Cyber*School

The value with which off-balance positions are weighted, to calculate the required capital adequacy.

abbr. (US-) Generally Accepted Accounting Principles

french designation for bearish

frensh designation for bullish

see also advanced internal ratings-based approach

see also asset-backed security

that share of a coupon of a bond which is entitled to seller,The payment of interest (the coupon) is effected to the bearer of bond. If the bearer has not held the bond for the entire interest-rate-period, a share of the payment of interest is entitled to the previous owner. This share is called accrued interest.

abbr. Association Cambiste Internationale

method of interest calculationthe number of days of the interest rate period are calculated as real calendar daysthe number of days of a year is assumed to be 360also known as: money market method and french method

method of interest calculationthe number of days of the interest rate period is calculated as real calendar daysthe number of days of a year is assumed to be 365

method of interest calculationboth the number of days of the interest period and the number of days of a year correspond to the real calendar days

The fund manager seeks to achieve a higher performance by deviations from the established benchmark than the benchmark.

Risk difference between the portfolio and the fixed benchmark.

A 30/360 day-count convention assumes there are 30 days in a month and 360 days in a year. This method is usually used in the money market and among the money market operations of the ESCB. It is also called euro interest rate method, French interest method or money market method.

(ACT / 365) Interest calculation method in which the number of days for the interest period are calculated as true (determined by the calendar) days (ACT). The number of days in a year is assumed to be 365. Also called English interest calculation method.

An actual/actual day-count convention uses the actual number of days in the month and year for a given interest period. This method is commonly used in the bond market in the euro zone and the US. Also called American interest calculation method.

Price-sensitive company announcements are published by companies in the context of ad hoc reports (i.e. pursuant to § 48d of the Exchange Act (Stock Exchange Act) and § 82 (7) and (8) Stock Exchange Act). The issuers of financial instruments have to immediately disclose inside information that directly relates to themself to the public. Ad-hoc reports to ensure a consistent information to all market participants.

(Added value on equity, AVE) It includes the absolute contribution of the bank, the divisions or subordinate levels to which the cost of capital (cost of capital employed) are exceeded or undercut. The operating surplus profit is the main control parameter of a bank.

One of two types of internal ratings-based approaches. With A-IRB, financial institutions are able to provide internal data to determine the risk-parameters probability of default, exposure-at-default and loss-given default. (See also: Internal ratings-based approach, foundation internal ratings-based approach)

Under the AMA the regulatory capital requirement for the operational risk charge will equal the risk measure generated by the bank's internal operational risk measurement modelling system.Financial institutions must collect data on their operational risk losses, and combine this with external data, as well as use key risk indicators and self-assessments of operational risk to calculate the operational risk capital charge. To perform the calculation, firms may use their own modelling technique, but it must be pre-approved by supervisors (See also operational risk).

(Premium) The commission of securities is the difference between the face value of a security and the price actually payable higher market price or in particular a higher issue price. In most cases, the premium is expressed in%. The premium, which is payable on the purchase of most fund is called the initial charge. Contrary discount.

Association of International Bond Dealers, forerunner of ISMA (International Securities Market Association)

Restricted acceptance / allotment of securities

abbr. Asset-Liability management

The multiplier for the operational risk regulatory capital charge calculation under the basic indicator approach (see also basic indicator approach, operational risk)

a type of foreign bondindicates a bond which is issued from a foreign entity in Switzerland denominated in CHF

An approach to risk management combining capital markets, reinsurance and investment banking techniques that allows a party to either free itself from risks not easily transferred via traditional insurance, or cover such risks in a non-traditional way by using the capital markets, for example.

Designed to help prevent double counting of operational risk in emerging market countries. The operational risk capital charge is the same as for the standardised operational risk capital charge, except for two business lines: retail banking and commercial banking. For these business lines, loans and advances multiplied by a fixed factor m replaces gross income as the exposure indicator (see also beta, operational risk, standardised approach operational risk)

see also advanced measurement approach

A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to reduce administration and duty costs that would otherwise be levied on each transaction.

see interest calculation method actual/actual

see american style option

(American style option) An option that can be exercised at any time between purchase and expiration date.

Method of allocation at interest tenders, where the lowest accepted bids are allocated at the particular bid rates opposite: dutch-style tender

bond which is repaid by instalments,Thus the bond has got an amortizing nominal structure.

An option that can be exercised at any time between purchase and expiration date.

The effective annual rate of return taking into account the effect of compounding interest. The resultant percentage number assumes that funds will remain in the investment vehicle for a full 365 days.

abbr. Annual percentage rate

abbr. Annual percentage yield

widely riskless profiting of differences in price, when the same instrument (security, currency, commodity etc.) is traded at different markets, the remaining risk is called basis risk

Auto-Regressive Conditional Heteroskedasticity a mathematical model to forecast future variances on the basis of past variances; widely used in risk management

Organizational form of the settlement on the Vienna Stock Exchange. All completed transactions are netted and settled on each trading day and met three business days later (T + 3).

see also alternative standardised approach

see Ask rate

Limit on the ask side, the ask price

see ask rate

The price a seller is willing to accept for a security, also known as the offer price. Along with the price, the ask quote will generally also stipulate the amount of the security willing to be sold at that price. Opposite of the bid price.

Purchase price, including commissions and other costs used to calculate the capital gains and losses for tax purposes.

An investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon. The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk and return, so each will behave differently over time.

An ABS is an asset backed security fixed interest security, which has payment claims against a special purpose entity (also called Special Purpose Vehicle) as its object. The payment claims are covered (backed) by a pool of receivables (assets) that are transferred to the SPV and are available for the holders of the asset-backed securities (investors) as the basis of liability. Sellers of the receivables in such a transaction are usually banks, thus making their loans tradable.

(Asset Correlation) The correlation of returns on two risky assets.

A risk-management committee in a bank that generally comprises the senior-management levels of the institution. The ALCO's primary goal is to evaluate, monitor and approve practices relating to interest and liquidity risk due to imbalances in the capital structure.

Optimized balancing of the assets, liabilities and off-balance sheet transactions among the objectives of profitability, liquidity and security within the scope of the regulatory framework

the packing of mortgages, loans and other receivables into interest-bearing securities (see also asset-backed security, securitisation)

Interest Rate Swap or currency swap which is related to an asset,by means of an asset swap the type of the interest income is changed from fixed into variable or vice versa

a financial instrument that is collateralised by bundled assets such as mortgages, real estate, credit card payments or other receivables

The practice of matching the term structure and cash flows of the asset and liability portfolios of an organisation to maximise returns and minimise interest rate risk.

Assets include all assets of a company and are compared with the liabilities. Their composition provides information, in which values the company's capital has been invested. A surplus on the asset side of the balance sheet is equivalent to the profit of a company.

A notice received by an option writer stating that the sold option has been exercised by the purchaser of the option. When assigned, the option writer has an obligation to fulfil the requirements of the option contract. If the option was a call (put) option, then the writer would have to sell (buy) the underlying security at the stated strike price.

The Association of Austrian Investment Companies is the umbrella organization of all Austrian investment companies and all Austrian real estate investment companies. The Association represents 100% of the fund's assets managed by Austrian investment companies and Austrian real estate investment companies. Purpose and object of the legally organized association is to promote the domestic investment system as well as the comprehensive care of its members. www.voeig.at

A professional association of bond dealers. The members consist of over 350 various financial conglomerates and institutions that actively trade bonds. The association makes recommendations pertaining to bond dealing rules to the regulators of various European countries.

Call as well as Puts lie at the money if the strike price and the exchange rate of the underlying are equal.

An option is at-the-money if the spot price of the underlying is approximately equal to the strike price.

abbr. Austrian Traded Index

A trading model of the market model of a exchange in which the orders are collected and there is a concentration of liquidity. The price will be determined according to the principle of executing.

The new version of the act regulating banking and credit business, which entered into force on 1 January 1994. The Banking Act is the central legal norm on banks in Austria.

The Austrian Control Bank public limited company is Austria's main financial and information service provider for export economy and capital markets. Owners of the specialist company founded in 1946, are domestic commercial banks. The wide range of services are available to companies, financial institutions and organizations of the Republic of Austria.

The Austrian National Bank is the central bank of the Republic of Austria and as an integral part of the European System of Central Banks (ESCB) or the Eurosystem. It helps to form the economic development in Austria and in the euro area in the public interest. It is a stock company in accordance with the National Bank Act from 1984 and subject to (compared to other corporations) a number of specific arrangements arising from their special status as a central bank. The registered capital of 12 million euros belongs 70% to the state and 30% to the interest groups as well as banks and insurance companies.

The Vienna Stock Exchange is the oldest stock exchanges in the world and was founded in 1771 by Empress Maria Theresa. In 1997, the Securities Market of the Vienna Stock Exchange was merged with the futures exchange of the Austrian Futures and Options Exchange to the new Wiener Börse AG. The Vienna Stock Exchange specializes in Austrian and Central and Eastern European investment types.

(ATX) The ATX is a real-time (Real-time index) calculated price index that covers the blue-chip segment of the Austrian stock market and contains the 20 most liquid shares on the Vienna Stock Exchange and was developed by the Vienna Stock Exchange. The shares are weighted according to their market capitalization therefore values with a high capitalization have a stronger influence on the ATX. The starting point for the calculation of the ATX is the 2nd January in 1991 with 1,000 points.

By resolution of the Annual General Meeting to the Board for a maximum of five years granted authorization without further questioning of the annual general meeting to increase the share capital by issuing new shares to a certain extent.

(ARCH). The ARCH model which was developed in the 80s by Robert F. Engle, originally described the development of the volatility. It is based on the assumption that the variance of the random error models depend of realized random errors of the previous period, so that large and small errors tend to occur in groups. The results are often used for risk measurement. For the development of ARCH models Robert F. Engle was awarded with the Nobel Prize in Economics in 2003

also serial correlationThe correlation between a time series of observations, such as interest rates, and the same values at a fixed time interval later. A time series is autocorrelated if future returns are correlated with past returns.

abbr. Added Value on Equity

Credit exposure arising from market-driven instruments such as interest rate swaps has an ever-changing mark-to-market exposure. This can be projected because it is dynamic and it is possible to estimate an average exposure in each period. Such a projection would be a probability-weighted aggregation across all potential market rate paths.

the average interest rate is calculated as a term-weighted arithmetic average of interest rates of serveral periods, compound interest are not considered

v. Bankers Acceptance

the ex post comparison of the calculated risk and the effectively occured changes of the value of a portfolio, Back testing as well as stress testing methods are essential supplements to value at risk calculations such as variance/covariance method, monte carlo simulation and historical simulation

Backwardation is a market condition where spot rates exceed forward rates. The term is common in commodity markets and corresponds to the term discount in FX-markets. In the energy markets, the prevailing condition may reflect supply and demand. For example, if the crude oil market is at backwardation, it may indicate a lack of immediately available supply. Contango is the opposite.

Name for a longer lasting exchange phase, which is characterized by regular price losses. Derives from the French word baisser = drop,descend. Contrary bull market.

The current account balance is a sub-account of the balance of payments. It summarizes trade balance, services balance, balance of income and balance of the current transfers together. The current account balance shows how a country can fund its exports by imports. A current account deficit causes an increase in the foreign debt of an economy.

A statement that summarizes an economy’s transactions with the rest of the world for a specified time period. The balance of payments, also known as balance of international payments, encompasses all transactions between a country’s residents and its nonresidents involving goods, services and income; financial claims on and liabilities to the rest of the world; and transfers such as gifts. The balance of payments classifies these transactions in two accounts – the current account and the capital account.

Comparison of all the assets and liabilities parts of a company to a balance sheet date. Serves the purpose of recognizing income and as a balance sheet.

A fund that combines a stock component, a bond component and, sometimes, a money market component, in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate (higher equity component) or conservative (higher fixed-income component) orientation.

A medium or long-term bond issued by banks.

