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acceptance A process whereby a bank acts as acceptor by

placing its name on a bill of exchange issued by a third party, and thereby accepts primary liability to repay the face value of the bill to the holder at the maturity date, and thus improves the pricing and marketability of the bill accounting ratios Quantitative measures of a companys financial and management performance, strength and efficiency; for example, a debt to equity ratio accounts receivable financing A firm obtains a loan using its current debtors as security to support the loan application accumulation fund A superannuation fund that accumulates the contributions plus fund earnings of an individual for their eventual retirement accumulation index A measure of changes in specific share prices, plus the reinvestment of dividends received active investment Occurs where an investment portfolio structure is based on stock analysis, new information and risk/return preferences active strategies Hedging techniques that are continually adjusted in response to forecast changes in exchange rates, interest rates and price agency theory Describes the conflict of interests that may exist between the owners and managers of a corporation agent bank Conducts the ongoing administration role of an established syndicated loan facility All Ordinaries index An index reflecting share price movements on the Australian Stock Exchange American depositary receipt A security issued by a US depositary bank that is evidenced by a depositary share based on specified shares listed on an overseas stock exchange American-type option An option contract that can be exercised by the buyer at any time up to and including the expiry date amortised loan A credit foncier type loan where each regular and equal loan instalment comprises the interest payment due, plus repayment of a portion of the principal outstanding annuity A financial instrument with a cash flow of equal amounts, paid at regular time periods and for a specified number of periods annuity due An annuity where cash flows occur at the beginning of each period approved deposit fund A rollover fund used to hold eligible superannuation funds arbitrage A strategy of making a risk-free profit by taking advantage of price differences between markets, such as purchasing an asset in one market while simultaneously selling in another ascending triangle A pattern of share price variations that forms an uptrend characterised by troughs increasing in height and peaks that remain horizontal ask price The price at which an FX dealer will sell a unit of a quotation asset management Strategy whereby a bank restricts growth in its lending activities to the level of funds available from its depositor base

asset transformation The ability of financial intermediaries to provide borrowers and savers with a wide range of financial instruments to meet their portfolio preferences assets repriced before liabilities (ARBL) A risk management principle that ensures net interest margins and profitability are protected at-the-market Orders to buy or sell securities are executed by a broker at the best current price at-the-money An option contract with an exercise price very close to the current market price of the underlying asset Austraclear An electronic clearing-house for a range of financial transactions, including Treasury bonds Australian Office of Financial Management (AOFM)
A body established to manage the Commonwealth Governments debt issues

Australian Prudential Regulation Authority (APRA)

Prudential regulator and supervisor of authorised deposit-taking institutions (ADIs) and certain non-bank financial institutions

Australian Securities and Investment Commission (ASIC) The regulatory body responsible for the supervision of
Australian corporations law and markets

authorised deposit-taking institution (ADI) A financial

institution authorised by APRA to accept retail deposits; includes banks, building societies and credit cooperatives (unions) bailment A situation where a finance company holds title over a dealerships trading stock balance of payments A countrys account of its transactions with the rest of the world; comprises current and capital accounts balanced growth fund An investment fund that targets a longer-term income stream supported by capital growth in the value of its asset portfolio bank bills held Bills of exchange that have been accepted and discounted by a bank and are currently held as an asset on its balance sheet Bank for International Settlements (BIS) A multilateral organisation representing central banks of major developed economies of the world bank An authorised deposit-taking institution. Its principal function is often seen as an intermediary between borrowers and lenders. However, banks generally provide a full range of financial services bank-accepted bill A bill of exchange issued by a corporation that has been accepted by a bank. Such undertakings improve the instruments creditworthiness, pricing and marketability base currency The first-named currency in an FX quote; one currency unit expressed in terms of another currency. For example the USD is the base currency in the quote USD/EUR0.9850 basis point A fractional interest rate measure where 100 basis points equals one per cent basis risk A situation where pricing differentials are evident between two markets; for example a futures contact market and its underlying physical asset market. Initial basis risk may be evident today and final basis risk at the closing out of the futures position

