Dates convention Treating cash flows as being received on exact dates – date 0, date 1, and so forth – as opposed to the end-of-year convention. Day order An order to buy or sell stock that automatically expires if it can’t be executed on the day it is entered. Day trading Refers to establishing and ...


Dates convention
Treating cash flows as being received on exact dates – date 0, date 1, and so forth – as opposed to the end-of-year convention.

Day order
An order to buy or sell stock that automatically expires if it can’t be executed on the day it is entered.

Day trading
Refers to establishing and liquidating the same position or positions within one day’s trading.

Days in receivables
Average collection period.

Days’ sales in inventory ratio
The average number of days’ worth of sales that is held in inventory.

Days’ sales outstanding
Average collection period.

De facto
Existing in actual fact although not by official recognition.

Dead cat bounce
A small upmove in a bear market.

An entity that stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price).

Dealer market
A market where traders specializing in particular commodities buy and sell assets for their own accounts.

Dealer options
Over-the-counter options, such as those offered by government and mortgage-backed securities dealers.

Debenture bond
An unsecured bond whose holder has the claim of a general creditor on all assets of the issuer not pledged specifically to secure other debt. Compare subordinated debenture bond, and collateral trust bonds.

Debt/equity ratio
Indicator of financial leverage. Compares assets provided by creditors to assets provided by shareholders. Determined by dividing long-term debt by common stockholder equity.

Money borrowed.

Debt capacity
Ability to borrow. The amount a firm can borrow up to the point where the firm value no longer increases.

Debt instrument
An asset requiring fixed dollar payments, such as a government or corporate bond.

Debt leverage
The amplification of the return earned on equity when an investment or firm is financed partially with borrowed money.

Debt market
The market for trading debt instruments.

Debt ratio
Total debt divided by total assets.

Debt relief
Reducing the principal and/or interest payments on LDC loans.

Debt securities
IOUs created through loan-type transactions – commercial paper, bank CDs, bills, bonds, and other instruments.

Debt service
Interest payment plus repayments of principal to creditors, that is, retirement of debt.

Debt service parity approach
An analysis wherein the alternatives under consideration will provide the firm with the exact same schedule of after-tax debt payments (including both interest and principal).

Debt-service coverage ratio
Earnings before interest and income taxes plus one-third rental charges, divided by interest expense plus one-third rental charges plus the quantity of principal repayments divided by one minus the tax rate.

Debt swap
A set of transactions (also called a debt-equity swap) in which a firm buys a country’s dollar bank debt at a discount and swaps this debt with the central bank for local currency that it can use to acquire local equity.

Debtor in possession
A firm that is continuing to operate under Chapter 11 bankruptcy process.
Debtor-in-possession financing
New debt obtained by a firm during the Chapter 11 bankruptcy process.

Decile rank
Performance over time, rated on a scale of 1-10.1 indicates that a mutual fund’s return was in the top 10% of funds being compared, while 3 means the return was in the top 30%. Objective Rank compares all funds in the same investment strategy category. All Rank compares all funds.

Decision tree
Method of representing alternative sequential decisions and the possible outcomes from these decisions.

Declaration date
The date on which a firm’s directors meet and announce the date and amount of the next dividend.

Dedicated capital
Total par value (number of shares issued, multiplied by the par value of each share). Also called dedicated value.

Dedication strategy
Refers to multi-period cash flow matching.

Deductive reasoning
The use of general fact to provide accurate information about a specific situation.

Deep-discount bond
A bond issued with a very low coupon or no coupon and selling at a price far below par value. When the bond has no coupon, it’s called a zero coupon bond.

Failure to make timely payment of interest or principal on a debt security or to otherwise comply with the provisions of a bond indenture.

Default premium
A differential in promised yield that compensates the investor for the risk inherent in purchasing a corporate bond that entails some risk of default.

Default risk
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an issuer of a bond may be unable to make timely principal and interest payments.

Practice whereby the borrower sets aside cash or bonds sufficient to service the borrower’s debt. Both the borrower’s debt and the offsetting cash or bonds are removed from the balance sheet.

Deferred call
A provision that prohibits the company from calling the bond before a certain date. During this period the bond is said to be call protected.

Deferred equity
A common term for convertible bonds because of their equity component and the expectation that the bond will ultimately be converted into shares of common stock.