The credit institutions are issuing such form of bonds to provide borrowers money.

Under the Basel II framework, this asset class covers exposures to banks and those securities firms that are subject to supervisory and regulatory arrangements comparable to those under the New Framework.Also included are public-sector entities that are treated like claims on banks under the standardised approach, and multilateral development banks that do not meet the criteria for a 0% risk weight under the standardised approach

an international organisation that fosters co-operation among central banks and other agencies in pursuit of monetary and financial stability

A short-term credit investment created by a nonfinancial firm and guaranteed by a bank as to payment. Acceptances are traded at discounts to face value in the secondary market. These instruments have been a popular instrument in the money market. They are commonly used in international transactions.

abbr. (BWG) Banking act in german

The banking book covers all the business of the Bank that is not used for commercial transactions and serves the overall bank management.

Company groups that engage predominantly in banking activities

Insolvency of the debtor (eg issuers of securities)

The liquidation of assets when a firm cannot meet its financial obligations. This is not synonymous with default and a firm may default on a specific debt obligation without declaring bankruptcy.

The currency in an international portfolio in which profits and losses are calculated.

abbr. Basel Committee on Banking Supervision

Group of central banks and financial institution supervisory authorities from the group of 10 (G-10) countries, which produce common standards aimed at reducing systemic risk in the global financial system.

Basel II refers to the entirety of the capital requirements proposed by the Basel Committee on Banking Supervision in the recent years. The rules must be applied from 1 January 2007 in the Member States of the European Union for all credit and financial services institutions. Although originally inspired and initiated by the United States, Basel II has not been implemented in the United States with the same vigor as in Europe. The scope of Basel II focuses on three areas: minimum capital requirements (Pillar 1), banking supervision process (Pillar 2) and expanded disclosure (Pillar 3).

Banks using the BIA must hold capital for operational risk equal to a fixed percentage of (denoted alpha) of average annual gross income over the previous three years (See also alpha, operational risk)

see strike price

Difference between the spot price of the underlying and the price of the corresponding futures. One speaks of a positive base if the forward price is higher than the spot price and from a negative base if the forward price is lower than the spot price.

A basis point is 1/100 of a percentage point, i.e. 0.01%. The difference in yield between two bonds is usually given in basis points. (The difference between Bond A with 7.55% and Bond B with 7.83% is 28 basis points.)

The risk that prices of similar, but not identical instruments do not fully correlate.

syn: index swapinterest rate swap in which two variable interest rates are exchanged e.g. 3-months USD LIBOR against US-CP composite rateopposite: coupon swapv. interest rate swap

1/100 of one percentage point i.e. 0,01 %

abbr. of British Bankers Association

An investor with pessimistic market expectation, unlike a bull.

Combined option strategy that is implemented in anticipation of a price decrease. It can be based on both the simultaneous purchase and sale of call options and put options. Accordingly, a distinction is made between a Bear Call Spread and a Bear Put Spread.

security which entitles the bearer to claim the certified rights

An equity security that is wholly owned by whoever holds the physical stock certificate. The issuing firm neither registers the owner of the stock, nor does it track transfers of ownership. The company disperses dividends to bearer shares when a physical coupon is presented to the firm. Unless the articles of the corporation provides otherwise, each share is a bearer share.

Stock market jargon for the expectation of declining prices. The bear is that animal, which is hitting the prices lower with his paws. Contrast: bullish.

The performance of a predetermined set of securities, used for comparison purposes. Such sets may be based on published indexes or may be customized to suit an investment strategy.

A coefficient measuring a stocks relative volatility to a market index, such as the S&P 500 Index. A manager with a Beta greater than 1.0 is more volatile than the market, while a manager with a Beta less than 1.0 is less volatile than the market.

A fixed percentage for calculation of the regulatory capital charge under the standardised approach for operational risk. The beta relates the level of required capital to the level of the gross income for each of eight business lines.

see also basic indicator approach

v. bid-rate

It is the difference between bid and ask price of a financial instrument.

price at which the quoting bank is prepared to purchase a financial instrument (foreign exchange, securities etc.),opposite: ask

Rates in foreign exchange markets are usually quoted in 5 digits (e.g. EUR/USD 1.0125; USD/JPY 120.50). The first 3 digits are called big figure and the last 2 digits pips. Professional FX-market participants usually quote just the pips of an FX-Rate, whereas the big figure is assumed to be known.

An agreement between two counterparties where the value of all in-the-money contracts is offset by the value of all out-of-the-money contracts. This results in a single net exposure amount owed by one counterparty.Bilateral netting can be multi-product and encompass portfolios of swaps, interest rate options and forward foreign exchange.

written order by which one party instructs another party to pay a specified sum to a third party

Are all other foreign funds (no white or white blossoms) without a tax representative in the domestic country. If investors can adduce the tax statement (distributed income) from a foreign capital investment company, the fund will turn white!

Mathematical model for the calculation of option prices, named after the Americans Fischer Black and Myron Scholes. It is the international standard and most widely used model, which calculates a fair option price.

An approximately two-week period before the publication of the issue prospectus. During this period, no research data will be published by the issuer or the issuing bank.

see open exposure

Term for the minority stake in a company, by which, however important corporate decisions such as the amendment of articles of association of the company, can be prevented. The blocking minority for public limited companies is situated at 25%.

Limit order, which can only be executed at certain minimum quantities (blocks).

Term used to describe equities from large, first-class companies whose price is expected to develop positively and continually because of their corporate size and performance.

A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities. Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents.

The essential data of a bond printed in the bond prospectus.

Futures contracts whose underlying is a bond.

Market for fixed-income securities. The bond market is measured by revenues and the number of listed securities and new issues of greater significance than the stock market (securities markets).

an evaluation of the possible risk of credit losses due to a bond issuer's default, based on an analysis of the issuer's financial condition as well as the structure and terms of the debt instrument

similar to convertible bondin contrast to convertible bonds the option can be segregated from the bond and traded seperately

(Bonus shares) Term for shares issued in connection with capital increases from retained earnings.

Money used in cashless payment transactions, eg for transfers from one account to another.

Accounting profit that has already been made but not yet realized by a transaction. e.g. in connection with a stock whose price has increased, but is still held.

Carrying amount corresponds the equity capital divided by the number of shares. If the carrying value is considerably higher than the price of a stock, it is regarded as a potential buy signal. See also: value at which an asset is disclosed in the balance sheet.

Bootstrapping is the procedure which is used for the calculation of a zero curve out of the given yield structure of financial instruments.

defined as an assessment of borrower risk on the basis of a specified and distinct set of rating criteria, from which estimates of the probability of default are derived

An investment approach that de-emphasizes the significance of economic and market cycles. This approach focuses on the analysis of individual stocks. In bottom-up investing, therefore, the investor focuses his or her attention on a specific company rather than on the industry in which that company operates or on the economy as a whole.

abbr. for basispoint 1/100 of one percentage point i.e. 0,01 %

abbr. Basis Point Value

The point at which revenues and costs of a product are equal and therefore neither loss nor gain is generated. For simplification it can be said that the contribution of all products sold is identical to the fixed costs at the breakeven point. If the profit threshold is exceeded, one makes profits and vice versa.

an information service company, Bridge was instructed with the execution of the EURIBOR-fixings. In September 2001 bridge was took over by reuters.

conducts the LIBOR fixing (BBA LIBOR) and developed a master agreement for FRAs (FRABBA)

In this market, buy or sell orders can not cause a price fluctuation in either direction, because enough of the respective shares are traded every day.

Professional security dealers and advisors. Brokers have the right to accept and execute trading orders from banks and privat investors. In England they are the contact point for jobbers or dealers.

abbr. Buoni del Tesoro Poliennali

Bullish investors i.e. optimistic market expectations. Contrary to bear.

Combined option strategy that is constituted by buying a call with a lower strike price and shorting a call with a higher strike price. Both options have the same maturity.

a type of foreign bondindicates a bond which is issued from a foreign entity in UK denominated in GBP

bond which is redeemed entirely at the end of the maturity

Bullet bonds refer to a debt security that is repaid by a certain date at the end of the term in total.

The entire principal is repaid at the end of the term. During runtime, only the interest is paid.

Investors who expect rising market rates.

see economic cycle

options strategy consisting of four options long butterfly: purchase of call and put at the money (= long straddle) and sale of call and put out of the money (short strangle) short butterfly: sale of call and put at the money (= short straddle) and purchase of call and put out of the money (= long strangle)

Analytical classification of a financial instrument as a buy.

see Call

Passive investment strategy that involves no active buying and selling activity after the composition of the portfolio until the end of the investment horizon.

ability to purchase goods and services for money

see ask rate

abbr. Cercle Investor Relations Austria

In trading terminology the exchange rate between British pound sterling and U.S. dollar (GBP/USD) is called cable.

see Capital Adequancy Directive

A call option gives the holder the right to purchase a specified quantity of the underlying at a specified strike price by a specified expiration date.

v. payer swaption

the relation between the prices of call and put options with the same strike price As it is possible the create a synthetic call option by buying a put and buying the underlying, arbitrage opportunities wouls arise, if the prices of the options would not comply with the call/put parity. Call=Put + (Underlying - Strike)/(1+interest rate*days/360) Put=Call + (Strike - Underlying)/(1+interest rate*days/360

A cap is an interest rate ceiling for a variable interest rate, and consists of a series of call options on a fixed reference interest rate (e.g. 6-months EURIBOR) with the same strike. A single option of this series is called caplet. The purchaser of the cap receives a compensation from the seller, if the reference interest rate exeeds the strike at the expiry date.

According to Basel II. The measure of the adequacy of the financial resources of a company in terms of the coverage of business risks and regulatory requirements.

the measure of the sufficiency of a firm's financial resources to enable it to meet its business and regulatory obligations

directive about the adequate equity a bank is obliged to hold The amount of equity depends on the extent of risk adjusted assets and the market risk that a bank holds.

Increase the share capital of the Company's assets (ie, from its own resources). Disclosed reserves are converted into dividend-bearing capital, ie the capital shall be corrected. Shareholders will receive bonus shares without additional payment, which are often referred to as bonus shares. The term bonus shares is misleading because the shareholder gets nothing for free at a capital adjustment: He has a proportion of the reserves from which the share capital is increased.

(CAPM) A model of capital market theory, which postulates a linear relationship between the expected return and systematic risk of shares.

Interest and dividends from Austrian securities are subject to 25% capital gains tax. Thus, the income tax is paid. In respect of shares and debt securities also the inheritance tax.

Financing of a company by an increase in equity. The possible forms depend on the legal form of the company.

market for a long-term fund raisingOften capital market is used as a synonym of the market for securities, which is devided into bond market and stock market.

mixture of EURIBOR and capital market floater

Main focus of the capital market initiative is to create confidence in the Austrian market. This is done by an Austrian Corporate Governance Code. Furthermore measures to increase the volume of securities traded are proposed.

the minimum ratio of regulatory capital to risk-weighted assets (currently at 8 %)

Reduction of the share capital, for example, to to eliminate losses incurred. Usually performed as part of a reorganization.

Capital risk is the possibility of losing the capital invested.

Capital reduction and subsequent capital increase, often to the original amount. In the case of reorganization funds about the amount of the capital reduction will be supplied by the shareholders.

see market capitalisation

a single option out of a capv. cap

abbr. Capital Asset Pricing Model

Result of the cash flow statement / sum of cash and cash equivalents

A revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of three activities - financing, operations or investing - although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance.

An instrument whose value is determined directly in the markets. Stocks, commodities, currencies and bonds are cash instruments.

Compliance mechanism that replaces the physical delivery and payment of the underlying. Differential gains or losses on futures and option positions are directly paid or demanded for cash settlement.

see also collateralised bond obligation

Chicago Board Options Exchangefounded in 1973 as subsidiary of the CBOTwww.cboe.com

Chicago Board of Tradebiggest futures market in the world, founded in 1848, commodities- as well as financial contracts are tradedwww.cbot.com

abbr. Credit Card or Cost Center

v. Cross Currency Swap

v. certificate of deposit

A clearinghouse acts as a Central Clearing Counterparty if it takes over the role of the partner in a deal for both sides. Thus the Clearing House is taking the credit risk of both partners.