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BBSW Bank bill swap rate; the average mid-point of banks bid and offer rates in the bank bill secondary market bear market A market environment where there is an expectation that prices will fall. An investor may be said to be bearish. Opposite to a bull market bearer bond A bond issue where the physical stock is issued; the current holder is presumed to have legal entitlement beneficiary The party who is entitled to receive payment under the terms of an insurance policy beta A statistical measure of the volatility relationship between the price risk of an individual stock, or a portfolio of stocks, relative to the price risk of the whole market bid price The price at which an FX dealer will buy the unit of a quotation bid An order to buy a security, at a price based on its yield; in the futures market, an offer to buy a contract bill of exchange A short-term security issued at a discount to face value. The discount amount constitutes the cost of borrowing. The drawer issues the bill and the discounted amount is paid to the payee. An acceptor may be used to increase the creditworthiness of the bill. The bill is purchased by a discounter. At maturity date, the holder of the bill will be paid the face value of the bill bill option clause An agreement that allows a bank to convert a term loan into a commercial bill facility bills market An active money market in the issue and trading of commercial bills that enables participants to manage shortterm liquidity requirements blue chip company A listed corporation with established strong management and financial structures board of directors A body elected by shareholders to determine the objectives and policies of the corporation and generally represent the interests of the shareholders bond A straight bond is a long-term, fixed-interest security that pays a regular coupon stream (interest payments), with the face value redeemed on the maturity date. Bonds may also be issued as indexed bonds, where coupon payments and/or the value of the bond may be indexed to price movements. Floating rate notes are bonds issued with a variable rate of interest bonus issue A strategy that allows a company to capitalize its reserves through the issue of additional shares to shareholders book-entry USCP The electronic recording of US commercial paper issues and payments bottom-up approach Performance analysis that focuses on the accounting ratios of a corporation breakout A pattern of share price variation that occurs when prices break through the neckline broad money A measure of the money supply that constitutes currency plus balances held with banks and non-bank financial institutions, less NBFI holdings of currency and bank deposits broker An agent who acts on behalf of a client in order to execute a buy or sell order. A broker will charge a fee for service budget deficit Occurs where Government expenditures exceed revenues over a financial year budget surplus Occurs where Government revenues exceed expenditures over a financial year

building society A authorised deposit taking institution; a cooperative society providing housing loans and other financial services to the retail and small business sectors bull market A market environment where there is an expectation that prices will rise bullet repayment The principal amount due on a security is only repaid on the maturity date business cycle Changes in economic activity over time through cycles of expansion and contraction. The highest point of economic activity in the business cycle is a peak and the lowest a trough business risk The exposure of shareholders to the risk that cash flows may vary unexpectedly due to changes in the firms operations or structure call bull spread A combined-option strategy involving the simultaneous purchase and sale of call options call deposit Funds held in a savings account that can be withdrawn on demand call option An option giving the buyer the right, but not an obligation, to purchase the underlying asset specified in the option contract at a predetermined price, on or by a specific date cap An over-the-counter option that specifies a maximum interest rate level. The buyer of a cap pays a premium, but is compensated if interest rates rise above the exercise level capital adequacy requirement Consolidated bank groups must maintain a ratio of at least 8 per cent of defined capital to risk-weighted assets and off-balance-sheet items. Defined capital must consist of at least 50 per cent Tier 1 (core) capital. Balance sheet assets and off-balance-sheet items are weighted by their relative credit risk. Banks must also hold additional capital for market risk exposures capital gain Occurs where the value of an asset increases above the purchase and maintenance costs capital guaranteed fund An investment fund in which the value of the initial investment is guaranteed capital markets Longer-term finance markets, including the equity, corporate debt and government debt markets, plus associated foreign exchange and derivatives markets capital stable fund A fund in which the initial investment is secured, but not explicitly guaranteed capital structure The proportion of company assets financed by various forms of debt and equity capital-indexed bond The periodic fixed rate coupon relates to the inflation-adjusted principal amount of the bond carded rate A financial institutions advertised nominal deposit and loan interest rates cash advance facility A flexible funding arrangement for corporate clients cash and conversion loan A loan that allows an investor to purchase new bonds with cash, or convert an existing holding that is due to mature cash management trust A trust fund that invests the accumulated savings of individuals in wholesale money market securities cash market The physical market where the issue and trading
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of commodities and financial instruments occurs; for example, a company may raise funds in the market through a P-note issue cash rate The interest rate paid in the interbank market for exchange settlement account funds CDI A depositary receipt issued by the ASX representing uncertificated equity and debt instruments central borrowing authority An authority established by each State and Territory government to facilitate its debt management program through the issue of debt securities certificate of deposit (CD) A short-term money market security issued by a bank at a discount to the face value CHESS sponsor A market participant such as a stock-broker who has access to CHESS CHESS Acronym for the electronic payment and settlement system operated by the ASX clean float Where an exchange rate is determined by market forces without central bank intervention clearing-house Associated with a formal exchange, such as a stock exchange or a futures exchange; facilitates the financial settlement and transfer of ownership between buyers and sellers. May provide transaction guarantees. If appropriate, will hold deposit payments and make margin calls as required close out To liquidate or offset an open position by taking an equal and opposite position. For example, in the futures market, a company hedging a risk of interest rate rises would close out its initial sell position by buying an opposite futures contract coincident indicators Economic variables that change at the same time as the business cycle changes co-insurance clause If an asset is under-insured the policy will only cover the proportional value of the asset insured collar A combination of over-the-counter option contracts through the purchase of a cap and the sale of a floor. The simultaneous buy/sell strategy reduces the net premium cost of interest rate cover collateralised floating charge Allows the lender to take possession of the assets of a borrower if the borrower defaults on loan repayments co-managers Assist the lead manager of a syndicated debt facility commercial bill market A very liquid secondary market for the buying and selling of bills of exchange commercial bill A bill of exchange issued by a drawer to raise funds for business purposes. The bill is sold at a discount and the holder at maturity receives the face value commercial paper The lending and borrowing of very shortterm funds by corporations through the issue of promissory notes commitment fee A fee charged on any portion of a financing facility that has not been drawn down commitments The contractual obligations of a bank that are yet to be completed or delivered Commonwealth Government The central government in Australia company-issued equity warrant An option to buy additional shares that is attached to an initial debt issue