Deferred futures
The most distant months of a futures contract. A bond that sells at a discount and does not pay interest for an initial period, typically from three to seven years. Compare step-up bond and payment-in-kind bond.

An excess of liabilities over assets, of losses over profits, or of expenditure over income.

Deliverable instrument
The asset in a forward contract that will be delivered in the future at an agree-upon price.

The tender and receipt of an actual commodity or financial instrument in settlement of a futures contract.

Delivery notice
The written notice given by the seller of his intention to make delivery against an open, short futures position on a particular date. Related: notice day

Delivery options
The options available to the seller of an interest rate futures contract, including the quality option, the timing option, and the wild card option. Delivery options make the buyer uncertain of which Treasury Bond will be delivered or when it will be delivered.

Delivery points
Those points designated by futures exchanges at which the financial instrument or commodity covered by a futures contract may be delivered in fulfillment of such contract.

Delivery price
The price fixed by the Clearing house at which deliveries on futures are in invoiced; also the price at which the futures contract is settled when deliveries are made.

Also called the hedge ratio, the ratio of the change in price of a call option to the change in price of the underlying stock.

Delta hedge
A dynamic hedging strategy using options with continuous adjustment of the number of options used, as a function of the delta of the option.

Delta neutral
The value of the portfolio is not affected by changes in the value of the asset on which the options are written.

Demand deposits
Checking accounts that pay no interest and can be withdrawn upon demand.

Demand shock
An event that affects the demand for goods in services in the economy.

Depository Trust Company (DTC)
DTC is a user-owned securities depository which accepts deposits of eligible securities for custody, executes book-entry deliveries and records book-entry pledges of securities in its custody, and provides for withdrawals of securities from its custody.

To allocate the purchase cost of an asset over its life.

A non-cash expense that provides a source of free cash flow. Amount allocated during the period to amortize the cost of acquiring Long term assets over the useful life of the assets.

Derivative instruments

Derivative markets
Markets for derivative instruments.

Derivative security
A financial security, such as an option, or future, whose value is derived in part from the value and characteristics of another security, the underlying security.

Detachable warrant
A warrant entitles the holder to buy a given number of shares of stock at a stipulated price. A detachable warrant is one that may be sold separately from the package it may have originally been issued with (usually a bond).

Deterministic models
Liability-matching models that assume that the liability payments and the asset cash flows are known with certainty.

To remove the general drift, tendency or bent of a set of statistical data as related to time.

Differential disclosure
The practice of reporting conflicting or markedly different information in official corporate statements including annual and quarterly reports and the 10-Ks and 10-Qs.

Differential swap
Swap between two LIBO rates of interest, e.g. yen LIBOR for dollar LIBOR. Payments are in one currency.

Diffusion process
A conception of the way a stock’s price changes that assumes that the price takes on all intermediate values. dirty price. Related: full price

Diminution in the proportion of income to which each share is entitled.

Dilutive effect
Result of a transaction that decreases earnings per common share.

Direct estimate method
A method of cash budgeting based on detailed estimates of cash receipts and cash disbursements category by category.

Direct lease
Lease in which the lessor purchases new equipment from the manufacturer and leases it to the lessee.

Direct paper
Commercial paper sold directly by the issuer to investors.

Dirty float
A system of floating exchange rates in which the government occasionally intervenes to change the direction of the value of the country’s currency.

Dirty price
Bond price including accrued interest, i.e., the price paid by the bond buyer.

Disbursement float
A decrease in book cash but no immediate change in bank cash, generated by checks written by the firm.

Referring to the selling price of a bond, a price below its par value.

Discount bond
Debt sold for less than its principal value. If a discount bond pays no interest, it is called a zero coupon bond.

Discount factor
Present value of $1 received at a stated future date.

Discount period
The period during which a customer can deduct the discount from the net amount of the bill when making payment.

Discount rate
The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.

Discount securities
Non-interest-bearing money market instruments that are issued at a discount and redeemed at maturity for full face value, e.g. U.S. Treasury bills.

Discount window
Facility provided by the Fed enabling member banks to borrow reserves against collateral in the form of governments or other acceptable paper.

Discounted basis
Selling something on a discounted basis is selling below what its value will be at maturity, so that the difference makes up all or part of the interest.

Discounted cash flow (DCF)
Future cash flows multiplied by discount factors to obtain present values.

Discounted dividend model (DDM)
A formula to estimate the intrinsic value of a firm by figuring the present value of all expected future dividends.

