I |
| Fifth
letter of a Nasdaq stock symbol specifying that it is the third preferred bond of the company. |
IBES |
| See:
Institutional Brokers Estimate System |
IBF |
| See:
International Banking Facility |
IBRD |
| See:
International Bank for Reconstruction and Development |
IC |
| See: Information Coefficient |
IDR |
| See:
International Depository Receipt |
IFC |
| See:
International Finance Corporation |
IMF |
| See:
International Monetary Fund |
IMM |
| See:
International Monetary Market |
IO |
| See: Interest-only strip |
IOC order |
| See:
Immediate or cancelled order |
IOM |
| See:
Index and Option Market |
IPL |
| See:
Investment Product Line |
IPO |
| See:
Initial Public Offering |
IRB |
| See:
Industrial Revenue Bond |
IRR |
| See:
Internal rate of return |
ISDA |
| See:
International Swap Dealers Association |
ISMA |
| See:
International Security Market Association |
ITS |
| See:
Intermarket Trading System |
IBC's money fund report average |
| Report
giving the average yield of all major money market funds. |
I-bonds |
| Treasury
savings bonds with a 30-yeat maturity indexed to account for inflation. |
Identified
shares |
| Stock
or mutual fund whose purchase date and price may be identified for capital gains and tax purposes when shares sold. |
Idiosyncratic Risk |
| Unsystematic risk or risk
that is uncorrelated to the overall market
risk. In other words, the risk that is firm-specific
and can be diversified through holding a portfolio of stocks. |
I-I page |
| In
over-the-counter trading, same as H-H
page, but exclusively for OTC
stocks. |
Illegal dividend |
| A
corporation's dividend that is declared in violation of its charter and/or of state laws, typically because of the way it is calculated. |
Illiquid |
| In
the context of finance. absence of cash flow needed to fulfill financial debts and meet obligations. In the context of investments, describes a lightly traded investment
such as a stock or bond
that is not easily converted into cash. |
Imbalance of orders |
| Used
for listed equity securities. Too many market
orders of one kind-buy or to sell or limit orders to buy up or sell down, without matching orders of the opposite kind. An imbalance usually follows a dramatic event such as a takeover, research recommendation, or death of a key executive, or a government ruling that will significantly affect the company's business. If it occurs before the stock exchange opens, trading
in the stock is delayed. If it occurs during the trading day, the specialist halts and thensuspends
trading (with floor governor's approval) until enough matching orders can be found to make an orderly market. |
Immediate or cancelled order (IOC order) |
| Market or limited
price order that is to be executed
in whole or in part as soon as such order is represented in the trading crowd. The portion not executed is to be treated as cancelled. A stop
is considered an execution in this context. See: AON
order, FOK order. |
Immediate family |
| Term
used in the NASD rules of fair practice to refer to one's parents, brothers, sisters, children, relatives supported financially, father-in-law, mother-in-law, sister-in-law, and brother-in-law. |
Immediate payment annuity |
| An
annuity contract
paid by a single payment and with a specified payment plan the starts immediately after the contract is purchased. |
Immediate settlement |
| Delivery and settlement of securities
within five business days. |
Immunization |
| The
construction of an asset and a liability match that benefits from offsetting changes in value. |
Immunization strategy |
| A
bond portfolio
strategy whose goal is to eliminate the portfolio's risk, in case of a general change in the rate of interest, through the use of duration. |
Impaired capital |
| When
a company's total capital is less than the par value of all its capital
stock. |
Impaired credit |
| Result
of a borrower's reduced credit rating. |
Implied call |
| The
right of the homeowner to prepay, or call,
a mortgage at any time. |
Implied repo rate |
| The
rate that a seller of a futures contract
can earn by buying an issue
and then delivering it at the settlement date. Related: Cheapest
to deliver issue. |
Implied
volatility |
| The expected volatility in a stock's return
derived from its option price,
maturity date, exercise price, and riskless
rate of return, using an option pricing
model such as Black-Scholes. |
Import substitution development strategy |
| A
development strategy followed by many Latin American countries and other L.D.C.s that emphasize import substitution-accomplished through protectionism-as the route to economic growth. |
Imputation tax system |
| Arrangement
by which investors who receive a dividend also receive a tax credit for corporate taxes that the firm has paid. |
Imputed interest |
| Used
in accounting to refer to interest
that has effectively been paid to a bondholder,
even though no money has actually been paid. |
Imputed value |
| Refers
to the value of an asset, service, or company that is not physically recorded in any accounts but is implicit in the product, e.g., the opportunity cost of cash remaining in a savings account and not invested. |
In between |
| Used
in the context of general equities. Priced higher than the bid price but lower than the offer price. See: In
the middle |
In
the box |
| Means that a dealer has a wire receipt for securities, indicating that effective delivery on them has been made. |
In competition |
| Indication that the customer has revealed trading interest to multiple brokers and that the trade
will take place with the firm having the highest bid
or lowest offer. Antithesis of exclusive. |
In hand |
| Used in the context of general equities. Firm indicating control of a bid, offer,
or order. |
In
the hole |
| Used in the context of general equities. Below the inside market when one is attempting to sell the stock; at a significant discount.