company-issued option Bestows the right, but not the obligation, on the holder to buy additional company shares compound interest An arrangement where periodic interest payments accumulate on a financial instrument comprehensive insurance A policy that covers damage to a motor vehicle plus any third-party damage compulsory superannuation Minimum retirement savings for employees, specified by legislation compulsory third party insurance A policy that covers legal liability for bodily injury resulting from a motor vehicle accident confirmations, settlements and reconciliation The process of confirming an FX dealer transaction, arranging financial settlement, and reconciling the FX position conglomerate takeover Takeover in which the business of the target company is unrelated to the business of the takeover company Consumer Price Index (CPI) A measure of changes in the price of a basket of goods and services contingency plan A set of predetermined strategies to be implemented if a designated event occurs continuation pattern A pattern of sideways trading of share that does not normally signal a change in a trend continuous disclosure A requirement that a listed entity must immediately advise the stock exchange of any material changes contract date The date on which two parties enter into a forward rate agreement contract month The month in which delivery or cash settlement is to be made under the terms and conditions of a futures contract contract note Advice sent from broker to its client giving full details of a share transaction contract period The term of an interest-rate cover; for example with a forward rate agreement, three-month money beginning in two months (2Mv5M) contributing shares Partly paid shares; only a portion of the issue value of the shares has actually been paid. The outstanding amount is payable when the company makes future calls convertible bond A bond that has the option, at a future date, to convert into equity of the issuer convertible note Quasi-equity; a debenture that pays periodic interest until the holder converts the note into ordinary shares of the issuer company. Where the note has not been converted by maturity, the holder is entitled to its redemption (face) value convertible preference shares Preference shares that may be converted to ordinary shares in the company at a future date and at a specified price convexity The existence of curvature in the price/yield curve of a security corporate bond market The market for the direct issue of longer-term debt securities by companies corporate governance The internal relationships between shareholders, the board of directors and the managers of a company