An international clearing house established at the Bank of England.

The securities depository in the Austrian Control Bank is the central Austrian depositary for securities.

Costs for services of the headquarters Bank, but are directly attributable to customer business.

(CIRA) The Cercle Investor Relations Austria was founded in 1991 as a voluntary community of interest and advocacy of listed companies. The members are primarily composed of the investor relations executives of a firm as well as from CFOs and CEOs. The member companies are responsible for approximately 85% of total capitalization and roughly 90% of the total turnover of the Vienna Stock Exchange.

a certificate issued by a bank that indicates a specified sum of money has been deposited. A CD has a maturity date (usually up to one year) and a specified interest rate, and can be issued in any denomination.CDs are tradable in the secondary market

Certificates evidencing the right to participate in the performance of an underlying investment such as a stock, an index, a commodity or a foreign currency.

abbr. Common Equity Tier 1

abbr. Contract for Difference

Share price addendum money and goods

Graphical representation of a price development.

see technical analysis

In a futures contract, the cheapest security that can be delivered to the long position to satisfy the contract specifications. The cheapest to deliver security is relevant only for contracts which provide that a variety of slightly different securities may be delivered. This is common in treasury bond futures contracts, which typically specify that any treasury bond can be delivered, so long as it is within a certain maturity range and has a certain coupon rate.

abbr. ISO Currency code for swiss franc

A commodity exchange established in 1848 that today trades in both agricultural and financial contracts. The CBOT originally traded only agricultural commodities such as wheat, corn and soybeans. Now, the CBOT offers options and futures contracts on a wide range of products including gold, silver, U.S. Treasury bonds and energy. www.cbot.com

The first options exchange in the United States was founded in 1973. Today especially strong in index derivatives. www.cboe.com

Founded in 1898 as a not-for-profit corporation, the CME was called the Chicago Butter and Egg Board until 1919. In November 2000, CME became the first U.S. financial exchange to demutualize and become a shareholder-owned corporation. The world's second-largest exchange for futures and options on futures and the largest in the U.S. Trading involves mostly futures on interest rates, currency, equities, stock indices and a small amount on agricultural products. www.cme.com

abbr. Cost-Income-Ratio

v. US-style repo

see interbank deposits

price of an bond without accrued interests,The quotes of bond prices are clean prices. If the bond is purchased the buyer has to pay accrued interest in addition to the clean price. The clean price plus accrued interests result in the dirty price, that price which has to be paid at the purchase of a bond.

A buy-back option is an option that permits the buyer to buy back the securitization exposures (eg. asset-backed securities) before all outstanding receivables or securitization exposures have been repaid.

The procedure by which an organization acts as an intermediary and assumes the role of a buyer and seller for transactions in order to reconcile orders between transacting parties. Clearing is necessary for the matching of all buy and sell orders in the market. It provides smoother and more efficient markets, as parties can make transfers to the clearing corporation, rather than to each individual party with whom they have transacted.

An agency or separate corporation of a futures exchange that is responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery, and reporting trading data.

The in the auction determined price at which the highest order volume and the lowest surplus in the order book consists at the end of the call phase.

see also collateralised loan obligation

The last price of the trading day, which was formed for a continuously traded security. Contrary opening price.

closing a position through cancelling the original dealThe party with the positiv present value gets a compansation payment from the counterparty

The netting of all outstanding receivables and payables between two parties. The summation is only done in the case of specified events (eg, bankruptcy, late payments, etc.). Contrary Novation Netting

the premature termination of a deal with compensation of the market value and simultaneous closing of a deal for the duration of the remaining maturity of the original deal at actual marktet data. Close and reprice full fill the same purpose as the variation margin, namely the adaption of the security service by the accrued profits or losses, and is set in, where margin calls are legal not possible e.g. at sell and buy backs.

Particularly in the Anglo-Saxon countries - but also in Germany in the form of closed real estate funds - occurring funds of an investment company whose funds are raised through the sale of a certain limited of shares. If the planned volume is reached the fund is closed and the issue of shares is stopped.

Takes place as the final act of the main trading phase in the market model of continuous trading.

Transaction in which an existing position is liquidated on the futures market, by taking a contrary position. The owner of a long position thus acquires a short position and vice versa. Gain or loss is resulting from the difference between the purchase prices of the two positions.

abbr. Contribution margin

Chicago Mercantile ExchangeThe CME consists of three divisions:the actual CME, at which agricultural products are tradedthe IMM (International Money Market), at which interest-rate- and currency-instruments are traded, and IOM (Index and Option Market), at which index-instruments are traded.www.cme.com

abbr. Central Money Markets Office international clearing institution established by the Bank of England

v. constant maturity swap

abbr. Cost of Carry

abbr. Contingent convertible

combination of a cap and a floorwhereas one is bought and the other is sold in order to reduce prmium cost. If the premium of both options are equal , it is called zero cost collar.

floating rate note with a fixed floor and cap, From the view of the investor this position corresponds to a straight FRN plus a purchased floor and a sold cap (= FRN + collar)

asset pledged as a guarantee for repayment of a granted loan

a multi-tranche debt structure, similar to a collateralised mortgage obligationbut rather than mortgages, low-rated bonds serve as the collateral

a structured bond backed by the loan repayments from a portfolio of pooled personal or commercial loans, excluding mortgages

a type of asset-backed security, in this case backed by mortgage payments

see combined Order

An order that refers to several options series simultaneously.

The act of combining two or more financial instruments or businesses. In the financial context, the term "combination" generally refers to an option trading strategy that involves the purchase and/or sale of both call and put options on the same asset. Option combinations are popular with experienced traders and investors because they can be tailored to provide specific risk-reward payoffs that suit the investor's individual risk tolerance and preferences. Examples of combined strategies are bear spread, bull spread, straddle and strangle.

After the amendment of company law in Austria on 1 January 2007, the private law is only based on a common entrepreneurial concept. This is found in § 1 Commercial Code, which states: "An entrepreneur is someone who runs a company." A company on the other hand is any stable organization with an independent economic activity, which may be not directed at profit.

short-term unsecured promissory notes issued by a corporation. The maturity of CP is typically less than 270 days, the most common maturity range is 30 to 50 days or lesswidely used in the USA (USCP, US commercial paper, but also in the Euro-market (ECP, Euro commercial paper

defined as a loan or other financing for the purpose of funding construction or acquisition of commercial real estate, where the prospects of repayment and recovery depend primarily on the cash flows generated by that asset

Period for which a business or person is bound on predetermined services, such as Payment or collection.

The bound core capital by the legislator is the prescribed minimum capital for limiting market, credit and currency risks.

see European Banking Authority (EBA)

Goods, raw materials. Anglo American term for most exchange-traded commodity products such as cereals, meat products and metals.

(Common Equity Tier 1 - CET 1) Describes the deposited capital of the bank and has no fixed period by definition. It is the most subordinate debt in the case of bankruptcy.

Shares that grant all rights available to a shareholder. These are mainly economic rights and voting rights.

Sets down binding rules of conduct for banks, insurance companies and pension funds, which primarily refer to the prevention of insider trading.

Grouping several portfolios with similar investment strategy or composition. Composites show management performance in the respective segments.

Bond, which is similar in construction to a dual currency bond, however, refers to a basket of currencies

Calculation of the final value that results after a certain time, starting from a present-day capital amount by adding the compound interest.

interest which are charged for the accumulated interest

any single exposure or group of exposures with the potential to produce losses large enough to threaten a bank's health

option strategy consisting of four options (similar to butterfly long condor: purchase of call and put out of the money (= long strangle) and sale of call und put with strikes more out of the money (= short strangle) short condor: sale of call and put out of the money (= short strangle) and purchase of call and put more out of the money (= long strangle)

confidence interval is a notion from probability. For a given confidence level, it represents an interval such a specified random variable will fall within that interval with the given level of confidence. Confidence intervals are often used to define statistical risk measures. For example, the 95% one-month value at risk (VAR) for a portfolio is just the amount of money such that there is a 95% probability that the portfolio will lose less than that amount over the next month.

Under bank regulatory regimes, firms are obligated to calculate capital requirements for an entire financial group rather than for an individual firm or business unit (see also sub-consolidation).

basis swap in which one variable interest rate is a short-term one e.g. 6-months LIBOR and the other is a long-term e.g. 5-years IRS-rate. Depending on the shape of the interest rate curve the long-term interest rate is quoted at premium (if yield curve is inverse) or at a discount (if yield curve is normal).

Law for the protection of consumers. This Act shall usually be applicable if a lay person acquires something from an expert. E.g. A customer buys securities from a financial services provider.

Contango is a market condition where forward rates exceed spot rates. The term is common in commodity markets and corresponds with the term premium in FX-markets. In the energy markets, the prevailing condition may reflect supply and demand. For example, if the crude oil market is contango, it may indicate a glut of immediately available supply. Backwardation is the opposite.

A security similar to a traditional convertible bond in respect of there is a strike price (the cost of the stock when the bond converts into stock). What differs is the price, even higher than the strike price, which the company's stock price must reach before an investor has the right to make that conversion (known as the "upside contingency"). Issuing contingent bonds is more advantageous to companies than issuing regular convertibles. Until an investor exercises the option, the company does not need to count shares in its calculation of diluted earnings.

see option transaction

Continuous fulfillment of all orders that match price and quantity. i.e. during the entire trading time orders can be granted and transactions can be completed.

Term for the termination unit prescribed in the forward markets for options and futures transactions.

An arrangement made in a futures contract whereby differences in settlement are made through cash payments, rather than the delivery of physical goods or securities. This is generally an easier method of settlement because losses and gains are paid in cash. CFDs provide investors with the all the benefits and risks of owning a security without actually owning it. Trading with CFDs as an alternative to actual trading with the underlying basic values become increasingly popular.

The minimum size prescribed for an option contract. The contract size from stocks traded on the Vienna Stock Exchange stock options is 50 pieces of the underlying. For options on the ATX 100 index points are the minimum size.

The contract specifications define the contractual arrangements of futures and options (in terms of underlying, maturity, strike price, contract size, delivery, etc.).

The contract value of a forward contract describes the actual underlying values. The contract value is calculated as follows: Number of contracts multiplied by the contract size and the price of the underlying.

Number of contracts traded.

A positive contribution covers all direct costs (centralized and decentralized).

Conversion of a debt security into a new one with modified conditions.

Factor, which will be announced for each deliverable bond and the conversion of the bond's price on the ideal type of the underlying and vice versa is used.

This refers to the corrected conversion price using the current bond price.

Upon exercise of the conversion the executing participant is obliged to pay a premium. (conversion premium)

The price one has to pay for a stock when a convertible bond is purchased, which is subsequently converted into shares.

The right for the investor to exchange a convertible bond into shares.

A bond that can be converted into a predetermined amount of the company's equity , usually at the discretion of the bondholder. Convertible bonds correspond to bonds with an embedded call option on the shares. For this additional option right, the buyer of the bond is willing to accept a lower coupon.

convexity expresses the non-linearity of a financial instrument (e.g. bond, future, option) bonds: c. is a measure of the change of the modified duration if interest rate changes options: c. is called gamma which is a measure of the change of delta if the price of the underlying changes

a counterparty recognised by supervisors as not requiring 'haircuts' in calculation regulatory capital for repo-style transactions.Counterparties that qualify for this treatment include sovereigns, central banks and public-sector entities, regulated pension funds and recognised clearing organisations

A bond that is issued by an industrial company. In case of corporate bonds, the issuing company is liable with its assets.