Antithesis of premium. |
In-house |
| In
the context of general equities, keeping an activity within the firm. For example, rather than go to the marketplace and sell a security for a client to anyone, an attempt is made to find a buyer to complete the transaction with the firm. Although a listed trade must be taken to the floor of the stock exchange, matching supply with demand within the confines of the firm results in higher commissions for the firm. |
In-house processing float |
| The
time it takes the receiver of a check to process a payment and deposit it in a bank for collection. |
In-line |
| Used
in the context of general equities. (1) An order
or market in a specific security
within the inside market; 2) any announcement (earnings) that adheres closely to Wall Street analysts' expectations. |
In the middle |
| Used
in the context of general equities. At a price exactly in between the bid and offer
prices. |
In-the-money |
| A
put option that has a strike
price higher than the underlying
futures price, or a call
option with a strike price
lower than the underlying futures price. For example, if the March COMEX silver futures contract is trading at $6 an ounce, a March call with a strike price of $5.50 would be considered in the money by $0.50 an ounce. Related: Put. Antithesis of out-of-the-money. |
In play |
| Often
used in risk arbitrage. Company that has become the target of a takeover,
and whose stock has now become a speculative issue. |
In
& out |
| Refers to over-the-counter trading. Trade in which the trader
has both the buyers and sellers lined up for a clean
trade. See: Cross |
In-and-out trader |
| A
daytrader, or a speculator
who buys and sells the same security
on the same day. |
In
the tank |
| Used in the context of general equities. Slang expression meaning market prices
are dropping rapidly. |
In touch with |
| Used
in the context of general equities. Having a sell inquiry in a stock
(not a firm customer sell order), often entailing a capital commitment. Antithesis of looking for. |
In-substance defeasance |
| Process
through which debt is removed from the balance
sheet but not cancelled. |
Inactive asset |
| Asset not used in a productive manner at all times. |
Inactive post |
| Trading post on NYSE
floor where inactive, lightly traded stocks
are traded in 10-share
lots as opposed to 100-share
lots. |
Inactive stock/bond |
| A
security that trades
in very small volume on a daily basis. See:: Illiquid. |
Incentive
fee |
| Compensation paid to commodities trading
advisers or to any practitioner who achieves above-average returns. Sometimes called performance fee. |
Incestuous share dealing |
| Trading of shares
between companies in order to create a tax or financial benefit for the companies involved. |
Income beneficiary |
| One
who receives income from a trust. |
Income
bond |
| A bond
whose payment of interest is contingent on sufficient earnings. These bonds are commonly used during the reorganization of a failed or failing business. |
Income dividend |
| Any
payout to mutual fund shareholders
resulting from interest, dividends, or other income. |
Income exclusion rule |
| The
IRS rule that excludes certain types of income from taxation, e.g., welfare payments. |
Income fund |
| A
mutual fund that seeks to provid to liberal current income from investments. |
Income investment company |
| A
management company focused on managing a mutual
fund whose primary purpose is income generation, typically investing in bonds and high dividend yielding stocks. |
Income
limited partnership |
| A limited partnership whose main goal is income generation, e.g., real estate, oil equipment. |
Income property |
| Real
estate purchased for the reasons of income generation. |
Income statement (statement of operations) |
| A
statement showing the revenues, expenses, and income (the difference between revenues and expenses) of a corporation over some period of time. |
Income stock |
| Common stock with a high dividend
yield and few profitable investment opportunities. |
Income tax |
| A
state or federal government's levy on individuals as personal income tax and on the earnings of corporations as corporate income tax. |
Incontestability clause |
| Clause
in a life insurance contract
preventing the insurer from revoking the policy after it has been in force for a year or two if the life insurance company discovers any important facts that the policyholder may have concealed, such as experiencing a stroke. |
Incorporation |
| A
legal process through which a company receives a charter and the state in which it is based allows it to operate as a corporation. |
Incremental cash flows |
| Difference
between the firm's cash flows
with and without a project. |
Incremental
cost of capital |
| Average cost applicable to the issue of each additional unit of debt and equity. |
Incremental costs and benefits |
| Costs
and benefits that would occur if a particular course of action is taken, compared to those that would have obtained if that course of action had not been taken. |
Incremental internal rate of return |
| Internal rate of return (I.R.R.)
on the incremental investment from choosing a larger instead of a smaller project. |
Indemnify |
| Used
in insurance policy agreements as to compensation for damage or loss. Hold harmless |
Indenture |
| Agreement
between lender and borrower that details specific terms of the bond issuance.
Specifies legal obligations of bond issuer
and rights of bondholders. An indenture spells out the specific terms of a bond, as well as the rights and responsibilities of both the issuer of the security
and the holder. |
Independent auditor |
| A
certified public accountant operating outside the company who can provide an accountant's opinion. |
Independent broker |
| NYSE member who executes
orders for floor
brokers and firms other than its own. |
Independent project |
| A
project whose acceptance or rejection is independent of the acceptance or rejection of other projects. |
Index |
| Statistical
composite that measures changes in the economy or in financial markets, often expressed in percentage changes from a base year or from the previous month. Indexes measure the ups and downs of stock, bond,
and some commodities markets,
in terms of market prices and weighting of companies the index. |
Index arbitrage |
| An
investment/trading strategy that exploits divergences between actual and theoretical futures prices. An example is the simultaneous buying (selling) of stock index futures
(i.e., S&P 500) while selling (buying) the underlying stocks
of that index, capturing as profit the temporarily inflated basis between these two baskets. Often, the point at which profitability exists is expressed at the block call as the number of points the future must be over or under the underlying basket
for an arbitrage opportunity to exist. See: Program trading. |
Index fund |
| Investment
fund designed to match the returns
on a stock market index.
