Cyber*School

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