Discounted payback period rule
An investment decision rule in which the cash flows are discounted at an interest rate and the payback rule is applied on these discounted cash flows.

Calculating the present value of a future amount. The process is opposite to compounding.

Discrete compounding
Compounding the time value of money for discrete time intervals.

Discrete random variable
A random variable that can take only a certain specified set of discrete possible values – for example, the positive integers 1, 2, 3, . . .

Discretionary account
Accounts over which an individual or organization, other than the person in whose name the account is carried, exercises trading authority or control.

Discretionary cash flow
Cash flow that is available after the funding of all positive NPV capital investment projects; it is available for paying cash dividends, repurchasing common stock, retiring debt, and so on.

Discriminant analysis
A statistical process that links the probability of default to a specified set of financial ratios.

When two or more averages or indices fail to show confirming trends.

Dividing investment funds among a variety of securities with different risk, reward, and correlation statistics so as to minimize unsystematic risk.

A dividend is a portion of a company’s profit paid to common and preferred shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.

Dividend clawback
With respect to a project financing, an arrangement under which the sponsors of a project agree to contribute as equity any prior dividends received from the project to the extent necessary to cover any cash deficiencies.

Dividend clientele
A group of shareholders who prefer that the firm follow a particular dividend policy. For example, such a preference is often based on comparable tax situations.

Dividend discount model (DDM)
A model for valuing the common stock of a company, based on the present value of the expected cash flows.

Dividend growth model
A model wherein dividends are assumed to be at a constant rate in perpetuity.

Dividend payout ratio
Percentage of earnings paid out as dividends.

Dividends per share
Amount of cash paid to shareholders expressed as dollars per share.

Dividend policy
An established guide for the firm to determine the amount of money it will pay as dividends.

Dividend rate
The fixed or floating rate paid on preferred stock based on par value.

Dividend reinvestment plan (DRP)
Automatic reinvestment of shareholder dividends in more shares of a company’s stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the Long term using dollar cost averaging. The DRP is usually administered by the company without charges to the holder.

Dividend rights
A shareholders’ rights to receive per-share dividends identical to those other shareholders receive.

Dividend yield (Stocks)
Indicated yield represents annual dividends divided by current stock price.

Dividends per share
Dividends paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting term.

Dollar duration
The product of modified duration and the initial price.

Don’t know (DK, Dked)
“Don’t know the trade.” A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party.

Double-declining-balance depreciation
Method of accelerated depreciation.

Double-dip lease
A cross-border lease in which the disparate rules of the lessor’s and lessee’s countries let both parties be treated as the owner of the leased equipment for tax purposes.

Double-tax agreement
Agreement between two countries that taxes paid abroad can be offset against domestic taxes levied on foreign dividends.

Doubling option
A sinking fund provision that may allow repurchase of twice the required number of bonds at the sinking fund call price.

Dow Jones industrial average
This is the best known U.S.index of stocks. It contains 30 stocks that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest U.S.companies are performing. There are thousands of investment indexes around the world for stocks, bonds, currencies and commodities.

Down-and-in option
Barrier option that comes into existence if asset price hits a barrier.

Down-and-out option
Barrier option that expires if asset price hits a barrier.

A classic negative change in ratings for a stock, and or other rated security.

An unconventional order in writing – signed by a person, usually the exporter, and addressed to the importer – ordering the importer or the importer’s agent to pay, on demand (sight draft) or at a fixed future date (time draft), the amount specified on its face.

Drop lock
An arrangement whereby the interest rate on a floating rate note or preferred stock becomes fixed if it falls to a specified level.

Dual-currency issues
Eurobonds that pay coupon interest in one currency but pay the principal in a different currency.

Due bill
An instrument evidencing the obligation of a seller to deliver securities sold to the buyer. Occasionally used in the bill market.

Dupont system of financial control
Highlights the fact that return on assets (ROA) can be expressed in terms of the profit margin and asset turnover.

A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.

Dutch auction
Auction in which the lowest price necessary to sell the entire offering becomes the price at which all securities offered are sold. This technique has been used in Treasury auctions.

Dynamic asset allocation
An asset allocation strategy in which the asset mix is mechanistically shifted in response to -changing market conditions, as in a portfolio insurance strategy, for example.

Dynamic hedging
A strategy that involves rebalancing hedge positions as market conditions change; a strategy that seeks to insure the value of a portfolio using a synthetic put option.