Mutual fund whose portfolio
matches that of a broad-based index such as the S&P
500 and whose performance therefore mirrors the market
as represented by that index. |
Index
model |
| A model of stock
returns using a market index
such as the S&P 500 to represent common or systematic
risk factors. |
Index option |
| A
call or put
option based on a stock market
index. |
Index
and Option Market (IOM) |
| A
division of the CME established in 1982 for trading stock index products and options. |
Index warrant |
| A
stock index option
issued by either a corporate or a sovereign entity as part of a security offering,
and guaranteed by an option clearing corporation. |
Indexed bond |
| Bond whose payments are linked to an index, e.g., the consumer
price index. |
Indexing |
| A passive instrument strategy calling for construction of a portfolio of stocks designed to track the total return performance of an index
of stocks. |
Indexing plus |
| See:
Enhanced indexing |
Indicated dividend |
| Total
amount of dividends that would be paid on a share of stock over the next 12 months if each dividend were the same amount as the most recent dividend. Usually represented by the letter "e" in stock tables. |
Indicated yield |
| The
yield, based on the most recent quarterly rate times four. To determine the yield, divide the annual dividend by the price of the stock. The resulting number is represented as a percentage. See: Dividend yield. |
Indication |
| (1)
Notice given by a dealer (through Autex)
or customer of an interest in buying or selling stock, sometimes including specific volume and price; (2) approximation of where a specialist sees buy and sell interest to tighten the range to an opening price. |
Indication of interest |
| A
dealer's or investor's
interest in purchasing (not commitment to buy) securities that are still in the underwriting stage and are being registered by the Securities and Exchange Commission. |
Indicator |
| Used
in the context of general equities. Technical
or fundamental measurement that securities analysts use to forecast the market's direction, such as investment advisory sentiment, volume of stock trading, direction of interest rates, and buying or selling by corporate insiders. |
Indifference
curve |
| The expression in a graph of a utility function, where the horizontal axis measures risk and the vertical axis measures expected return. The curve connects all portfolios with the same utility. |
Indirect quote |
| For
foreign exchange, the number of units of a foreign currency needed to buy one U.S. dollar. |
Individual Retirement Account (IRA) |
| A
retirement account that may be established by an employed person. IRA contributions are tax deductible according to certain guidelines, and the gains in the account are tax-deferred. |
Individual Retirement Account (IRA) rollover |
| A
provision of the law governing IRA's
that enables a retiree or anyone receiving a lump-sum
payment from a pension, profit-sharing,
or salary reduction plan to transfer the amount into an IRA. |
Individual tax return |
| A
tax return filed by an individual to account for their personal income and taxes payable. |
Inductive reasoning |
| The
attempt to use information about a specific situation to draw a conclusion. |
Industrial production |
| A
statistic determined by the Federal Reserve Board
focusing on the total output of all U.S. factories and mines on a monthly basis. Used as an economic indicator. |
Industrial revenue bond (IRB) |
| A
bond issued
by local government agencies
on behalf of corporations. |
Industrials |
| General
term used in the financial markets to refer to companies manufacturing, producing, or distributing goods and services. |
Industry |
| The
category describing a company's primary business activity. This category is usually determined by the largest portion of revenue. |
Infant industry argument |
| Argument
that industries in the developing and emerging sectors
of the economy need protection against international competition in order to establish themselves. |
Inflation |
| The
rate at which the general level of prices
for goods and services is rising. |
Inflation
accounting |
| Accounting practices allowing for the effects of inflation. |
Inflation-escalator
clause |
| A clause in a contract providing for increases or decreases in inflation depending on fluctuations in the cost of living, production costs, and so forth. |
Inflation hedge |
| Investments designed to hedge
against inflation and the loss of purchasing
power associated with it. |
Inflation-indexed
securities |
| Securities
such as bonds or notes
that guarantee a return higher than the rate of inflation if the security
is held to maturity. |
Inflation risk |
| Also
called purchasing power risk,
the risk that changes in the real return the investor
will realize after adjusting for inflation will be negative. |
Inflation uncertainty |
| The
fact that future inflation rates are not known. It is a possible contributing factor to the makeup of the term structure of interest rates. |
Inflexible expenses |
| Expenses
that cannot be adjusted or eliminated such as car payments or rental payments. Antithesis of flexible expenses. |
Information asymmetry |
| Condition
that information is known to some, but not all, participants. |
Information Coefficient (IC) |
| The
correlation between predicted and actual stock returns,
sometimes used to measure the contribution of a financial analyst. An IC of 1.0 indicates a perfect linear relationship between predicted and actual returns, while an IC of 0.0 indicates no linear relationship. |
