of jurisdiction / Gerichtsstand / for judiciaire / foro competente
Place where a court or a judge has the power (competence) to hear and decide a case. The territorial limits within which legal authority may be exercised. In their contracts, agreements and forms, banks normally stipulate their domicile as place of jurisdiction.
place of performance / Zahlungsort / lieu de règlement / luogo di pagamento
The place where the debtor is to fulfill his obligation to pay.
plastic money / Plastikgeld / monnaie plastique / moneta di plastica
Popular term for all plastic cards, such as credit cards, VISA card, Eurocard or ec card used as paying medium instead of cash.
pledged collateral / Faustpfand / gage / pegno manuale
Things of value, such as securities, merchandise, etc, deposited and pledged as security for the repayment of a loan.
poison pills / poison pills / Poison pills / Poison pills
Poison pills are any type of defensive manoeuvre which a company might try in order to protect itself against unwanted takeover bids, e.g. stock issues, special distributions, spin-offs and management pay-outs.
portfolio / Portefeuille / portefeuille / portafoglio
1. Holdings of bills and bill-like paper
managed or administered by a bank on behalf of a customer.
2. Selection of securities held by a bank in a safekeeping account for
administration or discretionary management or held and managed by the
investor himself.
3. All securities (and other assets) owned by a person or company.
portfolio analysis / Portefeuilleanalyse / analyse de portefeuille / analisi di portafoglio
Capital export in the form of a non-participating investment of domestic capital in instruments whose risk/return potential lies abroad (foreign equities, loans and other claims on entities abroad).
The management of assets by an asset manager commissioned to perform this function on the basis of a management mandate. The asset administration service provided by the banks is sometimes linked with the safe custody business. managed account, sealed safekeeping account, ordinary open safekeeping account.
portfolio mortgage / Portfolio-Hypothek / prêt hypothécaire portfolio / ipoteca portfolio
Adjustable-rate mortgage split into several fixed-rate mortgages each of which is renewed on maturity for the same term. The rate of interest on a portfolio mortgage is calculated as a sliding average of the rates on the component fixed-rate mortgages. Advantage: "evened out" rate of interest with minimized risk of fluctuation.
possessory lien / Retentionsrecht / droit de rétention / diritto di ritenzione
The legally founded right to retain property until a claim is met. Possession must be continuous, rightful and not for a particular purpose. Regulated in Switzerland by 895 ff. of the Swiss Civil Code.
freight prepaid.
postal check / Postcheck / chèque postal / assegno postale
Special order used by the holder of a postal checking account to dispose over the balance in his account and make payments.
postal giro transfer / Postgiro / virement postal / postagiro
Cashless transfer of money between different postal checking accounts.
postal money order / Postanweisung / mandat postal / vaglia postale
Instrument used for paying (transferring) money to a person or entity that does not maintain a postal checking account.
In Switzerland: an order by the owner of a postal checking account to make payment to a beneficiary who himself is not a postal checking accountholder. It is also possible nowadays to use an assignment check for such purposes.
A share with preference rights, i.e. which is preferred over other stocks of the same company in terms of dividend payments and any distribution of assets on liquidation. The full dividend must be paid on preferred shares before any dividend can be paid on other shares.
Preferential position among claims in the event of a bankruptcy suit. Not until all claims of the preceding class have been satisfied can the proceeds from the liquidation of any remaining bankruptcy assets be used to meet lower-ranking claims. In the event a bank files for bankruptcy, the law provides for a special class of claim (between the second and third priority class) for specific claims up to a maximum of CHF 30,000.
premium / Agio / agio; prime / aggio
In stock exchange trading, the difference between the par value and the higher market value of a security expressed as a percentage of the par value.
premium deal / Prämiengeschäft / opération à prime / operazione a premio
Special type of forward or option deals in which the buyer or seller can withdraw from concluding the transaction by paying a premium agreed upon in advance. In Switzerland, only buyers may withdraw.
Accounting apportionment items listed on the assets side of the balance sheet, such as expenses paid during the past financial year, but relating to the new fiscal year. Opposite: Income received in advance.