Represents responsible on long-term value creation focused management and control

Correlation is a measure of the degree to which changes in two variables are related to each other. It is usually expressed as a coefficient between plus one (perfectly correlated) and minus one (perfectly negatively correlated).

the correlation of the credit ratings or rating changes of entities in a portfolio

The regular deposit of constant amounts in a mutual fund has the advantage that the investor buys the shares at different issue prices at a lower average price than the regular purchase of a constant number of shares in the same period. In equal monthly payments into a fund, the investor receives more shares with falling share value and fewer shares with an increasing share value. The positive effect of dollar-cost averaging is particulary profitable with fluctuating rates, as they usually occur in equities and equity funds.

(CC) All agencies or departments of the Bank who are not involved in the administration of the daily business, not used in direct support of a profit center in the daily business and can not be directly attributed to a single performance. These include, for example, Auditing, Accounting, Controlling, Human Resources department or board of directors.

Costs incurred by the possession of an asset item.

ratio which establishes costs in per cent of gross earnings

in general, a counterparty is any of the participants in a financial contract

The risk of financial loss arising out of holding a particular contract as a result of one or more parties to the relevant contract failing to fulfil its financial obligations under the contract.Counterparty credit risk can be managed through the use of an ISDA Master Agreement, which allows netting of all exposures between two counterparties (see also settlement risk)

The counterparty limit is a credit risk limit that restricts the credit risk for each counterparty.

Equity funds that invest only in a particular country or in specially combined groups of countries (eg. Southern Europe or Latin America). They have a different risk profile than funds that diversify their investments across many investment countries.

Risk of domestic creditor that his claim to a foreign borrower, despite willingness to pay is not paid on time and for the full amount because government intervention prevent the trade and payment system. (eg foreign exchange controls or remittance locks in the country of the buyer of the goods).

see also transfer risk

security which certifies the claim of the bearer to receive a payment of interest or dividendcoupon is also used as a term for a interest payment resp. for the interest rate of a financial instrument.

Date on which the payment of interest (the coupon) of an interest-bearing instrument has to be paid.

The coupon sheet consists of individual parts with which certain rights are asserted but which depend on the nature of the security.

interest rate swap in which a fixed interest rate (coupon) is exchanged against a variable interest rate (e.g. EURIBOR, LIBOR) opposite: basis swap

Statistical measure of the relationship or the synchronization of two sizes.

The costs associated with a bond issue voluntary obligations of the issuer.

(covered) A writer is covered if he either owns the shares for the written call or the money for the written put. Contrary uncovered (naked)

This form of bonds issued by credit institutions includes a further addition to the liability of the issuer. e.g. a state guarantee fund or by a cover pool.

combination of being long the underlying and selling the call.

v. commercial paper

abbr. Capital Requirements Directive

percentages set by regulators to convert off-balance sheet items to credit-equivalent assets

Under Basel II, credit default applies in respect of a specific debtor, if one or both of the following events have occurred: 1) the Bank believes that the debtor is unable to meet his full credit obligations with high probability 2) a substancial liability of the debtor is more than 90 days overdue.

A bilateral financial contract in which one counterparty (the protection buyer or buyer) pays a periodic fee in return for a contingent payment by the other counterparty (the protection seller or seller) upon the occurrence of a credit event.

A bilateral financial contract that isolates credit risk from an underlying instrument and transfers that credit risk from one party to the contract (the protection buyer) to the other (the protection seller).There are two main categories: credit default swaps and credit spread options.

A contractual agreement under which the bank retains or takes a securitization exposure and (thereby) from an economic point of view provides other parties involved in the transaction with an additional protection against loss up to a certain amount.

Any one of a specified set of events (for example bankruptcy, moratorium, restructuring) that, if occurring with respect to an obligation, will trigger contingent payments.

A total value of exposure that a bank is exposed to at the time of default

an insurance policy that compensates in the event that a party defaults

The line of credit or credit scale is the financial framework, to which a bank promised the borrower to give him a loan. A credit line is a so-called revolving credit, he can be used again after reclaiming in the meantime until maturity or until termination.

the extent to which the credit quality of an obligor or counterparty improves or deteriorates

An assessment of the credit worthiness of a borrower in general terms or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money – an individual, corporation, state or provincial authority, or sovereign government. Credit assessment and evaluation for companies and governments is generally done by a credit rating agency such as Standard & Poor’s or Moody’s.

The counterparty (borrower) are classified according to their probability of default in homogeneous groups of customers (= with similar damage progression).

the risk of a bank or other entity to lose money due to the default of its counterparty

the process of determining the extent of credit risk inherent in a financial instrument or portfolio

Banks must have independent credit control units that are responsible for the design or selection, implementation and performance of their internal rating systems. The unit(s) must be functionally independent from the personnel and management functions responsible for originating exposures.

a system used by lenders to calculate the statistical probability that a loan they grant will be repaid

The difference in yield between two instruments of similar maturity and duration. The credit spread is often quoted as a spread to a benchmark floating-rate index such as Libor and used as a measure of relative creditworthiness.

The VaR of a loan portfolio is called credit value at risk.

a security with redemption and/or coupon payments linked to the occurrence of a credit event with respect to a specified reference entity

An entity (person or institution) that extends credit by giving another entity permission to borrow money if it is paid back at a later date. Creditors can be classified as either "personal" or "real." Real creditors (i.e. a bank or finance company) have legal contracts with the borrower granting the lender the right to claim any of the debtor's real assets (e.g. real estate or car) if he or she fails to pay back the loan.

swap in which the notional amount is exchanged at the beginning and at the end of the term as well as interim interest payments, the main difference to FX-swap is the interim payment of interest. Types:par value swap: initial- and final-transaction are effected at the same rate (usually the spot price at the conclusion of the swap)forward outright swap: the initial transaction is done at the spot rate, the final transaction is done at the forward rate

a clause in a loan or other debt contract that specifies that an entity is in default if it fails to pay another obligation

abbr. Capital Requirements Regulation

abbr. Central Securities Depository

abbr Cheapest-to-Deliver

see interpolation

the percentage of borrowers who default during the lives of their loans in a given portfolio

The aggregate amount that an investment has gained or lost over time, independent of the period of time involved. Presented as a percentage, the cumulative return is the raw mathematical return of the following calculation: (Current price of security - orignial price of security)/orignial price of security

occurs when, in a hedge, the credit protection is denominated in a currency different from the exposure

Risk of a reduction in bank results due to exchange rate changes.

Current assets / short-term liabilities x 100i

A valuation ratio of a company's current share price compared to its per-share earnings. Calculated as: Market Value per Share / Earnings per Share (EPS); EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third variation uses the sum of the last two actual quarters and the estimates of the next two quarters.

Income (interest or dividends) divided by the current price of the security. This measure looks at the current price of a bond instead of its face value and represents the return an investor would expect.

A custodian bank manages the fund's assets in trust, holds the equity securities and deals with the settlement of the fund company and the transactions of the fund manager on instruction.

The financial institution books all securities purchases and sales to this account and the related account statement reflects the value of all the client's investments.

The fee received by a bank or a investment company for custody and administration of fund shares.

Customer transactions are conducted between the Bank and the Customer at the published rate in the quotation list.

Daily adaptation of the deposited margin (safety requirements) on the basis of market risk.

abbr. Delta Added Value on Equity

A stock index that represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange. The prices used to calculate the DAX Index come through Xetra, an electronic trading system. DAX member companies represent roughly 75% of the aggregate market cap that trades on the Frankfurt Exchange.

Market participants who try to identify and exploit daily trends. Often, the positions are held only for minutes or hours, or are at least closed out on the same day by offsetting transactions.

see intraday limit

A type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are documented in an indenture.

In the balance sheet of a company's reported debt of a company with varying maturities. Extensive borrowing, increasing the risk of liquidity problems and repayment difficulties.

(Disagio) The debt discount gives the difference between the issue rate and the higher nominal value or repayment course of a loan (issue discount). An issue of shares with discount is not allowed in Germany, with fixed-interest securities it is usual. Opposite: Premium

Debt securities include the right to regain a certain amount after a certain time from the issuer and earn interest during the term.

They arise in the profit centers (home and corporate customer business, branch offices) and are directly attributable to customer business.

According to the Basel Committee, a default is considered to have occurred when either or both of the two following events have taken place:1) The bank considers that the obligor is unlikely to pay its credit obligation in full2) The obligor is past due more than 90 days

Government bonds, which can be delivered in fulfillment of the bond futures.

Fulfilling the obligations in the allocation of a particular call option writer. For certain options (index options) delivery and payment are replaced by cash settlement.

Day on which, in fulfillment of a futures contract, the actual delivery of the underlying takes place.

That month in which the last day of trading for a particular future is situated and where it finally comes to the settlement of the future transaction .

risk factor of options expresses, how much the price of an option changes, if der value of the underlying increases by one unit e.g.: call EURUSD with delta of 0.35 (resp. 35%) meaning: if EURUSD increases by 1 USD ct the price of the option increases by 0.35 USD ct the value of delta is always between 0 and 1 (resp. -1)

The change in operating excess profit. Therefore it is the value created in a given period.

Balances for which the maturity or notice period is not fixed.

Monetary policy instruments of the ESCB, which offers banks the possibility of assessing central bank money overnight at the national central bank at a predetermined interest rate. The interest rate on this constant facility provides the lower limit for the overnight rate, and is therefore one of the key interest rates of the ESCB. As part of the money market operations by the federal bank, this function was taken over from the discount rate earlier.

Deposit-taking businesses are all deposits of the bank. The customer leaves his money to the bank. In return the bank will pay him interest. These transactions are recorded on the liabilities side of the bank's balance sheet.

abbr. American Depository Receipt (ADR)

Deposits at notice funds have a fixed period of notice. A disposition of the funds is therefore possible only after cancellation and expiry of the notice period. In case of deposits at notice the interest rate is variable, unless stipulated otherwise. Interest will be credited after termination or maturity.

A contract where the price is depends on or is derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

an instrument which is derived from underlying instruments,basically there are two types: forward contracts and option contracts

The term is used under Basel II's discussion of purchased receivables. Dilution risk refers to the possibility that the receivable amount is reduced through cash or non-cash credits to the obligor

Direct costs represent decentralized and centralized unit costs.

In a self-emission the issuing entity is independent endeavor to place the securities in the market.

Legislation (eg the European Community), which is addressed to the Member States and the obligation to achieve certain goals. Example: EU directives on capital adequacy

price of a bond which contains accrued interests,The dirty price is that price which has to be paid if a bond is purchased.opposite: clean price

Amount by which an instrument sells under par.

Calculation of the present value of a future amount is done in reverse direction as the discounting.

by means of the discountfactor a future value can be converted into a present value,This can be done, by multiply the future value by the discountfactor. The discountfactor can be derived from the zero-coupon rates.

instruments issued at a discount and redeemed at the nominal valueThe yield results from the difference between purchase price and redemption. Discont instruments are t-bills, bill of exchange, commercial papersper contra: couponinstruments are issued at the nominal value and paid off at nominal value plus interest

A disocunt rate is a rate where the interest payments are calculated - in contrast to normal interest rates - on the basis of the repayment value. The term discount rate is also often used in conjunction with the rate at which commercial banks may sell bills of exchange to the central bank

Equity, which is not bound by fixed assets, or the risks in the banking book and trading book.

The payment of dividends, bonuses, liquidation proceeds, etc. to the shareholders. For distributing securities, the income is collected until the date of payment and then (usually once a year) distributed. On the day of distribution the value of the underlying security decreases by the distribution amount.