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corporate mission The objectives and purpose of a corporation as determined by the board of directors corporation A legal entity formed under corporations law; the main source of equity is ordinary shares correlation coefficient A statistical measure of the degree to which the movement in a variable is related to a dependent variable counter-trade The exchange of product for product, rather than currency-based buy or sell contracts country risk The risk that changes in the laws of a foreign country will affect a financial transaction coupon The periodic interest payments associated a bond issue. For example, a Commonwealth Treasury bond pays a halfyearly coupon at a fixed interest rate based on the face value of the bond. The word coupon derives from bearer bonds where the bond-holder would cut the attached physical coupon from the bond and present it for payment co-variance or correlation The historic directional relationship between share price movements; may be either positive or negative covenant A term in a loan agreement that protects the lender by restricting some activity of the borrower, or requiring the borrower to do something. For example, a covenant may require the borrower to maintain minimum levels of liquidity, capital or stock cover The purchase of a physical market security to offset a derivatives market short position covered option An option where the writer holds the underlying asset or provides a financial guarantee credit (default) risk The risk that a borrower may not meet future commitments to pay interest or repay principal outstanding when due credit card A credit facility that allows the cardholder to obtain funds up to an agreed limit credit channel The effect of monetary policy changes on the availability of credit in the financial system credit enhancement A financial arrangement, such as a letter of credit, that supports an underlying debt security issue credit facility An arrangement with a lender that allows a borrower access to short-term funds credit foncier loan A loan that is amortised over the term of the loan; that is, the loan instalments comprise periodic interest and principal repayments credit rating A measure of the creditworthiness of a debt issue, or of an issuer of financial securities, provided by a credit rating agency credit rating agency An organisation that specialises in assessing the credit quality associated with financial obligations; provides a standard measure of the creditworthiness of a debt issuer credit risk transformation A savers credit risk exposure is limited to that of the intermediary, whereas the intermediary is exposed to the credit risk of the ultimate borrower credit risk weight The multiplication factor used to calculate the proportional 8 per cent capital adequacy requirement based on the counterparty to the asset

credit union A cooperative society that pools members funds

in order to extend consumer loans to members. Members generally have a common bond of association such as profession credit watch Advice to the market that a credit rating is under review; may be positive or negative cross-border transaction International financial transactions cross-commodity hedging Strategy of using a futures contract based on one commodity or financial instrument to hedge a risk associated with a different commodity or financial instrument cross-currency swap The transfer of a principal amount plus associated ongoing interest payments from one currency to another based on a fixed exchange rate. The principal is reexchanged at maturity cross-rate the application of two sets of exchange rates to determine a third exchange rate; for example, USD/EUR and USD JPY to determine EUR/JPY crowding out Situation where government borrows a larger than usual proportion of the total funds available for investment, thus reducing the amount of loan funds available to the business sector crystallise Transformation of a floating charge into a fixed charge over the assets of a company cum-dividend When a share price incorporates an entitlement to receive a declared dividend cumulative preference share A preference share that stipulates that when the fixed dividend is not paid in one period it will be carried forward until paid currency swap The transfer of a principal amount plus associated ongoing interest payments from one currency to another based on a fixed exchange rate. The principal is reexchanged at maturity current account The net record of a countrys international earnings less its international payments current account deficit A situation in which international export and investment receipts are less than imports and overseas debt payments current deposits Liquid funds held in a cheque account for the purpose of issuing cheques to conduct financial transactions for goods and services current ratio Ratio of current assets to current liabilities dealer Makes a market in a security by quoting both buy and sell prices dealer panel Panel whose members promote and distribute debt issues to clients and maintain a secondary market in the paper debenture A secured corporate bond. The debenture is a charge over the assets of an issuer; generally incorporates a fixed charge and a floating charge over company assets debenture trust deed Deed that specifies and protects the underlying security attached to the debenture issue debt Various forms of funding where repayment is required. For example, an intermediated loan, the issue of discount securities, the issue of fixed-interest or floating rate securities

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debt-to-equity ratio The proportion of a firms debt funds