Securities and merchandise are quoted at a market or selling price. Foreign exchange is quoted in rates, not prices.
Price at which more than one buyer wishes to purchase the same stocks or bonds from the same seller, or several sellers wish to sell to only one buyer. If not enough units are available to satisfy the entire demand, lots are drawn to decide who can effect the purchase or sale.
Price for tax purposes / Steuerkurs / Cours fiscal / Corso fiscale
The price of a security for tax purposes. The tax authorities set prices for many securities in a special list, which is binding for tax assessment purposes.
price/earnings ratio / Kurs/Gewinn-Verhältnis / rapport cours/bénéfice / rapporto prezzo/utile
Relationship (ratio) of the share price to the net profit of a company. Calculated by dividing the market price of the shares by the earnings per share. Common indicator for the assessment of stocks.
price nursing / Kurspflege / soutenir le cours / sostegno della quota
Prevention of accidental large-scale fluctuations in the prices of shares or bonds by selling such securities in the event of excessive price rises and purchasing them when prices come under extremely heavy pressure. support purchase.
primary market / Primärmarkt / marché primaire / mercato primario
The market for securities during the issuing period (such as Eurobonds). secondary market.
The rate of interest charged by US banks for first-class or prime commercial paper. Now more commonly used to describe the rate of interest charged by the banks for commercial loans to first-class corporate borrowers. market discount rate.
private bank / Privatbank / banque privé / banca privata
Banking institution where the owner or partners are liable with their personal assets. Under Swiss law, the expression "private bank" refers only to institutions with the legal form of an individual proprietorship, partnership firm or limited partnership. They exist primarily in Geneva, Basle and Zurich.
Investment counselling and portfolio asset management services offered to international private and institutional clients.
Participation certificates
Participation certificate is a security that gives the unit holder the right to a corresponding
share of the assets in the mutual fund and the right to share in the return
on this asset.
Perfect markets
The theory of financial markets is based on the assumption of perfect financial markets. In this abstract world the
following assumptions apply: no taxes, no credit risk, no callable securities, no transaction costs, unlimited short selling is possible. In reality markets are not
perfect. Despite this, the notion of perfect markets is a good starting
point when studying financial markets.
Permanent debenture
A permanent debenture pays the coupons for an unlimited period of time and its price
equals the sum total of the present values of discounted debentures by
way of yield until the due date.
Pool
A pool is a term used to designate a joint fund of cash
funds not differentiated in any way.
Portfolio mean yield
The portfolio mean yield, or also the expected portfolio
yield is a weighted average of expected yields of the individual component
parts of the portfolio.
PRIBID
One of the main indicators of loan markets in important
financial centres is the reference interest rate, for which banks are
willing to purchase (to borrow) deposits. For the Prague financial centre
this rate is called PRIBID (Prague Interbank Bid Rate). They are determined
from quotations of the reference bank in the market of interbank deposits
including the algorithm for determining PRIBID and PRIBOR.
PRIBOR
One of the main indicators of loan markets in important
financial centres is the reference interest rate, for which banks are
willing to sell (to lend) deposits. For the Prague financial centre this
rate is called PRIBOR (Prague Interbank Offered Rate). They are determined
from quotations of the reference bank in the market of interbank deposits
including the algorithm for determining PRIBID and PRIBOR.
Price/earning ratio (P/E)
The price/earning ratio (P/E) expresses the proportion
of the market price of a share and of yield per share. It expresses how much
investors are willing to pay for the yields at the respective public limited
company.
Primary markets
The primary market deals with the issues of new securities and their repayment. The creation of a new
receivable means a transfer of cash from the investor to the borrower.
A receivable is liquidated in such a way that the debtor repays cash (interest,
principal) to the investor. This is not a secondary market, because in this special market the
issuer offers something that does not zet exist and that arises only on
condition that the issued security finds its first acquirer. Thus the
issuer fully controls the operations in the primary market. When issuing
a security, the issuer can often also influence who will become and who
on the contrary cannot become its first acquirer.
