Wednesday, August 31, 2011

Dictionary of Financial and Business Terms (Part 2)

Act of state doctrine :This doctrine says that a nation is sovereign within its own borders and its domestic actions may not be questioned in the courts of another nation.

Active :A market in which there is much trading.

Active portfolio strategy :A strategy that uses available information and forecasting techniques to seek a better performance than a portfolio that is simply diversified broadly. Related: passive portfolio strategy

Actuals :The physical commodity underlying a futures contract. Cash commodity, physical.

Additional hedge :A protection against borrower fallout risk in the mortgage pipeline.

Adjustable rate preferred stock (ARPS) :Publicly traded issues that may be collateralized by mortgages and MBSs.

Adjusted present value (APV) The net present value analysis of an asset if financed solely by equity (present value of un-levered cash flows), plus the present value of any financing decisions (levered cash flows). In other words, the various tax shields provided by the deductibility of interest and the benefits of other investment tax credits are calculated separately. This analysis is often used for highly leveraged transactions such as a leverage buy-out.

Administrative pricing rules IRS rules used to allocate income on export sales to a foreign sales corporation.

Advance commitment A promise to sell an asset before the seller has lined up purchase of the asset. This seller can offset risk by purchasing a futures contract to fix the sales price.

Adverse selection A situation in which market participation is a negative signal.

Affirmative covenant A bond covenant that specifies certain actions the firm must take.

After-tax profit margin The ratio of net income to net sales.

After-tax real rate of return Money after-tax rate of return minus the inflation rate.

Agencies Federal agency securities.

Agency bank A form of organization commonly used by foreign banks to enter the U.S. market. An agency bank cannot accept deposits or extend loans in its own name; it acts as agent for the parent bank.

Agency basis A means of compensating the broker of a program trade solely on the basis of commission established through bids submitted by various brokerage firms. agency incentive arrangement. A means of compensating the broker of a program trade using benchmark prices for issues to be traded in determining commissions or fees.

Agency cost view 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.

Agency costs The incremental costs of having an agent make decisions for a principal.

Agency pass-throughs Mortgage pass-through securities whose principal and interest payments are guaranteed by government agencies, such as the Government National Mortgage Association (" Ginnie Mae "), Federal Home Loan Mortgage Corporation (" Freddie Mac") and Federal National Mortgage Association (" Fannie Mae").

Agency problem Conflicts of interest among stockholders, bondholders, and managers.

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