relative to its equity funds

default (credit) risk The risk that a borrower will not meet contractual obligations, such as interest payments and principal repayment on a loan when they are due defensive strategy Strategy in which a defined percentage of a risk exposure is automatically hedged deferred annuity An annuity that provides an income stream that will begin at a future date deferred repayment loan A loan for which instalments commence after a specified period, usually at a time when a project is expected to generate cash inflows deficit unit An economic unit such as a company that spends more than it saves in a given period. defined benefit scheme A superannuation scheme in which the amount paid on retirement is based on a defined formula usually related to years of service and final salary definitive notes Securities issued in their physical form; the bearer securities delta The change in the value of an option premium relative to the change in the value of the underlying futures contract; expressed as a coefficient demutualisation Changing a company structure to that of a publicly listed corporation depositary receipt A security representing a quantity of shares listed on a stock exchange depositary share A share that represents one or more ordinary shares of a foreign issuer listed on a foreign stock exchange depreciation The writing-down on the balance sheet of the value of an asset over its effective life; the amount by which the value of an asset is written down in an accounting period depth of the market The overall market capitalisation of corporations listed on a stock exchange deregulation The so-called removal of major regulatory constraints on specific sectors of the financial system, in particular the banking sector derivative contract A synthetic security that derives its price from a physical market commodity or security. Generic derivative contracts are futures, forwards, options and swaps derivatives market Exchange traded and over-the-counter markets for futures, forwards, options and swaps descending triangle A pattern of share price variation that forms a downward trend characterised by peaks decreasing in height and troughs that remain horizontal detachable warrant A warrant that can be sold separately from the host bond debt issue devaluation Occurs when the official value of a currency is reduced in terms of other currencies direct credit substitute An undertaking by a bank to support the financial obligations of a client direct finance lease Lease in which the lessor purchases an asset and leases it directly to a lessee direct financing Borrowers and lenders deal directly with
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each other; for example, a company issuing debentures into the capital markets direct interest-rate risk The possibility that a change in interest rates will affect the value of assets, liabilities and future cash flows direct investment An investor buys and sells shares directly through a stockbroker direct quote An FX quotation that uses the USD as the base currency or unit of the quotation discount broker A broker that executes buy and sell orders for clients, but does not provide investment advice to the client discount rate The effective (simple interest) rate of return earned on a discount security by an investor discount security A short-term instrument, such as a commercial bill, P-note, T-note or CD. The security is issued at a discount to its face value, typically for up to 180 days, and may include a roll-over option. The holder of the discount security will be paid the face value at maturity date discounter The party that purchases a discount security; the provider of funds dishoarding Occurs when normal cash holdings are reduced and invested in financial instruments diversification A strategy to lower risk exposures by holding a wide range of financial securities and assets in a portfolio dividend The amount of a corporations after-tax earnings distributed to shareholders dividend reinvestment plan An arrangement that allows shareholders to reinvest their dividends back into a company by purchasing additional shares divisibility problem Occurs when a transaction is difficult to carry out because the medium of exchange does not represent equal value domestic bond A bond issued into a local capital market, in the local currency, by a local company domestic economy The local or home economy of a nation state double coincidence of wants Arises when two parties come together to conduct a transaction that meets their mutual needs downtrend line A line achieved by connecting the higher points of a falling price series drawer The party that issues a bill of exchange dummy variable A binary variable (either zero or one) used to distinguish between two sets of groups duration The weighted average time over which cash flows occur, where the weights are the relative present values of the cash flows duration of a portfolio The weighted duration of each asset or liability in the portfolio earnings per share The net return on a companys shares expressed in cents per share EBIT The earnings of a firm before allowing for interest expense and tax payments economic indicators Data that provide some insight into possible future economic performance

economic recession Defined as two consecutive quarters of

negative economic growth economies of scale Financial and operational benefits gained as a function of organisation size and volume of business effective interest rate The actual rate of return earned after adjusting the nominal rate for the effect of compounding. The effective interest rate will be higher than the nominal rate where compounding occurs more than once annually efficient market hypothesis The hypothesis that share prices reflect available information; there are weak, semi-strong and strong levels of efficiency efficient price discovery Occurs when new information rapidly reaches the market and is reflected in share prices electronic funds transfer at point of sale (EFTPOS) An electronic system that facilitates value transactions for goods and services electronic sub-register A record of share ownership held on a computer-based system eligible collateral A claim that is secured by a counterparty approved by APRA eligible termination payments Superannuation funds due on termination of employment and related redundancy payments Elliott wave theory The existence of distinctive wave patterns that characterise share-market cycles embedded option A specific performance guarantee contracted into a project employer-sponsored fund A superannuation fund established by an employer for the benefit of employees endorser The party that signs the reverse of a bill when selling a bill of exchange endowment policy A life insurance policy for a specified term that incorporates an investment component equilibrium exchange rate The FX rate at the point where the demand and supply curves intersect equity lease A lease in which the lessor provides the majority of the funds required to purchase an asset to be leased equity market A market that facilitates the issue of financial securities that represent an ownership interest in an asset, such as ordinary shares in a corporation listed on a stock exchange equity trust Subject to the trust deed, a trust that invests in classes of shares listed on stock exchanges equity Funds provided by, or an interest of, owners of an entity; for example, the issue of ordinary shares in a listed company. Ordinary shares have no maturity date. Shareholders are entitled to share in the profits of the organisation. Profit distribution may occur in the form of dividends payments equity-funded takeover When a takeover company issues its own shares in exchange for shares in the target company escrow A situation in which assets are held by a third party until conditions of a contract are fulfilled establishment fee A fee charged by the bank to meet the costs associated with approving a loan facility euro The official currency of nations who are members of the European Monetary Union