Information content effect |
| The
rise in the stock price
following a dividend signal,
or publication of some other related news. |
Information costs |
| Transactions costs that include the assessment of the investment merits of a financial asset. Related: Search
costs. |
Information-motivated trades |
| Trades in which an investor
believes he or she possesses pertinent information not currently reflected in the stock's price. |
Information services |
| Organizations
that furnish investment and other types of information, such as information that helps a firm monitor its cash position. |
Informational efficiency |
| The
speed and accuracy with which prices
reflect new information. |
Informationless
trades |
| Trades
that are the result of either a reallocation of wealth or an implementation of an investment strategy that acts only on existing information. |
Infrastructure |
| A
country's fundamental system of transportation, communications, and other aspects of its physical capabilities. |
Ingot |
| A
bar of metal such as the type that the Federal
Reserve System uses to store gold reserves. |
Inheritance tax return |
| Tax
form required to determine the amount of state tax due on an inheritance. |
Initial filing |
| Has
various meanings. It could refer to a form that is filed with the Securities and Exchange Commission in advance of a major event, such as a public offering or a share repurchase. It could also refer to filings that occur before legal inside transactions. |
Initial margin |
| (1)
Amount of money deposited by both buyers and sellers of futures contracts to ensure performance of the terms of the contract; (2) amount of cash or eligible securities
required to be deposited with a broker
before engaging in margin transactions. |
Initial margin requirement |
| When
buying securities on margin,
the proportion of the total market value
of the securities that the investor
must pay for in cash. The Security Exchange Act of 1934 gives the Board of Governors of the Federal Reserve the responsibility to set initial margin requirements, but individual brokerage firms are free to set higher requirements. In futures contracts, initial margin
requirements are set by the exchange. |
Initial public offering (IPO) |
| A
company's first sale of stock
to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept considerable risks for the possibility of large gains. IPOs by investment companies (closed-end funds)
usually include underwriting
fees that represent a load to buyers. |
Initiate coverage |
| (1)
Firm is now followed by analysts at a particular securities house; (2) Indication to cover short
position by purchasing the underlying
stock (this cancels out the short position). |
Input-output tables |
| Tables
that indicate how much each industry
requires of the production of each other industry in order to produce each dollar of its own output. |
Inquiry |
| Used
in the context of general equities. In-line
expression of interest in a particular stock,
usually asking the firm to bid
for or offer stock. |
Inside market |
| Refers
to over-the-counter trading. Best (highest) bid
and best (lowest) offer, often used in the O.T.C. Market. See: In-line. |
Insider information |
| Material
information about a company that has not yet been made public. It is illegal for holders of this information to make trades based on it, however received. |
Insider trading |
| Trading
by officers, directors, major stockholders, or others who hold private inside information allowing them to benefit from buying or selling stock. |
Insider
Trading Sanctions Act of 1984 |
| Act
imposing civil and criminal penalties for insider
trading violations. |
Insiders |
| These
are directors and senior officers of a corporation-in effect, those who have access to inside information about a company. An insider also is someone who owns more than 10% of the voting shares of a company. |
Insolvency risk |
| The
risk that a firm will be unable to satisfy its debts. Also known as bankruptcy
risk. |
Insolvent |
| A
firm that is unable to pay debts
(its liabilities exceed its assets). |
Installment
sale |
| The sale of an asset in exchange for a specified series of payments (the installments). |
Instinet (Institutional Networks Corporation) |
| Computerized
subscriber service that serves as a vehicle for the fourth market. "Instinet" is registered with the SEC As a stock
exchange it numbers among its subscribers a large number of mutual funds and other institutional
investors linked to each other by computer terminals. The system permits subscribers to display bids and offers
(which are exposed system wide for whatever length of time the initiating party specifies) and to consummate trades electronically. Instinet is largely used by market makers, but, nonmarket makers and customers have equal access. |
Institutional broker |
| A
broker who buys and sells securities for institutional
investors such as banks, and mutual
funds, pensions. |
Institutional Brokers' Estimate System (IBES) |
| Service
that assembles analysts' estimates of future earnings for thousands of publicly traded companies, detailing how many estimates are available for each company and the high, low, and average estimates for each. |
Institutional investors |
| Organizations
that invest, including insurance companies, depository institutions, pension funds, investment companies, mutual funds, and endowment
funds. |
Institutionalization |
| The
gradual domination of financial markets
by institutional investors,
as opposed to individual investors.