Investment income (long and short-term nature), interest or dividends paid to bond and equity holders. The distribution may be paid in cash (cash dividend) or in shares (stock dividend).

a simple risk management technique that mixes a wide variety of investments within a portfolio, thus minimising the impact of any one security on overall portfolio performance

Periodic distribution of a company to its shareholders. The indication of the amount is generally done as a dividend per share. Dividends are income components, which are not reinvested by the company.

see Ex-dividend

A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows: Annual dividends per share/Price per share. This ratio can be calculated either on the basis of the currently paid dividend or on the basis of expected future dividends.

abbr. Dow Jones Index

a repo at which the purchaser is allowed to return another paper at maturity (but with agreed qualitiy)

a bond which is issued by a domestic issuer in his home country under domestic law in domestic currency

A bond that is issued by a domestic issuer in the home country under domestic law in domestic currency.

Repeated use of a security as collateral in a repo. This practice is not allowed and is only possible if the seller fails to deliver the securities to the buyer.

The Dow Jones Industrial Average (Index) contains the 30 largest industrial companies of the New York Stock Exchange and was first published in 1897. It was designed as a price index and is computed continuously (real-time).

the process of an issuer's debt securities' ratings being lowered by a rating agency (see also rating, upgrade)

(Probability of failure during economic downturn) is the highest observable PD over a predetermined period of time (either on the class level or portfolio level).

cp. bill of exchange

This bond has the particularity that the issuer is a foreigner, but the bond is acquired with the domestic currency (eg EUR), the interest is paid in EUR, but repayment has to be made in the currency of the issuer.

also called: simple duration, Macauley durationpoint in time, when the loss of a bond, due to an increase of interest rates, is offset by the higher return of the re-investment of coupon payments and vice versathe simple duration is distinct from the modified duration

method of allocation at interest tenders, where all bids are allocated at the same interest rate This interest rate is called marginal interest rate (=lowest accepted bid) opposite: american-style tender

abbr. Dollar value of a 01 same meaning as BVBP

see also exposure at default

Early repayment clauses include the possibility of repayment of the securities issued to investors before the originally stated maturity, when a certain event occurs.

The income of a security includes interest and dividend payments (dividends) and other distributions and capital gains resulting from price increases (course).

Earnings before interest and taxes (EBIT = earnings before interest and taxes). Bank earnings before assessment of risk business in the field of securities and loans (= before individual value adjustment).

The annual profit of a company divided by the number of outstanding common shares.

Net earnings per share over the previous 12 months as a percentage of the share price. Inverse of the price-earnings ratio.

Income risk is the possibility of losing the income from the invested capital.

abbr. Earnings Before Interest and Taxes. This is the operating profit.

see also external credit assessment institution

abbr. for European Central Bank

The amount of capital allocated and held internally by an organisation as a result of its own risk assessment methodology

a cycle of economic activity around a trend growth rate typically characterised by a trough, upswing, peak and downswing

Costs which incurre through the holding of equity beyond regulativ capital which is economically necessary to cover unexpected losses. The economic capital may therefore differ from the legally required equity.

v. Euro commercial paper

abbr. Ex dividend

abbr. Expected Default Frequeny

abbr. Exchange Delivery Settlement Price, the price at which futures contracts are settled upon delivery. The EDSP is determined by the exchange, and is often an average of traded prices over a set period or linked to certain fixing (e.g. LIBOR)

The annual interest rate of an amount of capital with time consideration of all cost and revenue factors that lead to payments.

The Effective Duration is a measure of sensitivity, which indicates how much the total return of a bond changes if the paid market interest rate changes. (= spot rates).

under the Basel II agreement, banks are required to use standard values for M or to measure M using a specified definition

The effective interest rate can not be obtained from the bond conditions. It depends on the nominal interest rate, the issue price of the bond, the redemption price of the bond, the majurity and the incidental costs.

revenue gained by an investment over several periods of interest payments in consideration of compound interest

Term for the tradable securities on the capital market.

Also optimal portfolio. A portfolio, which corresponds to the risk attitude of the investor and ensures the highest income starting from a given risk level or includes the lowest risk with an expected yield.

Known range from portfolio theory of those portfolios in which risk and return are not dominated by other portfolios.

Cashable bills of exchange at the Bank of England. An Eligible Bill is a discount instrument and is trading with a discount.

In order to be handled as a recognized credit rating agency under Basel II, a CRA must meet six criteria: objectivity, independence, International access / Transparency, publication, resources, credibility.

The Banking Act requires banks to back up at least 8% of their basis of assessment with own funds. (ie, 0% of the volume of loans to federals, states and municipalities, 20% for interbank loans, 50% for housing loans 100% for other assets) Own funds include in particular registered capital, disclosed reserves, liability reserves, valuation reserves and profit after dividends and taxes (net income). Meaning of the provision is to build up sufficient risk capital for risks from the lending business, with which a corresponding depositor and shareholder protection should be achieved.

release of securities at the primary market with the objective of raising funds in terms of equity capital (shares) or bonded capital (bonds, CD, CP, etc.)

The value of a security as measured by the portfolio. The weight of a particular asset class, an industry or sector.

To an employee of a company's issued share, often at a discounted price. The employee usually has to wait for a lock-up period prior to the sale

a transaction with a term starting and ending at the last days of the month (mainly deposit, forward contract, FX-swap)example: A two-months deposit, which starts on the 31. March and would end on the 31. May. If the 31. May would be a weekend or a holiday, the muturity date would be the last bank day in the month May, not as usual the next working day, i.e. the 29. or 30.

see interest method actual/365

abbr. for Euro Overnight Index Average,is the benchmark for overnight EUR and is calculated as a weighted average of all unsecured overnight-transactions of the banks which participate in the fixing,www.euribor.org

EUR interest rate swap where the floating rate is linked to EONIA see also: OIS

risk factor of options, also called rho expresses how much the price of an option changes if the level of interest rates changes

Regulatory term. Own funds include, in particular registered capital, disclosed reserves, liability reserves, valuation reserves as well as profit after dividends and taxes (net income). It serves to cover the risks from the lending business with which a corresponding depositor and shareholder protection should be achieved.

calculative return, which is assumed that the equity of a bank should bear equity cost is the result of the aimed return on equity (ROE) target, set by the board, minus the risk free interest rate (e.g. government bonds)

Under the Basel II agreement, equity exposures are defined on the basis of the economic substance of the instrument. They include both direct and indirect ownership interests and must meet a set of requirements to be classified as such

A mutual fund that invests principally in stocks. It can be actively or passively (index fund) managed. The owner of shares of such a fund has the possibility to be involved indirectly in the substance and the yields of public limited companies.

A Security which represents a share of the company itself usually, for example for shares. In the case of funds you are not involved in the company itself, but in the special assets of the capital investment company.

Securities which normally represent a share of the company. Shares are equity securities. In the case of Investment fund certificates, one is not involved in the company itself, but in the special assets of the capital investment company.

Securities, which include membership rights in a company or ownership interests in a pool of assets. In investment companies: A Note representing joint ownership of the fund assets (investment certificate).

v. SAFE

abbr. European System of Central Banks

abbr. BWA(german) means federal securities and market authority.

abbr. Exchange Traded Funds

abbr. ISO currency code for Euro

Futures market which is arisen from the merger of the German DTB and the Swiss SOFFEX. www.eurexchange.com

EURo Interbank Offered Rate, average rate which is formed by 57 reference banks from Euro-countries and non Euro-countries.It has replaced the national reference rates (e.g. Fibor) on 1.1.99. In many market segments the EURIBOR has replaced the LIBOR as an important reference rate. The calculation is executed by the information service company Bridge. (www.euribor.org)

(EUR) Official name of the common European currency. One Euro is divided into 100 cents. In 1999 the exchange rates of the currencies of the participating countries were irrevocably fixed to the euro and the listing of the Securities switched to euro (1 euro = 13.7603 ATS).

A bond issued in a currency other than the currency of the country or market in which it is issued.

CP issued in the Euro market

USD which are traded in the euro-money market, i.e. outside of the United States e.g. in Tokyo in general, a currency is called euro-currency if it is traded outside the country where it is the legal tender

previously

see actual/360

(EONIA) The weighted average of overnight Euro Interbank Offer Rates for inter-bank loans. EONIA is the standard interest rate for Euro currency deposits. The European Central Bank is responsible for calculating the EONIA every day. www.euribor.org

Bond which is issued outside the home country of the issuer in the international capital market, normally not in the home currency of the issuer. It is common practise that the legal basis is English or US law.

the LIBOR for EUR calculated by the BBA,as the most important benchmark for the EUR replaced by EURIBOR

market for credits and deposits in euro-currenciesa currency becomes an euro-currency when it is dealt outside the country where it is legal tender

USD which are traded in the euro money market, ie outside of the home market. For example, USD traded in Tokyo.

see Euronext

The EBA acts as network of the EU and national authorities and is responsible for safeguarding public values such as the stability of the financial system, the transparency of markets and financial products and the protection of depositors and investors and is equipped with wide-ranging competences.

The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed in Germany in June 1998 and works with the other national banks of each of the EU members to formulate monetary policy that helps maintain price stability in the European Union. The European Central Bank has been responsible for the monetary policy of the European Union since January 1, 1999, when the euro currency was adopted by the EU members. The responsibilities of the ECB are to formulate monetary policy, conduct foreign exchange, hold currency reserves and authorize the issuance of bank notes, among many other things.

The successor to the European Monetary System (EMS), the combination of European Union member states into a cohesive economic system, most notably represented with the adoption of the euro as the national currency of participating members.

An option in which the holder is entitled to exercise its option right only and exclusively on the expiration day.

see european option

the ESCB is composed of the ECB and of the national central banks. Its primary objective is to maintain price stability. Its basic tasks are to define and implement the monetary policy of the European currency area, to hold and manage the official reserves of the participating Member States and conduct foreign exchange operation, to promote the smooth operation od payment systems in the EUR-area

Consists of the European Central Bank (ECB) and the national central banks of the current 13 EU Member States which have adopted the euro in the third stage of the Economic and Monetary Union. The national central banks of the Member States which have not yet joined the euro area are amongst the European System of Central Banks (ESCB), but not to the euro system. The euro system perceives the sovereign rights in the field of monetary policy for the member states of the monetary union.

The valuation of the fund's assets is important, since this determines the value of each share. Therefore, the valuation principles are given in any prospectus, according to the which the value of each share, or any portion of the fund's assets are determined. Basically a domestic investment fund may only acquire values for which there are regularly and objectively measurable values (prices) and which are traded on certain stock exchanges or organized markets (according to the fund rules). The acquisition of unlisted securities is only permitted if this is provided in the fund regulations and only to the specified amount.

The current rate is reduced by the amount of the dividend. On payday the dividend, the stock is equipped with the share price addendum "ex-dividend".

The day on which shares are traded ex. i.e. without a specific right, for example, to receive dividends, subscription right or bonus shares (capital adjustment)

An addition to the price which indicates that on this day the value of subscription rights was deducted from the price of the stock (at the ex-date).

Declaration of an option holder that he buys (call) or sells (put) the underlying accordance with the agreed conditions.

defined as gross finance charge collections and other income received by a trust or special-purpose entity, minus certificate interest, servicing fees, charge-offs, and other senior trust or special-purpose entity expenses

A marketplace in which securities, commodities, derivatives and other financial instruments are traded. The core function of an exchange - such as a stock exchange - is to ensure fair and orderly trading, as well as efficient dissemination of price information for any securities trading on that exchange. Exchanges give companies, governments and other groups a platform to sell securities to the investing public.

Settlement price of the futures contract at which will be settled on the last trading day upon delivery. It shall be determined by the Exchange. It is often calculated as average of the prices of a particular period or is it tied to a specific fixing (eg LIBOR).

The determined price by supply and demand of the traded value. (securities, currency, etc.) It is operated by an exchange corporation.

v. SAFE

An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold.

Is the immediate information of the trading participant on an order specifying the execution time, the price and the executed volume.

Execution limits are designed for the specifications of market orders and are configured as either Fill Or Kill or Immediate Or Cancel.

By the supervisory board of a public limited company ordered Management Board of a PLC.

Period during which exercise can be made in the clearing system.