Profit yield
Profit yield is calculated as a share in the profit after
taxation and market capitalisation of the enterprise. Applicability of
the profit yield is limited in the same way as it is with the dividend yield. Two companies may differ in the dates
of their financial statements and the profits may relate to different
periods. What is often published is the reciprocal value of profit yield
designated as a P/E ratio, i.e. a ratio of momentary market price of a
share of the enterprise to the profit of the enterprise per one share.
Put option
The right to sell, to supply a share – the option is a security, which expresses the right of its holder to
implement or not to implement a transaction at a certain date. Thus in
the case of a put option it means to sell or to supply somebody with a
share. The counterparty is obliged to implement the transaction if so
desired by the other party.
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Reinsurance
Very suitable for reinsurance are derivatives. These contracts make it possible to reinsure,
by way of these contracts, a position in assets or liabilities of the
balance sheet or sub-ledger. By fixing the price they reinsure against
a possible unfavourable development of prices. For example we plan that
in a few months we will need a certain amount of USD. The present rate
in the market of futures can be considered as advantageous, so we would
like to purchase USD for this rate in a few months. Therefore we purchase
futures for American dollars now. The purchase is conditioned
by making a certain deposit (security). In some time, before we sell this
term contract, we may be asked to send further means to our deposit account.
This will happen if the USD weakens against the currency for which we
are to buy the USD in future. If, on the other hand, the USD becomes stronger,
then on the contrary we can even draw from the deposit account, because
its balance increases. In several months after the purchase of the contract
of futures we purchase dollars on the spot market and at the same time sell the contract
of futures. If, against our original expectations, the USD has weakened,
then the loss in the market of futures will be compensated by the profit
from the purchase of USD in the spot market (we will purchase USD in the
spot market more cheaply than the price of futures at the time of the
purchase of futures). If, on the contrary, the USD has strengthened, then
the profit in the market of futures will be compensated by the loss from
the purchase of USD in the spot market (we will purchase USD in the spot
market at a higher price than the price of futures at the time of the
purchase of futures). After all, the term transaction arose exactly because
of the need to cover positions.
Retail banking
Retail banking is understood to mean the provision of services
to the general public, i.e. the provision of credit repayable in instalments,
mortgage loans, depositary services, etc. In comparison to wholesale banking
retail banking encompasses a large spectrum of activities at many branches.
Certain services offered by retail banking (e.g. credit cards) are highly
profitable.
Risk
Financial institutions and markets exist in a world of insecurity. A type of insecurity
is the risk. There are several types of risk. Obviously the most important
risk of financial markets is the credit risk, which means a risk of loss
if the partner fails to honour his commitments according to the conditions
of the contract. In the category of credit risk, the so-called settlement
risk is sometimes specified, which is a risk of loss from a failure to
settle a transaction. Another important risk is market risk, which is
divided into interest, stock, commodity and rate risks. This is a risk of loss in the case of the
small liquidity of markets (risk of market liquidity), or risk of momentary
insolvency (risk of cashflow). Operational risk is a risk of risk in the
case of human errors, fraud or imperfection of information systems. Legal
risk is a risk of loss if a contract is not legally enforceable.
ROA
Return on assets: an index which describes valorisation
of the total assets, i.e. how much a unit of assets yields to the bank
for a given period of time. The ratio of after-tax net profit to average
activities.
ROE
Return on equity: an index which says how much the capital
of shareholders yields. The ratio of after-tax net profit to average funds
of shareholders.
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Secondary markets
A secondary market is a market of already issued securities. Transactions in the secondary market do not
create or liquidate financial receivables for debtors. With a change in
holder, cash does not move between investors and debtors, but between
investors. The debtor is not affected by the transactions in the secondary
market, while the creditor transfers the rights of repayment to other
persons. The economic function of the secondary market with securities
is a change in the structure of their holders. The issuer of a share often has no chance of preventing purchases or
sales.
Securities
A security is understood to mean a tradeable (i.e. a transferrable)
financial instrument, in the sense that the instrument may be bought and
sold. It is the tradability characteristic that is important for the given
instrument to be considered a security. This is because not all financial
assets may be traded.