This process has occurred throughout the industrialized world. |
Instrumentality |
| Notes issued
by a federal agency whose obligations are guaranteed by the full-faith-and-credit of the government, even though the agency's responsibilities are not necessarily those of the U.S. government. |
Instruments |
| Financial
securities, such as money
market instruments or capital market instruments. |
Insurable interest |
| An
insurance term referring to the relationship between a policy's insured person or property and the potential beneficiary. The beneficiary must have an insurable interest in the insured person or property to receive payment of the policy if the insured died while the policy was in force. |
Insurance |
| Guarding
against property loss or damage making payments in the form of premiums to an insurance company, which pays an agreed-upon sum to the insured in the event of loss. |
Insurance agent |
| The
insurance company representative and adviser who sells insurance policies. |
Insurance broker |
| A
broker, independent of any insurance company, who represents the interests of the buyer in searching for insurance coverage at the lowest cost and providing the highest benefit to the buyer. |
Insurance claim |
| A
claim for reimbursement from the insurance company when the insured has suffered a loss that is covered under an insurance policy. |
Insurance dividend |
| Money
paid annually to policyholders participating in cash value life insurance policies. |
Insurance policy |
| A
contract detailing an insurance
policy and outlining what risks are insured, what insurance premiums are to be paid by the policyholder, what deductibles prevail, and all the details associated with a policy. |
Insurance premium |
| Payments
calculated by the insurance company based on risk factors that must be made by the insured to guarantee protection of property loss under an insurance policy. |
Insurance principle |
| The
law of averages. The average outcome for many independent trials of an experiment will approach the expected value of the experiment. |
Insurance settlement |
| The
payment of proceeds by an insurance company to the insured to settle an insurance claim within the guidelines stipulated in the insurance policy. |
Insured |
| The
property or persons covered by an insurance
policy. |
Insured account |
| A
bank or financial account that is insured for the benefit of the depositor, protecting against loss in the event that the savings institution becomes insolvent. See: FDIC. |
Insured
bond |
| A municipal
bond backed both by the credit of the municipal issuer and by commercial insurance policies. |
Insured plans |
| Defined
benefit pension plans that are guaranteed by life insurance products. Related: Non-insured plans |
Intangible asset |
| A
legal claim to some future benefit, typically a claim to future cash. Goodwill,
intellectual property, patents, copyrights, and trademarks are examples of intangible assets. |
Integer programming |
| Variant
of linear programming in which the solution values must be integers. |
Interbank rate |
| See:
LIBOR |
Intercommodity
spread |
| In the commodities
market, a spread
consisting of a long position
and a short position in different but related commodities for example, speculating that the price relationship between the two commodities will change, e.g., platinum and gold. |
Intercompany loan |
| Loan made by one unit of a corporation to another unit of the same corporation. |
Intercompany transaction |
| Transaction carried out between two units of the same corporation. |
Interdelivery spread |
| Used
in futures or options
market to refer the purchase of one month of a contract
and selling another month in the same contract,
in the hope that the price difference will widen or narrow, depending on the investment. |
Interest |
| The
price paid for borrowing money. It is expressed as a percentage rate over a period of time and reflects the rate of exchange of present consumption for future consumption. Also, a share or title in property. |
Interest coverage ratio |
| The
ratio of earnings before interest
and taxes to annual interest expense. This ratio measures a firm's ability to pay interest. |
Interest coverage test |
| A
debt limitation that prohibits the issuance of additional long-term debt if the issuer's
interest coverage would, as a result of the issue,
fall below some specified minimum. |
Interest
deduction |
| An interest
expense, such as interest
on a margin account, that is allowed as a deduction for tax purposes. |
Interest equalization tax |
| Tax
on foreign investment by residents of the U.S. which was abolished in 1974. |
Interest expense |
| Interest
expense is the money the corporation or individual pays out in interest on loans. |
Interest on interest |
| Interest
earned on reinvestment of each interest
payment on money invested. See: compound
interest. |
Interest-only loan |
| A
loan in which payment of principal is deferred and interest
payments are the only current obligation. |
Interest-only strip (IO) |
| A
security based solely on the interest payments from a pool of mortgages, Treasury
bonds, or other bonds.
Once the principal on the mortgages or bonds has been repaid, interest payments stop, and the value of the IO falls to zero. |
Interest payments |
| Contractual debt
payments based on the coupon
rate of interest and the principal amount. |
Interest rate |
| The
monthly effective interest rate. For example, the periodic rate on a credit card with an 18% annual percentage rate is 1.5% per month. |
Interest rate agreement |
| An
agreement whereby one party, for an up-front premium, agrees to compensate the other at specific time periods if a designated interest rate (the reference rate) is different from a predetermined level (the strike rate). |
Interest rate cap |
| An
interest rate agreement in which payments are made when the reference rate exceeds the strike rate. Also called an interest rate ceiling. |
Interest rate on debt |
| The
firm's cost of debt capital. |
Interest rate ceiling |
| See:
Interest rate cap |
Interest rate floor |
| An
interest rate agreement in which payments are made when the reference rate falls below the strike rate. Related: Interest rate cap. |
Interest rate futures contract |
| A
futures contract
based on an interbank deposit rate or an underlying
debt security. The value of the contract rises and falls inversely to changes in interest rates. |
Interest rate parity theorem |
| Expression
that the interest rate differential between two countries is equal to the difference between the forward foreign
exchange rate and the spot rate. |
Interest rate risk |
| The
chance that a security's value will change due to a change in interest rates. For example, a bond's price drops as interest rates rise. For a depository institution, also called funding risk: The risk that spread income will suffer because of a change in interest rates. |
Interest rate swap |
| A