Those option variants which are not attributable to the traditional options (call or put), because they have additional properties. Contrary plain vanilla options

The estimate of the average expected loss on a portfolio. In case of a finance company value adjustments should cover the expected loss.

It iIt is the expected positive exposure in respect of a counterparty.s the expected positive exposure amount to a counterparty

Expiration occurs when an option can not be exercised, ie the maturity is over.

The date on which the option will expire if not exercised early. Always Saturday following the third Friday of the month.

Month in which the option on the day following the last trading day, expires if it has not been exercised before. See maturity

The amount that is lost in the case of the lowest possible realization proceeds from the liquidation or bankruptcy of the borrower. See also probability of default, loss given default, liability in case of failure.

The expected amount of the claims for a particular bond / debt securities at the time of the failure.

a common risk management tool on both the trading desk and in loan portfoliosExposure limits are predictive, and therefore indicate risk before its financial consequences occur (see also exposure).

the expected exposure of a credit institution for a given debt instrument upon the default of the counterparty

Asset class of the Basel II framework. Covers receivables from banks and investment firms that are subject to Basel II comparable regulatory requirements. The asset class further includes other public bodies, which are treated as receivables to banks under the standardized approach and multilateral development banks that reach no 0% risk-weight in the standard approach.

(External Audit) The goal of external financial audit is to get an independent opinion about whether the accounts of a bank were prepared in accordance with the relevant accounting standard.

a credit rating agency.to qualify for treatment as an ECAI, a firm must satisfy six criteria: objectivity, independence, international access/transparency, disclosure, resources, credibility

These data are collected according to Basel II outside of the institution and used to model a specific risk.

The time value is the option price minus the intrinsic value of the option. It is influenced by the volatility of the underlying asset, the remaining term of the option, the money market interest rates and the option type. If the option is at-the-money the time value is the highest.

cp. nominal value

Value of a future or option which is calculated based on a theoretical pricing model (eg Black & amp; Scholes model) taking into account price determining factors.

abbr. Federal Deposit Insurance Corporation

see Federal Reserve System

The interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. The Fed funds rate, as it is called, often points the direction of U.S. interest rates. The most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate.

USD interest rate swap, where the floating rate is linked to the Federal Funds effective rate see also: OIS

Federal bonds are issued by the state. They serve the state to borrow capital in the long term.

an independent agency that promotes public confidence in the US financial system by insuring deposits in US banks and thrift institutions

the basic task of the FOMC is to define the open market policy of the Federal Reserve System (FED), that means it sets the key interest rate for the USD. It is composed of seven members of the Board of Governors und five members of Federal Reserve Banks.

the central bank system of the United States The FED consits of 12 Federal Reserve Banks. The basic tasks are: price stability, high rate of employment, longterm equilibrium in the balance of payments and reasonable economic growth The most important instrument in monetary policy is the open market policy which is defined by the Federal Open Market Committee (FOMC)

(Federal Securities and Markets Authority). Public institution, which was established under the Securities Supervision Act of 1996 for the supervision of the securities market (stock exchange) and the financial services business. (since 1998). The tasks of the Federal Securities and Markets Authority include the elimination of illegal business practices, monitoring of disclosure requirements, the licensing of investment services companies and the exchange of international information and experience.

abbr. of Frankfurt Interbank Offered Rate,replaced by the EURIBOR 1.1.99

(FOK) This is an order form in which it is executed immediately and completely or not at all. If an execution is not possible, the fill-or-kill order is immediately deleted and not included in the order book.

Either the settlement in cash or units upon the exercise of options or the expiry.

Investigation of companies in respect of their economic situation, future success and financial solvency (liquidity). The financial analysis provides the basis for investment decisions.

see futures

any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity

The FMA Act came into force on 01.04.2002 and regulates the supervision of the Austrian financial market by the Financial Market Authority (FMA).

The FMA monitors the adequacy operated by the Vienna stock markets in Austria as an independent authority on the basis of the Financial Market Supervision Act (FMA Act). Their responsibilities among others are set out in the Stock Exchange Act and the Securities Supervision Act and have to focus on the national economic interest in a functioning capital market and in particular on the interests of investors. The tasks of the FMA are divided into banking supervision, insurance supervision, securities supervision and pension institutions supervision.

Plan that contains the current financial situation and investment objectives.

Financial Services Authority in the United Kingdom of Great Britain and Northern Ireland. www.fsa.gov.uk

The Financial Stability Institute (FSI), is one of the bodies hosted by the Bank of International Settlements (BIS) at its headquarters in Basel. Established in 1999 by the BIS and the Basel Committee on Banking Supervision, its primary role is to improve the co-ordination between national Bank Regulators through holding seminars and acting as a clearing house for information on regulatory practice.

A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The futures markets are characterized by the ability to use very high leverage relative to stock markets.

The holder receives predetermined interest at regular intervals by the issuer. (usually annual).

also straight bondbond with a fixed couponopposite: floating rate note

Exchange of fixed against variable interest rates.

A deposit held at a financial institution that has a fixed term. These are generally short-term with maturities ranging anywhere from a month to a few years. When a term deposit is purchased, the lender (the customer) understands that the money can only be withdrawn after the term has ended or by giving a predetermined number of days notice. By having the money tied up you'll generally get a higher rate with a term deposit compared with a demand deposit.

Bond with a fixed coupon. Contrary floating rate note

A debt instrument such as a bond, debenture or gilt-edged bond that investors use to loan money to a company in exchange for interest payments. A fixed-interest security pays a specified rate of interest that does not change over the life of the instrument. The face value is returned when the security matures.

couponswap in which a fixed interest rate (coupon) is paid, and a variable interest rate (e.g. EURIBOR, LIBOR) is received

coupon swap in which a fixed interest rate (coupon) is received, and a variable interest rate (e.g. EURIBOR, LIBOR) is paid.

price- resp.rate-fixing, e.g. LIBOR, EURIBOR, goldfixing, foreign exchange fixing, etc.

yield curve with the same interest rate level for all periods

a US-style repo in which the purchaser redeems the cash in fixed installments.

abbr. Floating Rate Note

A bond with a variable coupon that is linked to an index (eg, 6-month EURIBOR).

a repo with a variable interest rate (e.g. EONIA)

A floor is an interest rate floor for a variable interest rate, and consists of a series of put options on a fixed reference interest rate (e.g. 6-months EURIBOR) with the same strike. A single option of this series is called floorlet. The purchaser of the cap receives a compensation from the seller, if the reference interest rate is fixed below the strike at the expiry date.

Classic stock exchange type in which the trade takes place physically in a trading room.

a single option out of a floorv. floor

Central optimization of treasury transactions

abbr. fill-or-kill

abbr. Federal Open Market Committee

another designation for FT-SE 100

bond issued by a foreign entity in one singular national market denominated in the currency of this countryopposite: domestic bond and Euro-bond

A bond which is listed in a foreign currency.

An outstandning loan that has been granted in a foreign currency and has to be paid back in that currency. Using foreign currency loans may decrease the interest expenses but involves foreign exchange risk.

The global foreign exchange market is by far the largest financial market. The exchange of one currency for another, or the conversion of one currency into another currency. Foreign exchange also refers to the global market where currencies are traded virtually around-the-clock. The term foreign exchange is usually abbreviated as "forex" and occasionally as "FX."

abbr. Foreign Exchange

Characteristic price curves that should enable to predict future price movements in the context of technical analysis. Among the most famous formations are flags, pennants and wedges, the head and shoulders pattern and the M & amp; W formation.

Generic term for instruments whose price is is derived from the price of other securities or financial products (the so-called underlying assets or underlyings). Examples of derivatives: futures, options and swaps.

v. SAFE

A forward contract is a fixed agreement between two parties to conduct a foreign exchange transaction at a fixed rate with a later date than the spot transaction day.

v. Cross Currency Swap

Interest rate fixed today on a loan to be made at some future date

v. FRA

(FSA) This variation of a forward rate agreement is used to hedge the spread between interest rates of similar maturity in different currencies.

a repo with a start date later than spot i.e. in the future

A customized contract between two parties to buy or sell an asset at a specified price on a future date. A forward contract can be used for hedging or speculation, although its non-standardized nature makes it particularly apt for hedging. Unlike standard futures contracts, a forward contract can be customized to any commodity, amount and delivery date. A forward contract settlement can occur on a cash or delivery basis. Two types: unconditional contracts (futures, forwards) and conditional financial instruments (options). Contrary spot transaction

a transaction in which two parties agree to exchange two currencies in the future and to do a reverse transaction with a value date later than the first exchangein fact is a FX-swap with a short leg with a value date later than spot, e.g. buy EUR/USD in 3 month and sell simultaneously EUR/USD in 6 month

One of two types of internal ratings-based approaches. It allows banks to calculate their regulatory capital requirement by using banks# internally generated estimate of the probability of default and, in some cases, the effective maturity (see also internal ratings-based approach, foundation internal ratings-based approach)

abbr. for Forward Rate AgreementThe agreement between two parties to pay the difference between the agreed interest rate and the interest rate at a certain point of time (reference rate). The FRA is an OTC-instrument and is used in the money market for the management of the interest risk

The amount due is the only cash-flow at an FRA. It is the difference between the agreed interest rate and the reference interest rate, based on the agreed term and the nominal value.

Determination of the reference interest rate, which is the basis for the calculation of the FRA-amount due.The fixing occurs normally two working days before the settlement (exception GBP: on the same day)As reference rate serves mainly LIBOR or EURIBOR.

A FRA is settled by the amount due. The settlement-date is at the beginning of the maturity of the FRA-period. Therefore a discounting is applicable at the calculation of the amount due.

FRA-strip indicates a series of short-term FRAs, with which a long-term FRA is produced. For example a 3/6 and a 6/9 FRA respond to a 3/9 FRA.

abbr. for Forward Rate Agreement British Bankers Association, master agreement for FRAs

(FIBOR) Was a reference rate on the money market for "Deutsche Mark"time deposit and was replaced on 01.01.1999 by the EURIBOR.

another designation for actual/360

e.g. annually, semi-annually, quarterly, etc.markets with annually payment of interest: Germany, France, Netherlands, Austria, Switzerland, Euro-bonds, etc.markets with semi-annually payment of interest: USA (only domestic), UK, Japan, Canada, Australia

Floating Rate Note, A bond with a variable coupon which is bound to an index e.g. 6-months EURIBOR

the contract of a futures (e.g. bund-futures) with the nearest settlement day

1. abbr. for Forward Spread Agreement2. abbr. for Financial Services Authority,the FSA is an independent financial market supervision in UK, www.fsa.org.uk

abbr. Financial Stability Board ;Part of the Bank for International Settlement (BIS) in Basel

see also Financial Stability Institute

(Footsie) The Financial Times Stock Exchange index includes the top 100 stocks traded on the LSE (London Stock Exchange). It is calculated by FTSE Group, which emerged from a joint venture of the London Stock Exchange with the Financial Times. The Footsie exists since 1984 and is calculated in real time.

The total assets of the investment fund. It consists of securities and other rights, bank credit balances and deposits, return requirements (income adjustment), but may also include derivativ financial market instruments (such as options, futures, swaps, and many others). These assets are reduced at most by borrowings or obligations under derivative financial instruments. The fund's assets is the exclusive property of the shareholders and the investment company only manages it. Therefore it can not be lost in a liquidation of the investment company or custodian bank.

The fund manager has the responsibility of managing the fund's assets, ie The money to invest as well as possible, taking into account the opportunities and the risks taken.

A method of evaluating a security that entails attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysts attempt to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and company-specific factors (like financial condition and management).

Special funds, which are managed by an investment company. The investor(Buyer) has the opportunity to participate in the development of all the fund's assets.

v. FRA

the future value contains capital and interest and can be calculated from the present value by adding accrued interest

agreement to sell or purchase a financial instrument or commodity at a particular price on a stipulated date in the future,contrary to forward contracts futures are exchange traded

Agreement about a future purchase or sale of a particular amount of a commodity in which delivery and payment take place at a specified date and at a specified price.