Securities issue
Upon the issue of a security, the issuer represents the
supply side. The primary subscriber of a security represents the demand side. It generally applies
that the issuer of a security is not able to determine clearly in advance
the interest in the given issue. It is only an estimate. An issue is understood
to be a collection of mutually substitutable securities issued by a certain
issuer based on its decision. In this decision the issuer primarily determines
the type of security (e.g. share, bond, participation certificate), nominal value and the number.
Segmentation theory
It does not use the concept of a forward interest rate, but it distinguishes between
the preferences of individual investors. Short-term and long-term debentures are negotiated in different markets, a short-term
and a long-term market, which are mutually exclusive, i.e. the long-term
interest rate does not depend on the development of the short-term interest
rate.
Share markets
Share markets are markets on which shares are traded, i.e. instruments having, in theory,
infinite validity. Shares exist until such time as the relevant public
limited company is closed by its liquidation, division or merger with
another company.
Share risk
Share risk - risk on shares: the risk of a change (not neccesarily
limited to a decrease) in the share price.
Shares
These are securities giving their holder (the shareholder) the
right to share in the management of the company, its profit and any liquidation balance if the company is closed.
Short sale
Short sale means that the investor sells a security that he does not own. The intention is to sell
a security at the momentary price in the expectation of repurchasing the
security at some point in the future at a lower price. In order for an
investor to realise a short sale, he borrows the security from another
investor, who owns the given security. During the borrowing period the
short seller must pay the lender of the security all the returns associated
with the security (dividends, coupons, etc.). At the end of the short sale the short
seller then buys the given security on the market and returns it to the
lender. The short seller will make a profit (loss) if he buys the security
for a lower (higher) price. A short sale is not subject to a time limitation.
Collateral, which the lender accepts from the short seller, may represent
a time limitation on a short position.
SIPO
see collection
Spot
A spot is a prompt transaction: purchase or sale of one
currency for another for the current rate of exchange in the financial market at a given moment.
Spot yield curve
Dependence between the expected yield until the definite
due date of the respective instrument, and the definite date is called
spot yields curve. It is important that debentures are issued under the
same conditions with the exception of the due date, so that the differences
in yields are dependent only on that time, i.e. there must be the same
risk of debentures, the same taxation, the same time of payment,
etc.
Spread of portfolio yields
The calculation of the spread of portfolio yields is more
complicated. It is wrong to assume that the spread of portfolio yields
is a weighted average of the spreads of the individual component parts
of a portfolio, i.e. the application of a similar approach as in the determination
of the mean yield of a portfolio. One of the main principles of the present
portfolio theory is that the risk of a portfolio is normally lower than the sum
total of risks of the individual component parts.
Swap
Swap is an English expression for exchange: it designates
a sale of one currency for another one with a repurchase after a certain
period of time for a rate agreed in advance.
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Technical analysis
The changes of prices of stock are determined by many factors and many of them
cannot be anticipated. The estimation of the changes of prices of stock
on the basis of economic factors is the basis of fundamental analysis. The estimation of the changes
of stock on the basis of other factors is the subject of technical analysis,
which is based only on the records of the results of previous operations
in stock. All this is based on the hypothesis that the prices of stock
reflect all the factors including psychological factors, which in short-term
investments are more important than the factors included into fundamental
analysis.
Theories of expectations
Theories of expectation are the most discussed theories
on the temporal structure of interest rates. They consist of several similar
theories. What all the theories of expectation have in common is that
the investors do not differ in the possession of debentures with various
due dates.
Theory of increasing premium for liquidity
According to the theory of increasing premium for liquidity,
yields increase with increasing due dates. Investors who do not invest
into debentures are averse to risk (i.e. they prefer low !!volatility!!130 of yields).
The prices of long-term debentures have a higher volatility. With long-term
debentures, investors require higher yields, by which they compensate
the higher risk.
Theory of local expectation
The expected yield of debentures of all due dates during the following period
is equal to the risk-free interest rate, i.e. to the yield of debentures
with the shortest due date.