binding agreement between counterparties
to exchange periodic interest payments
on some predetermined dollar principal, which is called the notional principal amount. For example, one party will pay fixed and receive variable. |
Interest-sensitive
insurance policy |
| A cash value life insurance policy whose insurance dividend rates vary with respect to inflation, enabling the policyholder to avoid the loss of purchasing power associated with inflation. |
Interest-sensitive
stock |
| Stocks
whose earnings are dependent upon and change with the interest rate, e.g., bank stocks. |
Interest subsidy |
| The
value of a firm's deduction of the interest payments on its debt from its earnings
before calculation of its tax bill under current tax law. |
Interest tax shield |
| The
reduction in income taxes that results from the tax-deductibility of interest payments. |
Interim dividend |
| The
declaration and payment of a dividend
prior to annual earnings determination. |
Interim financing |
| A
short-term loan made to a company on the condition that a takeout will follow with long-term or intermediate financing. |
Interim statement |
| A
financial statement that reflects only a limited period of a company's financial statement, not the entire fiscal year. |
Interlocking directorate |
| Describes
cross-memberships of directors on each other's company Board of Directors. |
Intermarket sector spread |
| The
spread between the interest
rate offered in two sectors of the bond
market for issues of the same maturity. |
Intermarket
spread swaps |
| An exchange of one bond for another based on the manager's projection of a realignment of spreads between sectors of the bond market. |
Intermarket Surveillance Information System (ISIS) |
| A
database that distributes information from all the major stock exchanges in the United States. |
Intermarket Trading System (ITS) |
| Electronic
communications network linking the trading
floors of seven registered exchanges
to permit trading among them in stocks
listed on either the NYSE or AMEX and one or more regional
exchanges. Through ITS, any broker
or market maker on the floor of any participating exchange can reach other participants for an execution whenever the nationwide quote shows a better price available. A floor broker on the exchange can enter an ITS order to assure excecution of all of an offering or bid,
instead of splitting it with competing brokers. |
Intermediary |
| See:
Financial intermediary |
Intermediate-term |
| Typically
one-ten years. |
Intermediation |
| Investment
through a financial institution. Related: Disintermediation. |
Internal auditor |
| An
employee of a company who analyzes the company's accounting records to that the company is following and complying with all regulations. |
Internal expansion |
| Growth
of assets resulting from internal financing or internally generated cash flow. |
Internal finance |
| Finance
generated within a firm by retained earnings
and depreciation. |
Internal growth rate |
| Maximum
rate a firm can expand without outside sources of funding. Growth generated by cash flows retained by company. |
Internal market |
| The
mechanisms for issuing and trading securities within a nation, including its domestic market and foreign
market. Compare: External market. |
Internal measure |
| The
number of days that a firm can finance operations without additional cash income. |
Internal rate of return (IRR) |
| Dollar-weighted rate of return.
Discount rate at which net
present value (NPV) investment is zero. The rate at which a bond's future cash
flows, discounted back to today, equal its price. |
Internal Revenue Code |
| The
various statutes and regulatilons making up federal tax law. |
Internal Revenue Service (IRS) |
| The
federal agency responsible for the collection of federal taxes, including personal and corporate income taxes, Social Security taxes, and excise and gift taxes. |
Internal Revenue Service Restructuring and Reform Act of 1998 |
| The
legislation targeted at IRS
reform, particularly related to the time period required for capital gains and taxpayer protection and rights. |
Internally efficient market |
| See:
Operationally efficient market |
International arbitrage |
| Simultaneous
buying and selling of foreign securities and A.D.R.s
to capture the profit potential created by time, currency, and settlement inconsistencies that vary across international borders. |
International Bank for Reconstruction and Development (IBRD) |
| IBRD
or World Bank makes loans
at nearly conventional terms to countries for projects of high economic priority. |
International Banking Facility (IBF) |
| A
branch that an American bank establishes in the United States to do Eurocurrency business. |
International bonds |
| A
collective term that refers to global bonds, Eurobonds,
and foreign bonds. |
International Depository Receipt (IDR) |
| A
receipt issued by a bank as evidence of ownership of one or more shares of the underlying
stock of a foreign corporation that the bank holds in trust. The advantage of the IDR structure is that the corporation does not have to comply with all the issuing requirements of the foreign country where the stock is to be traded. The U.S. version of the IDR is the American Depository Receipt (ADR). |
International diversification |
| The
attempt to reduce risk by investing in more than one nation. By diversifying across nations whose economic cycles are not perfectly correlated, investors
can typically reduce the variability of their returns. |
International Finance Corporation (IFC) |
| A
corporation owned by the World Bank
that produces a number of well-known stock indexes for emerging markets. Its major role is to provide financing for projects in less developed countries. |
International finance subsidiary |
| A
subsidiary incorporated in the U.S., usually in Delaware, whose sole purpose once was to issue debentures
overseas and invest the proceeds in foreign operations, with the interest paid to foreign bondholders
not subject to U.S. withholding tax. Elimination of the corporate withholding tax has ended the need for this type of subsidiary. |
International Fisher effect |
| States
that the interest rate differential between two countries should be an unbiased predictor of the future change in the spot rate. |
International
fund |
| A mutual
fund that can invest only outside the United States. |
International market |
| Related:
External market |
International market index |
| An
index listed on the American
Stock Exchange tracking the performance of 50 American Depository Receipts traded on the AMEX,
NYSE, and NASDAQ. |
International Monetary Fund (IMF) |
| An
organization founded in 1944 to oversee exchange arrangements of member countries and to lend foreign currency reserves to members with short-term balance of payment problems. |
International Monetary Market (IMM) |
| A
division of the CME established in 1972 for trading financial futures. Related: Chicago