On the futures market fulfillment of a transaction takes place at a future date. Price, quantity and date of fulfillment are already fixed with the execution of the transaction . Contrary cash market

a series of futures,such a kind a longer period can be producedexample: by using March, June and September 3-months LIBOR futures a 9-months period from March till December can be produced.

Funds which investin the futures or options markets. The choices are (in addition to financial futures) as forward contracts on equities, interest rates, indices and currencies as well as futures contracts on precious metals, agricultural goods and raw materials (collectively Commodities). Futures funds have a significantly higher risk than other securities funds due to the leverage effect of derivative products.

abbr.

v. SAFE

see Generally Accepted Accounting Principle

risk factor of options expresses by how many percentage points the delta of an option changes if the price of the underlying increases by one unit e.g.: call EURUSD delta 0.35 (resp. 35%) gamma +7 meaning: if EURUSD increases by 1 USD Ct the delta of the option changes from 35% to 42% gamma is similar to the convexity of bonds long options always have a positive gamma short options always have a negative gamma

A method of asset-liability management that can be used to assess interest rate risk or liquidity risk excluding credit risk. Gap analysis is a simple IRR measurement method that conveys the difference between rate sensitive assets and rate sensitive liabilities over a given period of time. This type of analysis works well if assets and liabilities are compromised of fixed cash flows. Because of this a significant shortcoming of gap analysis is that it cannot handle options, as options have uncertain cash flows.

Generalized Auto-Regressive Conditional Heteroskedasticity A mathematical model to forecast future variances on the basis of past variances. GARCH is widely used in riskmanagement.

ISO currency code for British pound sterling

abbr. for gross domestic product, measure for the performed work of an economy during a certain period

collateral (usually bonds) that satisfy the general requirement of a lender of cash in a repo transaction The interest rate of a repo with a general collateral is usually slightly below the rate of unsecured interbank deposits opposite: special collateral

Method for modeling time series. Among other things, future volatilities are forecasted with that. The results are often used in the assessment of risk.

The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information. GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. That said, keep in mind that GAAP is only a set of standards. There is plenty of room within GAAP for unscrupulous accountants to distort figures.

another designation for 30/360

abbr. Good-for-Day

bonds issued by the UK treasury

Describes a largely risk-free asset. In some areas it is prescribed by law or bound by contract.

abbr. Global Investment Performance Pesentation Standards

see interbank deposit

Certificate representing a larger number of securities. Global certificates simplify administration and custody.

A bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches. A GDR is very similar to an American Depositary Receipt.

International standards for the performance presentation in the investment industry to ensure a fair and complete representation of the motivation of portfolio managers.

abbr. gross national product . Unit of measure for the performance of national economic units during a period.

In the going concern perspective the continuation of a proper operative business activity (going concern) should be ensured. The bank can individually specify what is meant by proper operative business activity. Typically, a zero result or even using up an unneeded share of open equity capital is considered acceptable for going concern. The minimum regulatory capital requirement has to be regarded as a strict lower limit for the going concern.

another designation for open market rate

corresponds to the liquidation of the company / bank

(GFD) Validity constraint for an order, which is only valid for the current trading day

(GTC) Provides a temporal validity constraint. The order remains valid until it is canceled by the customer or automatically deleted from the system (the maximum period of validity is one year).

(GTD) Provides a temporal validity constraint. The order is valid up to a predefined date. (max. 90 days from the date of entry).

(GTE) Temporary validity determination for unrestricted limit orders: Valid to maturity.

Goodwill is an intangible asset of fixed assets. It is calculated as the difference between the value of the company and the value of the capitalizable individual goods. The goodwill mainly expresses factors such as reputation of the company, organization, customers, etc.

Term for bonds issued by the federal government, such as Government bonds, federal obligations and treasury bills.

The granularity of a bank portfolio describes the extent to which there remain significant single borrower concentrations.

According to the Basel Committee, a firm's supervisor must be satisfied that the regulatory retail portfolio is diversified to a sufficient degree to reduce the risks in the portfolio warranting the 75% risk weight.

Term for the highest increase in percentage value that is accounted by a fund within a certain period of time. The calculation is based on a period of 3 years.

Term for the highest loss in percentage value that is accounted by a fund within a certain period of time. The calculation is based on a period of 3 years.

(Greenshoe) In the case of over-subscription of the issue there is the possibility that the issuer grants an additional allotment of shares to the subscribers of the emission.

engl. gross amount loans

the net interest income plus net non-interest income of a bank (as defined by national supervisors and/or national accounting standards)

turnover minus costs of manufacture

v. grossing up clause

the obligation of an issuer to offset the withholding tax, if such a tax is introduced during the term of the bondgrossing-up clauses are frequently used in eurobonds

(growth funds) A mutual fund whose primary focus is on a steady increase in the intrinsic value of the investment funds. There is less attention to current income than to a price increase of the applied fund's securities (income funds).

abbr. Good-till-Cancelled

abbr. Good-till-Date

abbr. Good-till-expiration

Funds that guarantee the return of a predetermined (at issue) amount at a specified time. Guaranty funds are usually fixed-term funds. The advantage of the guarantee fund is that besides benefiting from additional income the risk of loss is limited (by the guaranteed return), their disadvantage is that the participation from the income is usually limited because of the guarantee.

see covered bond

a third party that accepts a contractual or statutory commitment for repayment of another entity's obligation

the margin of the seller (=cash borrower) in the repo, The haircut corresponds to the initial margin at futures. It represents an over collateralisation for the purchaser in the repo (= cash lender). Additional to the haircut margin calls (variaton margins) are common as well.

A financial market of a group of securities in which prices are rising or are expected to rise. The term "hausse" is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities. Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue. Contrary Baisse

A technical analysis term used to describe a chart formation in which a stock's price: 1. Rises to a peak and subsequently declines. 2. Then, the price rises above the former peak and again declines. 3. And finally, rises again, but not to the second peak, and declines once more. The first and third peaks are shoulders, and the second peak forms the head.

the practice of deferring accounting recognition of gains and losses on financial market hedges until the corresponding gain or loss of the underlying exposure is recognised

An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark). Legally, hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year.

A ratio comparing the value of a position protected via a hedge with the size of the entire position itself. The hedge ratio is important for investors in futures contracts, as it will help to identify and minimize basis risk.

safeguarding of positions against risks, The basic idea of this is getting a compensatory effect through taking an opposite position.

abbr. for Hold In Custody Repo a repo at which the seller of the security does not deliver to the purchaser, but holds it in custody of the buyer, The repo rate is normally higher than at the classic repo, because the buyer has got less flexibility and a higher risk. The seller must not use the security in another repo again (so called double dipping.

Designation for the maximum price of a security. Contrary Low

(High Liquid Assets - HLA) Represent the numerator of the LCR and are composed of cash, minimum reserve with the central bank and securities with the highest credit ratings (excluding securities of financial institutions.)

the financing of commercial real estate that exhibits higher loss rate volatility compared with other types of specialised lending

Risky loans with high interest rates, usually lower credit quality of debtors.

Information concerning the history of a company, historical data, such as the historical course, the historical price-earnings ratio, revenue and revenue growth, earnings and earnings growth are used for the creation of forecasts for the company's future.

statistical method to compute value at risk (var) The historical simulation evaluates the changes of the value of a portfolio using historical market data. The highest change in the portfolios value which is within the confidence interval represents the risk measure. other methods: monte carlo simulation and variance/covariance method

measure of the observed past fluctuation of an instrument contrary to the implied volatility the h.v. is applied in risk measurement

v. HIC repo

The holder has the right but not the obligation to buy or sell the underlying at the strike price until the expiration date.

Period in which a share remains in the hands of the same owner.

another designation for home country supervisor

see Time Spread

It is formed by the issue of participation certificates or subordinated bonds. In Basel 3 it is accepted as equity if it has a term of five years or more. Hybrid capital is thus actually borrowing, which has equity-like characteristics.

abbr. International Accounting Standards

abbr. Internal Capital Adequacy Assessment Process. It is the regulatory process to comply with the capital requirements.

abbr. International Capital Markets Association

abbr. Internal Capital Adequacy Assessment Process. It is the regulatory process to comply with the capital requirements.

abbr. International Monetary Fund (IMF)

International Monetary MarketThe IMM is the part of the CME where interest-rate- and currency-contracts are traded.v. CME

a FRA with a settlement-day that corresponds to the standard-settlement days futures traded at the IMM,i.e. the third Wednesday in the last month of each quarter (March, June, September, December).

swap with a start date, that is equal to a standard settlement date of IMM (International Monetary Market) futures. I.e. the third Wednesday of the last month of each quarter.

(IOC) order which must be executed wholly or partly, if it is entered. Unexecuted order parts are canceled.

measure of expected future fluctuation of an instrumentthe i.v. is an important input factor of options pricing modells from the statistical point of view the i.v. is the annualised standard deviation opposite: historical volatility

A cost that is incurred by virtue of using an asset instead of investing it or undertaking an alternative course of action. An imputed cost is an invisible cost that is not incurred directly. Often it involves opportunity costs, which are costs of lost opportunities, interests or rewards. In financial accounting only interests are recognized which are paid to lenders. In business accounting the total capital will be calculated for the interest costs, including the equity capital, which is why an imputed interest rate (capital cost) is recognized for the operating assets.

coupon swap in which the variable side is fixed at the end of the interest period

Description of an option that has an intrinsic value. A call is in the money if the price of the underlying is above the strike price. A put is in the money if the price of the underlying is below the strike price.

A call is in-the-money if the spot price of the underlying is above the strike price. A put is in-the-money if the spot price of the underlying is below the strike price.

(Stock index) Statistical measure which shows the changes in relation to an earlier time (price and cyclical movements). A stock index is a price index or a performance index, which represents the average price of the equity basket, a country, a region as a whole or of individual sectors. The starting point is the price level on a given day. Among the most famous stock indexes are the Dow Jones Industrial, S & P 500, MSCI, Nikkei 225 and the DAX.

The value of all companies included in a particular index. The value of the company is calculated by multiplying the price by the number of shares included in the index.

A type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover. Investing in an index fund is a form of passive investing. The primary advantage to such a strategy is the lower management expense ratio on an index fund.

An option whose underlying is an index.

v. basis swap

(indicative NAV Net Asset Value) The sum of all assets held by an investment fund (Exchange Traded Funds), ie the value of all securities, cash balances cash deposits and other rights. The indicative NAV is determined continuously during the trading day.

Indirect costs are overheads.

short-term hedging of a bond- or swap-portfolio against the market risk with futures,The advantage of this pratice is the high liquidity, the low spread and the lower costs in the future market. The remaining risk is called basis risk.

Continued price level increase or loss of purchasing power of money. It is given when the supply of goods is below the monetary aggregate demand.

Risk that the return on an investment is negatively affected by the inflation trend.

The percentage of the purchase price of securities (that can be purchased on margin) that the investor must pay for with his or her own cash or marginable securities. It ensures that no under- or over-collateralization occurs due to market movements.

On the cash market, there are two basic positions: Long equity (buying) and short equity (sales). On the futures market, there are six: Long futures and short futures, long call and short call and long put and short put.

The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.

One may distinguishe between 2 types of insiders: Primary & secondary insiders. Primary insiders are those who have access to inside information, because of either their profession or capital investment. Secondary insiders are persons who received or have searched inside information.

A non-public fact regarding the plans or condition of a publicly traded company that could provide a financial advantage when used to buy or sell shares of the company's stock. Insider information is typically gained by someone who is working within or close to a listed company. If a person uses insider information to place trades, he or she can be found guilty of insider trading. Insider trading is illegal when the material information has not been made public and has been traded on.

Institutional investors are referred to as financial intermediaries with high investment amounts. e.g. Banks, insurance companies, pension funds, investment companies and building societies.

