Cyber*School

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