euro floating rate note A bearer bond issued into the

euromarkets that has a variable coupon rate based on an indicator interest rate euro medium-term note An unsecured, non-homogenous bearer security that pays a specified coupon; usually issued in tranches with different currencies, interest rate structures and maturities eurobond A fixed-interest security issued by a foreign borrower in an offshore market and in a currency other than the currency of the market in which the bond is being issued eurocommercial paper A discount security issued into the euromarkets that is not underwritten euromarket A market for transactions carried out in a foreign country, but denominated in a currency other than the currency of that country; for example, USD securities issued by a New Zealand corporation in London. Includes the eurocurrency, euronote and eurobond markets euronote issuance facility A discount security issued into the euromarkets that is underwritten European-type option An option that can be exercised only on its maturity date exception report A report that is automatically generated by computer when a policy or procedure is ignored or exceeded, such as an FX limit is breached exchange rate The price of one currency in terms of another; for example, AUD/USD0.6750 means $1 Australian will purchase $0.6750 US exchange settlement account (ESA) An account maintained by banks and other financial entities with the Reserve Bank for the purpose of clearing transactions between parties in the payments system exchange-traded contract A financial contract issued and traded on a formal exchange such as a futures exchange; transactions are usually conducted with a broker, and involve a clearing-house excluded fund A superannuation fund with less than five members ex-dividend A share is ex-dividend after a declared dividend has been paid to shareholders exercise (strike) price The price specified in an options contract at which the option buyer can buy (call option) or sell (put option) expectations theory A theory that explains the shape of a yield curve through current and future short-term interest rates expected return of a portfolio The weighted average of the expected returns of each investment held in a portfolio exposure management system Structured procedures that enable a firm to effectively measure and manage risk factoring A factoring company buys a firms accounts receivable at a discount to book value factoring company A finance company that purchases other firms accounts receivables fiat money Currency issued by the government, held by the non-bank public, with legal tender status

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final basis risk Occurs at the completion of a hedging

strategy, where pricing differentials are evident between markets finance companies and general financiers Companies that raise funds in the debt markets and provide finance to small business and personal borrowers finance lease A longer-term lease; ownership passes to the lessee on payment of the residual amount financial asset An asset that entitles the owner to future cash flows generated by the asset. The cash flows may take the form of interest payments, principal repayments and capital gains. Examples include shares, discount securities and bonds financial conglomerate A consolidated group of different types of financial institutions financial engineering The creation of innovative finance techniques or instruments financial instrument An instrument issued by a party raising funds, which acknowledges a financial commitment and entitles the holder to specified future cash flows financial risk That part of total risk that affects future cash flows and/or the value of assets and liabilities on the balance sheet. Includes interest rate, foreign exchange, liquidity, price, investment, credit and capital risks financial security A financial asset or instrument issued in a primary market that can then be bought and sold on an organised secondary market financial system A system comprising a range of financial institutions, instruments and markets that facilitate transactions for goods and services and financial transactions financial system liquidity The amount of funds within a financial system that are available to carry out current transactions financing decision The capital structure that provides the funds for the firms business activities fiscal policy The management of the annual revenues and expenditures of government, resulting in a budget surplus or deficit fixed charge A charge over the assets of a borrowing company, offered as security to support a loan facility. If the borrower defaults on the loan the lender has the right to take possession of specific asset(s) of the borrower. These assets cannot be sold until the loan has been repaid fixed exchange rate An exchange rate that is determined by a nations government. A fixed exchange rate may be tied to a specific currency, such as the USD, or to a basket of currencies fixed interest rate A specified rate of interest that is set for a period specified in a financial contract fixed interest security A medium- to-longer-term security that pays a specified coupon or interest payment at regular time periods. Straight bonds are fixed interest securities float (1) The practice of allowing a currency exchange rate to be market-determined (2) A primary market issue of ordinary shares floating charge Loan security giving the lender the right to take possession of any of the borrowers assets, bar those specifically pledged to any other lender in a fixed charge, if the