The simultaneous purchase and sale of futures on different underlyings but mostly with same delivery months.

money market deal between banks

Money market transaction between two banks. In case of a given depot you have invested money and in case of a taken depot you have taken money.

Price for the loaning of capital.

The portion of the interest margin which is derived by juxtaposing reference interest rates from investments / refinancing. Under the market interest method, the difference between interest income (= the sum total of all investment transactions, valued at the respective reference interest rates) and interest expenditure (= the sum total of all refinancing transactions valued at the respective reference interest rates).

Result of interest income and interest expenditure

In the interest maturity gap assets and liabilities volume (on- and off-balance) are adjusted according to their respective interest adjustement and the corresponding reference rate in the maturity band.

another designation for interest calculation method

An interest payment that is made at the beginning of the Interest Period. Contrary interest payment in arrears

An interest payment that is made at the end of the Interest Period. Contrary interest payment in advance

see IRG

v. methods of interest calculation

the respective interest rate qualities agreed upon (e.g. fixed interest)

a type of market risk the risk, that a bank suffers losses from a unfavourable developement in interest rates

An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (most often the LIBOR). In Interest rate swaps notionals are never exchanged but only used to calculate the interest payments. IRS may be or so called coupon swaps (fixed against variable) or bais swaps (variable against variable)

the method of interest rate calculation applied in certain market resp. at a certain instrument, e.g. act/360, 30/360, act/365 etc.

The portion of the intreest margin generated by the customer business. This is calculated by establishing the difference between external conditions (= customer's interest rate, effective interest rate) and the reference interest rate for the individual transaction concerned.

(ICAAP) The English name for the internal procedure with which banking institutions have to internally ensure that sufficient capital to cover all material risks is available.

abbr.: IRRthe calculated interest rate, at which the sum of the discounted cash-flows of an investment corresponds to the capital expenditure (dirty price)The method of the Internal Rate of Return assumes the re-investment of interim cash-flows at the Internal Rate of Return.

(Internal rate of return, IRR) That financialmathematically determined interest rate at which the sum of the discounted cash flows of an investment matches the capital outlay (dirty price). In the internal rate of return method, the reinvestment or refinancing of cash flows in the meantime for internal rate of return is assumed.

Under Basel II banks may use their own internal estimates of risk components to determine the capital requirement for an asset. This risk components include measures of the probability of default (PD), loss given default (LDG), the exposures at default (EAD) and the effective maturity (M). To be approved for the IRB approach, banks must meet certain minimum requirements and disclosure requirements.

This approach relies heavily upon the internal assessment of a bank of its counterparties and exposures. Risk weights are not standardised anymore but will be calculated via risk weight functions.Risk parameters are probability of default, exposure-at-default, loss-given default and effective maturity. Banks must meet a set of minimum requirements in order to be eligible for IRB treatment of their exposures.

(IAS) International Accounting Standards, compliance enables a better international comparability of enterprise data.

A self-regulatory organization and trade association originally located in Zürich, Switzerland, that encourages systematic and compliant trading in the international securities market. It also promotes the development of the Euromarkets and is acknowledged as a designated investment exchange by the Financial Services Authority, which regulates the financial services industry in the U.K. In July 2005, the ISMA and International Primary Market Association merged to become the International Capital Market Association.

A set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the International Accounting Standards Board. IFRS are sometimes confused with International Accounting Standards (IAS), which are the older standards that IFRS replaced. The goal with IFRS is to make international comparisons as easy as possible.

The IMF was created in 1945 at the Bretton Woods conference and has currently 185 member countries (2007). The IMF plays three major roles in the global monetary system. The Fund surveys and monitors economic and financial developments, lends funds to countries with balance-of-payment difficulties, and provides technical assistance and training for countries requesting it. www.imf.org

(IMM) The International Monetary Market is the marketplace of the Chicago Mercantile Exchange on which interest rate and currency contracts are traded.

(IMM FRA) A forward rate agreement whose settlement date corresponds to the standard data of the International Monetary Market of the Chicago Mercantile Exchange traded contracts. This is the third Wednesday of the last month of each quarter (March, June, September, December).

(IMM swap) swap whose term beginning matches a default expiration date on the IMM. (International Monetary Market) This is the third Wednesday of each last month of the quarter.

(ISIN) 12-digit letter-number combination to identify securities on an international level.

(ISMA) umbrella organization of institutions and traders operating on the euro bond market, with the main task of creating practices for the regulation of the Euro market transactions (eg. the ISMA method).

(ISDA) International economic organizations of operators for OTC trading of swaps and derivatives. The ISDA has developed a standardized contract that is signed by market participants prior to the trading of swaps and derivatives (= ISDA Master Agreement). www.isda.org

a mathematical method to derive a value, which lies between two known values, the most simple method is called linear interpolatione.g. following rates are given:1 mo 3.50 % (31 days)3 mo 3.75 % (92 days)What is the interpolated rate for 1.5 months (46 days)?r = 0.035 + [(0.0375 - 0.035) / (92 - 31)] * (46 - 31) = 3.56148 %more sophisticated methods are logarithmic interpolation and cubic spline

the simultaneous purchase and sale of futures on the same underlying but with different delivery months (therefore also called time-spread)

Purchase and sale of securities or foreign exchange position within one trading day. Thus, the day trader tries to take advantage of the daily fluctuations of the prices and to buy positions and sell it again within a day.

maximum extent of a risk position which a trader is permitted to hold during the day, also called: daylight limit opposite: overnight limit

The intrinsic value of an option is calculated from the difference between the exercise price and the price of the Underlying. Call: spot price of the underlying minus the exercise price. Put: exercise price minus spot price of the underlying. If the result is negative, is the intrinsic value is zero.

yield curve with higher short term rates than long term rates

A security that represents a co-ownership of the assets of an investment fund.

An institution for the administration of investment funds (securities fund or property fund). The shares are called investment fund certificates and are distributed publicly.

Agreement between the investment company and investment savers to the purchase of shares of a company.

A supply of capital belonging to numerous investors that is used to collectively purchase securities while each investor retains ownership and control of his or her own shares. An investment fund provides a broader selection of investment opportunities, greater management expertise and lower investment fees than investors might be able to obtain on their own. Types of investment funds include mutual funds, exchange traded funds, money market funds and hedge funds.

see investment certificate

Period for which to invest.

A client information form used by registered investment advisors and other asset managers that aids in determining the optimal portfolio mix for the client. An investment objective survey may come in the form of a questionnaire, where the investor will be asked things such as:Current liquid and net worth; Risk aversion; Investing time horizon; Income levels; Expense levels; Planned bequeathments and/or charitable contributions; Restrictions on security selection

Principle position to the question of the market efficiency and of the asset and liability management

Chronological order of the investment process from target identification up to performance analysis.

The directive regulates the mutual recognition of the supervision of securities firms. It allows domestic subsidiarys of securities firms which are registered in a member state of the EEA to do business without special approvals.

Investment methodology that will help to achieve the portfolio objectives should be ensured.

another designation for investment company

(IR) Term for the communication of a company with its current and potential shareholders. Investor relations are important for a company.

abbr. Immediate or Cancel

abbr. Initial Public Offering

The IPS is a loss-sharing agreement of banks in a cross-gaurantee system with the objective of reducing capital adequacy requirements and not having to substract participations within the IPS from Tier 1. The same risk management with the possibility of exertion of influence in the stress case is a requirement.

abbr. Investor Relations

see also internal ratings-based approach

an option on an FRA. IRGs are used to fix a future money market interest rate (libor, euribor)In caps and floors IRGs are called caplet resp. floorlet.

abbr. interest reference rate

v. interest rate swap

abbr. for International Swap and Derivatives Association,(formerly: International Swap Dealer Association)www.isda.org

see International Swaps and Derivatives Association

abbr. International Securities Identification Number

abbr. for International Securities Market Association, till 1992 AIBD largest organisation in the international security-marketwww.isma.co.uk

formula for the calculationof the bond price by ISMAIn contrast to the Moosmüller-method interest for periods shorter than the full interest period are calculated on an exopantial basis

Three-digit alphanumeric number of international currencies developed by the International Organization for Standardization as ISO 4217. The first two letters represent the country or supranational entity (eg EU European Union) and the last letter is usually the first letter of the currency name. These abbreviations do not replace the officially fixed national currency symbols and abbreviations, such as USD but are used in international money transfers. Examples of ISO currency codes: CHF, EUR, USD, GBP and JPY.

Issue of securities in the primary market with the aim of raising money in the form of equity capital (stocks) or loan capital (bonds, CD, CP, etc.).

The issue price of a newly launched bond is set by the issuer who has to take the market conditions into consideration. A bond can first be purchased for the issue price.

The issue prospectus is the publication of the most important details of the issuer and the planned emission. It gives the investors the possibility to inform themselves about the rights and risks of the bond and the current and future situation of the issuer.

The issue surcharge has to cover the distribution costs and is expressed as a percentage of the redemption price. If you increase the redemption price by the issue surcharge, you get the issue price. The issue surcharge has to be clearly defined by the directions of the fund. It can reduce the yield of an short-term investment drastically.

The issuer of a security is the one that provides a paper on the market for sale. Normally, this function is performed by commercial banks. Their function is particularly important in the new issue of shares or warrants, since the issuer decides the price at which, for example, the stock is tradeable.

Financial institution which has taken over the placement of newly issued securities.

see issuing price

abbr. in the money

Ratio that indicates how much the performance of a Fund is above the benchmark, taking into account the level of risk. The higher the value, the more positive and the better the fund has performed compared to its benchmark.

High-risk loans with high interest rates, usually by borrowers with lower credit ratings.

cp. vega

The key figures are used for assessing investment funds and go beyond the pure analysis of the performance . These include, for example, the terms volatility, Sharpe ratio, Jensen's alpha.

The Key Rate Duration describes the overall interest rate risk of interest rate derivative on individual maturity spectrum. Using the Key Rate Duration manages to calculate the consequences of a turn or curvature of the yield curve for the present value of the portfolio.

Last day before the expiration date on which a particular option may be traded. Very often the third Friday of each calendar month.

Lending operations are all credit operations of the Bank. The Bank lends money to the customer and receives interest by the customer for that service. These transactions are recorded on the asset side of banks' balance sheets.

A shareholder letter is a letter written by a firm's top executives to its shareholders to provide a broad overview of the firm's operations throughout the year. The letter generally covers the firm's basic financial results, its current position in the market, and some of its future plans. The shareholder letter is generally written once per year and is included in the beginning of the firm's annual report.

The leverage effect is the increased profitability of equity capital caused by soft loans bonded to profitable investments. If a company borrows more, any profits or losses are shared among a smaller base and are proportionately larger as a result. Options dealings: The leverage effect indicates how the price of the option changes in relation to the base value.

An indicator that measures the level of debt of a financial institution. The core capital (Tier 1 capital) will be compared with the (unweighted) balance sheet positions and the off-balance sheet asset positions.

abbr. Loss Given Default

Equity and all liabilities (obligations) of a company that are included in the balance sheet of the Company and which are compared with the assets.

On the theory of efficient capital markets based approach that attempts to map a given benchmark in terms of their risk-return profile as closely as possible.

Interest Rate Swap or currency swap which is related to a liability,by means of a liability swap the type of the interest expense is changed from fixed into variable or vice versa

abbr. of London Interbank Bid Rate, LIBID is usually 1/8% below LIBOR

abbr. for London Interbank Offered RateThe LIBOR is the rate offerd by London banks for deposits with other banks in the eurocurrency markets. (1 week - 12 month). It is calculated by the BBA (British Bankers Association) and announced daily at 11:00 in London.

Is the capital, which banks keep as reserve in their central institution.

London International Financial Future and Options Exchange, most important european futures market, founded in 1982, www.liffe.com

abbr. of London Interbank Mean Rate, average rate of LIBOR and LIBID

If the limit is set either a maximum limit or a minimum limit is set on the purchase or on the sale of securities.