Mercantile Exchange (CME) |
International
mutual fund |
| A mutual
fund that invests strictly in securities
markets throughout the world, excluding the United States. A global fund, on the other hand, invests in both foreign and domestic securities. |
International
Petroleum Exchange (IPE) |
| Energy
futures and options
exchange based in London. |
International Security Market Association (ISMA) |
| Swiss
law association located in Zurich that regroups all the participants on the Eurobond primary
and secondary markets. Establishes uniform trading procedures in the international bond markets. |
International Stock Exchange of the U.K. and the Republic of Ireland (ISE) |
| Organization
that replaced the London stock exchange after its merger with the International Securities Regulatory Organization (ISRO). |
International Swap Dealers Association (ISDA) |
| Formed
in 1985 to promote uniform practices in the writing, trading, and settlement of swaps and other derivatives. |
Interpolation |
| A
method of approximating a price or yield
that is unknown by using numbers that are known. |
Interpositioning |
| The
practice of using a second broker
in a securities transaction,
which is considered illegal it is if used to generate additional commission. |
Inter
vivos trust |
| A trust
created between living persons. Antithesis of a testamentary
trust. |
Intracommodity spread |
| Used
in the context of futures trading to refer to a trader
holding, buying, and selling contracts
in the same commodity on the same exchange, but for different months. |
Intraday |
| Term
meaning "within the day," often to refer to the high and the low price of a stock. |
Intramarket
sector spread |
| The spread
between two issues of the same maturity within a market
sector. For instance, the difference in interest
rates offered for five-year industrial corporate
bonds and five-year utility corporate
bonds. |
Intrastate offering |
| A
securities offering
limited to just one state in the United States. |
Intrinsic value of an option |
| The
amount by which an option is in the money. An option
that is not in the money has no intrinsic value. |
Intrinsic value of a firm |
| The
present value of a firm's expected future net cash flows discounted by the required rate of return. |
Inventory |
| For
companies: Raw materials, items available for sale or in the process of being made ready for sale. They can be individually valued by several different means, including cost or current market value, and collectively by FIFO (First in, first out), LIFO (Last in, first out) or other techniques. The lower value of alternatives is usually used to preclude overstating earnings and assets.
For securities firms: Securities bought and held by a broker or dealer
for resale. |
Inventory financing |
| Used
in the context of factoring
and general finance to refer to loans to consumer product producers that use inventory as collateral. See also: Inventory
loan. |
Inventory
loan |
| A secured short-term loan to purchase inventory. The three basic forms are a blanket inventory lien, a trust receipt, and field
warehousing financing. |
Inventory turnover |
| The
ratio of annual sales to average inventory,
which measures the speed at which inventory is produced and sold. Low turnover is an unhealthy sign, indicating excess stocks and/or poor sales. |
Inverse floater |
| A
derivative instrument whose coupon rate is linked to the market rate of interest
in an inverse relationship. |
Inverse
floating-rate note |
| A variable-rate security
whose coupon rate
increases as a benchmark interest
rate declines. |
Inverted market |
| A
futures market
in which the nearer months are selling at price premiums to the more-distant months. Related: Premium. |
Inverted
scale |
| A serial bond offering whose bonds
with earlier maturity dates
have higher yields than bonds
with later maturity dates. |
Inverted yield curve |
| When
short-term interest rates are higher than long-term rates. Antithesis of positive yield curve. |
Investment |
| The
creation of more money through the use of capital. |
Investment Advisers Act |
| Legislation
passed in 1940 requiring financial advisers to register with the Securities and Exchange Commission.
The measure was enacted to protect the public from fraud or misrepresentation by investment advisers. |
Investment advisory service |
| A
business that specializes in providing investment
advice for a fee. All advisers of an advisory service must be registered with the Securities and Exchange Commission. |
Investment analysts |
| Related:
Financial analysts |
Investment bank |
| Financial
intermediaries who perform a variety of services, including aiding in the sale of securities, facilitating mergers and other corporate reorganizations, acting as brokers to both individual and institutional clients, and trading for their own accounts. See: Underwriters. |
Investment
certificate |
| A document that serves as proof that an individual has an investment in a savings and loan association. |
Investment climate |
| Factors
such as economic, monetary, and other conditions that affect the performance of investments. |
Investment club |
| A
group of people who combine their money into a larger pool, then invest collectively in stocks and bonds,
making decisions as a group. |
Investment company |
| A
firm that that invests the funds of investors
in securities appropriate for their stated investment objectives in return for a management fee. See also: Mutual fund. |
Investment
Company Act of 1940 |
| Legislation that requires investment companies to register with the SEC and that outlines standards by which they must operate. |
Investment decisions |
| Decisions
concerning the asset side of a firm's balance sheet, such as the decision to offer a new product. |
Investment-grade bonds |
| A
bond that is assigned a rating in the top four categories by commercial credit rating companies. S&P classifies investment-grade bonds as BBB or higher, and Moody's classifies investment grade bonds as Ba or higher. Related: High-yield bond. |
Investment history |
| The
history of a member firm that establishes certain norms in respect of its investment practice. |
Investment income |
| The
revenue from a portfolio of invested assets. |
Investment
letter |
| A letter
of intent between the issuer
of new securities and the buyer, in the private placement of these new securities. The letter of intent establishes that the securities are being bought for a minimum time period and are treated as an investment, not for resale. If no such letter exists, the securities must be registered with Securities and Exchange Commission. |
Investment management |
| The
process of managing money. Also called portfolio
management and money management. |
Investment manager |
| The
individual who manages a portfolio
of investments. Also called a portfolio
manager or a money manager. |
Investment objective |
| The
financial objective of an investor.
