A

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Accounts Payable:

• amounts owing to creditors of goods and services.

• found in the Liabilities section on the Balance Sheet of corporate financial statements.

• personal financial statements can also have this record, for things such as credit card balances owing.

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Accounts Receivable:

• amounts earned as revenue (or income) but not yet paid.

• found in the Assets section on the Balance Sheet of corporate financial statements.

• personal financial statements can also have this record, for things such as money owed by friends.

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Arbitrage:

• striking a deal and profiting from a difference in price of an asset between two markets.

• involves buying the asset at a lower price in one market and then simultaneously selling that same asset on a different market at a higher price, before the divergence in price vanishes.

• while frowned upon by many, it has a vital role to play to ensure market forces price assets correctly across different markets and around the globe.

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Ask:

• price a potential seller is asking for and is prepared to accept for a security or asset.

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Asset:

• any resource of monetary value owned by a person, corporation or institution.

• can be real (i.e. touchable) or nonmaterial (i.e. unable to physically touch) that is owned to produce a positive economic value to the owner.

• appears on the left side of a balance sheet.

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B

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Back-Loaded Fund

• mutual fund that does not charge a commission to purchase but follows a schedule of fees charged to sell the mutual fund.

• schedule of fees usually follows a time decay model, meaning less is paid in commission the longer the mutual fund is held; normally after seven years, the fee is reduced to zero.

• also known as deferred sales charge (DSC) funds.

• see also Front-Load Fund and No-Load Fund.

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Balance Sheet:

• financial statement that summarizes a person's, corporation's or institution's assets and liabilities at a specific point in time.

• also presents the net worth or owner equity at that same particular point in time.

• name stems from fact that two sides of an equation must balance -- assets on one (left) side versus liabilities and owner equity (or net worth) on the other (right) side.

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Bid:

• price a potential buyer is prepared to pay for a security or asset.

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Blue Chip:

• a stock of high investment quality.

• usually a company that is well-established and that holds high public regard of being stable.

• deemed by many to be great to hold due to strong performance in up markets while holding value in down markets.

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Bond:

• IOU whereby the issuing company or government is borrowing money from the investor with the promise to pay a set rate of interest at set intervals until maturity, at which time the principal amount invested is also returned to the investor.

• does not grant ownership privileges (ex. voting power) in the corporation.

• has higher ranking over stocks in corporate capital structure.

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C

 

Carry Trade:

• practice of borrowing money in low interest markets and investing the borrowed funds for profit in markets where returns are higher.

• positive carry results when invested returns are higher than cost of borrowing, while negative carry occurs when borrowing costs are higher than invested returns.

 

Call Option:

• contract that gives the holder the right, but not obligation, to buy a specific quantity of an asset at a specified price by a specific date.

• must either be traded or exercised by the expiry date; otherwise, it expires worthless.

• typically viewed as "insurance policy" against the increase in price of an asset that may need to be purchased in the future.

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Certificate of Deposit:

• guaranteed investment issued by an American bank or financial institution.

• locked-in deposit earning interest for specified period of time, during which the investment cannot be withdrawn, in most cases.

• can be locked-in for as little as one month up to as much as 5 years, with longer lock-in periods paying higher interest rates.

• more popularly referred to by its acronym - CD.

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Common Stock:

• share of ownership of a public corporation.

• generally bestows holder with ability to vote on all important business matters.

• may pay dividends, depending on the success and/or business strategy of the company.

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Compound Interest:

• earning or paying "interest on interest".

• calculation based on both initial principal as well as accrued interest from earlier periods of time.

• makes growth of investment or liability accumulate faster.

 

Coupon:

• interest rate on a debt instrument.

• annual percent of face value that issuer promises to lender until maturity.

• evolves from the small detachable segment of a paper certificate, which entitled the holder to the interest payment on the due date.

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Correction:

• decline of 10% or more in the price of a security or index, after a sustained upward trend.

• to be expected over long periods of time as no price can continue to rising without end.

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Credit:

• lender's agreement to lend funds, based on analysis and estimate that the debt will eventually be repaid in full and with interest.

• examples of bank credits are loan, lines of credit, and mortgages.

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Creditor:

• person or institution that lends money to others, with the intention of receiving the money back, with interest, in the future.

• Personal: people who loan money to family and friends.

• Real: financial institutions (banks, credit unions) who use contracts to establish legal terms of the loan, such as interest rates, duration and sometimes collateral/security.

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Credit Bureau:

• agency that gathers data and information about a consumer's borrowing and bill payment history.

• compiles a credit score (see below) based on the consumer's history and experience profile.

• Equifax and TransUnion are primary providers of such services.

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Credit Score:

• numeric index ranking an individual's creditworthiness and capacity to repay credit obligations.

• factors that contribute to an individual's overall score include, though not exhaustive:​

  • amount of time credit history accumulating

  • promptness in paying bills

  • amount of credit available to individual

  • amount of credit actually used

  • history of bankruptcy and other negative events

• scores range from 500 to 850, with any score over 720 generally viewed a "good credit" while a score under 600 pointing to a higher credit risk individual.

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D

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Derivative:

• financial contract whose value is derived from another financial asset (eg. stock, commodity, currency).

• often used to protect those assets against significant change in value.

• can be either exchange-traded (ex. futures) or over-the-counter (ex. forwards).

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Dividend:

• portion of a company's income paid out to the company owners (shareholders).

• normally paid from money available after all other financial obligations are met and usually only in situations where company management does not see a better internal investment opportunity to grow the company.

• usually paid quarterly, with the amount decided by the company's board of directors.

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E

 

Equity Value:

• in terms of home ownership, equals the current fair market value (usually determined through appraisal) minus any other outstanding mortgage amounts owing.

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Exchange-Traded:

• process of listing and trading financial assets on the floor of an organized exchange (ex. TSX).

• price is determined in real time during business hours, based on such factors as supply/demand and liquidity, among others.

• regulation brings more transparency, simplicity and liquidity when compared to over-the-counter method of listing and trading financial assets.

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Expense:

• cost of operating a company, incurred to generate revenue.

• examples may include wages, office supplies, and advertising costs.

• found on a company's income statement.

 

F

 

Face Value:

• value of a debt instrument as it appears on the face of the certificate.

• amount payable to the holder at the time of redemption/maturity.

• used to calculate the annual dollar value of the interest payable, as per terms of the debt instrument.

 

Front-Load Fund:

• sales fee charged for the purchase of a mutual fund, levied by the broker at time of sale.

• normally range from 0% to 5%, at discretion of broker.

• see also Back-Load Fund and No-Load Fund.

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Future Value:

• applying assumed rate of growth to estimate the value of a current asset in the future.

• tool in assisting investors make responsible investment decisions based on assessed future needs.

• complexity and accuracy of calculation depends on various internal (ex. rate of growth) and external (ex. inflation) influences.