Theory of monetary substitute
According to the theory of monetary substitute, very short-term
debentures represent close substitutes of cash. With
regard to the risk, many investors limit themselves to purchases
of short-term instruments of the money market. Therefore the prices of the instruments
of the money market increase and the corresponding interest rates decrease
in comparison with longer due dates. The theory assumes a large number
of investors investing into short-term debentures. Thus as against the
issuers, the buyers strongly prefer short-term due dates. This fact increases
the prices of debentures and decreases the corresponding interest rates.
Theory of preferential behaviour
According to the theory of preferential behaviour, investors
prefer the purchase of debentures of certain due dates, but not only short-term
debentures, and when purchasing other debentures they require higher yields.
This theory is practically a combination of the segmentation theory and of the theory of increasing premium for liquidity. Instead
of the permanently preferred short-term due dates, with the theory of
increasing premium for liquidity the investors may prefer other due dates
depending on their individual investment goals.
Theory of unbiased expectation
Forward interest rates are determined by the market
expectation of future interest rates, i.e. the forward interest rates
are unbiased assessments of future spot interest rates.
Theory of yield curves
The dependence of interest rates (of the yield until the
due date) on the due date of zero coupon bonds in the milieu of perfect financial markets is called a yield curve or
temporal structure of interest rates. A yield curve can be upward-sloping,
flat, downward-sloping. Most often it is upward-sloping. It means that
the longer the due date, the higher the expected yield, and also the higher
the !!volatility!!130 of the price of the debenture.
Traveller's cheques
A traveller’s cheque is a security, which entitles the person printed on it to
receive the amounts stated therein upon its presentation for payment,
subject to the conditions stipulated by the issuer of the cheque.
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Uncertainty equivalent
Besides the use of utility function, risk aversion may also be analysed with the help of
certainty equivalents, which are applied in the case of games of chance.
The uncertainty equivalent of games of chance is defined as the monetary
amount that makes the investor indifferent between certainty and a game
of chance.
UNIVYC, a. s.
The settlement company UNIVYC, a. s. is a 100% subsidiary
company of the PSE. It is responsible for the settlement of operations
in stock, for keeping asset accounts of the members of
the stock exchange and for keeping a record of securities negotiated in the stock exchange. Direct participants
in the settlement of operations with securities in the stock exchange
and outside of the stock exchange are at present all the members of the
stock exchange, who are entitled to purchase and sell securities at the
stock exchange. Direct participants in settlements are the mediating element
between their clients and the settlement company.
Utility function
The utility function is the dependence between utility
(i.e. a subjective value) and the final value from the investment. Under
otherwise equal conditions, all rational investors prefer greater utility
to lower utility. Their utility function is upward-sloping. With investors
averse to risk, every further crown of yield represents a permanently
decreasing utility. If the first crown of yield represents a unit of utility,
the second crown of yield corresponds to a utility lower than the unit
etc. - its utility function is concave. With investors neutral to risk,
every additional crown of yield represents the same additional amount
of utility, which the linear utility function corresponds to. With investors
seeking risk, every additional crown of yield represents a steadily increasing
additional amount of utility and the utility function is convex.
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Volatility
Volatility means fickleness, instability, for example,
of prices, rates, tariffs.
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Warehouse certificates
A certificate of acceptance of an item for storage by a
warehouse operator issued to a bailer may have the character of security, to which is connected the right to require
that the stored item be handed over (warehouse certificate).
Wholesale banking
Wholesale banking is represented by services offered to
enterprises, investment companies, investment funds, pension funds, government
agencies and the like. It includes, for example, providing credits, services
of the depository, leasing, etc.
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Yield until due date
The yield until the due date is a constant interest rate
of discounting cash flow for all due dates of cash flow composed from
coupons and nominal value, by way of this discounting
we obtain the price of the debenture. The price of the debenture and the yield
are inversely proportional.
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Zero-coupon bond
The issue of a zero-coupon bond commits the issuer to pay a nominal value at a
certain date in the future. On the primary and secondary market it is sold for a price lower than
its nominal price. The difference between the nominal value and the sales
price is the so-called discount. A zero-coupon bond does not have coupon repayments between its issue and the repayment
of the nominal value.
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