Whether the investor requires income or capital appreciation,
for example. The investor's
objective governs the investment strategy. |
Investment philosophy |
| The
style and general ideology of investment
practiced by an investor. Certain investors favor small-capitalization
stocks, while others prefer large blue-chip stocks, for example. |
Investment product line (IPL) |
| The
line of required returns for investment projects as a function of beta (nondiversifiable
risk). |
Investments |
| As
a discipline, the study of financial securities, such as stocks and bonds,
from the investor's viewpoint. |
Investment software |
| Computer
software that helps investors
make investment decisions by identifying situations that meet programmed parameters. |
Investment strategy |
| A
strategy, or plan of attack, an investor
uses when deciding how to allocate capital
among several options including stocks,
bonds, cash equivalents, commodities, and real estate. The strategy should take into account the investor's tolerance for risk as well as future needs for capital. |
Investment
strategy committee |
| A committee within a brokerage firm that conducts research and makes recommendations on the firm's stated investment strategy. |
Investment Tax Credit |
| Proportion
of new capital investment that could be used to reduce a company's tax bill (abolished in 1986). |
Investment trust |
| A
closed-end fund
regulated by the Investment Company Act of 1940. These
funds have a fixed
number of shares
that are traded on the
secondary markets, like corporate stock. The market price may exceed the net asset value per share, in which case shares are selling at a premium. When the market price
falls below the (NAV)/share,
shares are selling at a discount.
Many closed-end funds
are of a specialized nature; the portfolio
represents a particular industry or, country. These funds are usually listed on U.S. and foreign exchanges. |
Investment value |
| Applies
mainly to dealer securities. Fixed income value of a convertible, the price at which the convert would have to sell as a straight debt instrument relative to the yield of other bonds of like maturity,
or size, and quality; represents a presumed floor to the bond, assuming the continued creditworthiness of the issuer and the general level of interest rates. Bond
value. See: conversion value. |
Investor |
| The
owner of a financial asset. |
Investor fallout |
| In
the mortgage pipeline, risk
that occurs when the originator commits loan
terms to the borrowers and gets commitments from investors at the time of application, or if both sets of terms are made at closing. |
Investor relations |
| The
process by which the corporation communicates with its investors. |
Investor's
equity |
| The balance of a margin account. Related: Buying
on margin, initial margin requirement. |
Investors service bureau |
| NYSE service that deals with all general inquiries concerning securities investments. |
Invoice |
| Bill
written by a seller of goods or services and submitted to a purchaser for payment. |
Invoice billing |
| Billing
system in which invoices are sent off at the time of customer orders and are all separate bills to be paid. |
Invoice date |
| Usually
the date when goods are shipped. Payment dates are set relative to the invoice date. |
Invoice price |
| The
price that the buyer of a futures contract
must pay the seller when a Treasury bond
is delivered. |
Involuntary liquidation preference |
| A
premium that must be paid to preferred or preference stockholders if the issuer
of the stock is forced into involuntary liquidation. |
IRA/Keogh accounts |
| Special
accounts that allow saving taxes deferred
until money is withdrawn. These plans are subject to frequent changes in law with respect to the deductibility of contributions. Withdrawals of tax-deferred contributions are taxed as income, including the capital gains from such accounts. |
Irredeemable bond |
| A
bond lacking a call
feature or a right of redemption.
Also refers to a perpetual bond. |
Irrational call option |
| The
implied call imbedded in a MBS. Irrational because the call is sometimes not exercised when it is in the money (interest rates are below the threshold to refinance), and sometimes exercised when it is not in the money. Option exercise like this affects payments on the MBS. |
Irrelevance result |
| The
Modigliani and Miller theorem that a firm's capital structure is irrelevant to the firm's value. |
Issue |
| A
particular financial asset. |
Issued share capital |
| Total
amount of shares that have been issued. Related: Outstanding
shares. |
Issuer |
| An
entity that puts a financial asset
in the marketplace. |
Italian
Derivatives Market (IDEM) |
| A
derivatives market operated by the Italian Stock Exchange Council. It trades futures
and options on the 30 index and individual stock options. See: Italian
Stock Exchange. |
Italian Stock Exchange (ISE) |
| The
Milan-based stock exchange,
which came into effect after the unification of Italy's ten national exchanges in 1991. All listed securities are traded
electronically. The main indexes are the MIB and the MIBTEL, based on the prices of all listed shares, and the MIB 30, based on a sample of the 30 most liquid and highly capitalized shares. |
Itemized
deduction |
| Specific deductions
allowed by the IRS outlined in the tax return. |
"It's us," |
| Used
in the context of general equities. "The firm, and not a customer, is the party involved." |