borrower should default on its loan obligations. A floating charge allows certain assets to continue to be sold in the course of normal business operations floating exchange rate An exchange rate that is determined by supply and demand factors in the FX markets floating rate note (FRN) A medium- to-longer-term security issued with a variable interest rate. Interest payable on the FRN will change in line with a nominated reference interest rate at specified review dates. In the eurobond market, LIBOR may be the reference rate floor plan finance Finance provided by a goods supplier for stock on a showroom floor, such as vehicles floor An over-the-counter option that specifies a minimum interest rate level. The buyer of a floor pays a premium, but is compensated if interest rates fall below the exercise level flotation of a business The public listing and quotation of a corporation on a stock exchange foreign bond A bond issued into an overseas debt market and denominated in the currency of that country foreign currency liabilities The issue of debt instruments into the international capital markets that are denominated in a foreign currency foreign exchange market A global market where currencies are traded. Within Australia, FX dealers require an authority from the Reserve Bank foreign exchange risk The risk that the price of one currency relative to another currency will change thereby having an adverse impact on balance sheet values, cash flows or competitive position foreign exchange channel The effect of monetary policy changes on the exchange rate, exports, imports and investment forward contract An over-the-counter contract negotiated with a bank that locks in a price today that will be applied at a specified future date. Includes forward rate agreements and a forward exchange contracts forward discount Occurs where the forward exchange rate is less than the spot rate forward exchange rate The FX bid/offer rate applicable at a specified date beyond the spot value date forward exchange contract An agreement to buy or sell a foreign currency at a future date at an exchange rate specified today. Pricing is based on an adjustment of the spot rate by the interest rate differentials the relevant countries forward points The forward exchange rate variation to a spot rate based on interest rate differentials between the two countries of the quote forward premium Occurs where the forward exchange rate is higher than the spot rate forward rate agreement (FRA) an agreement between two parties that fixes a rate of interest to be applied, at a specified future date, against a notional principal amount. The agreed rate is established today and measured against a reference rate, such as the bank bill swap rate (BBSW) or the London interbank offered rate (LIBOR), at the settlement date. One party will compensate the other for any adverse movement in the interest rate between the agreed rate and the settlement rate

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FRA agreed rate The interest rate stipulated in the FRA at the commencement of the contract FRA settlement rate The reference rate against which the FRA agree rate is benchmarked and compensation calculated fractional reserve banking Occurs where banks hold some proportion of their liabilities, in the form of liquid assets, as reserves to meet day-to-day demand for operational and prudential liquidity franked dividend The payment of a dividend that incorporates an imputed tax credit that can be used to off-set the shareholders personal tax liability full-service lease A lease in which the lessor is responsible for the insurance and maintenance of the leased asset full-service advisory broker A broker who provides a range of services to clients, including investment advice and the execution of buy and sell orders fully drawn advance A term loan issued by a financial institution fundamental analysis A method of analysis that considers macro and micro fundamentals that impact upon future share price movements futures contract An agreement to trade a specific commodity or financial asset of a specified quality and quantity, at a predetermined price, and at a specified date in the future; an exchange-traded derivative product that may be used for managing an underlying risk exposure FX appreciation Where the value of one currency increases relative to another currency FX broker A broker who obtains the best prices in the FX market and matches FX dealers buy and sell orders for a fee (commission) FX dealer A financial institution that quotes buy and sell prices, and acts as a principal in the FX markets FX depreciation Where the value of one currency falls relative to another currency FX operating exposure The risk that day-to-day operating revenues and expenses will be affected by FX movements FX smoothing Central bank buy/sell actions in the FX market designed to stabilise a volatile market G-10 Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States of America gearing ratio The percentage of a firms total funding provided by debt general meeting A meeting of shareholders called under the provisions of the rules of the company global industry classification standard Ten standard international industry sector stock market indices global notes Securities issued and controlled through an electronic clearing-house globalisation The integration of financial institutions, instruments and markets into an international financial system Government debt Borrowings by government to manage its day-to-day liquidity position (short-term) and to fund budget expenditures (medium- to long-term)

grey market Contingent trading in a security before the actual

closing date of the primary issue gross domestic product The aggregate value of goods and services produced within a domestic economy grossed-up amount The total of a franked dividend plus the associated imputation credit guarantee An assumption of the liabilities of a third party in the event of default, agreed to by a guarantor hard currency A currency such as the USD that is generally accepted in international trade transactions head and shoulders pattern Three successive rallies and reactions; the second rally being stronger than the first or third rally hedge A strategy that allows an entity (the hedger) to manage or protect against an identified risk exposure. For example, a company may hedge an exposure to a rise in interest rates by selling a futures contract today and closing out the position at a later date high-value payments Larger value transactions that must be cleared by real-time gross settlement holding period yield The actual return received for the period an investment is held horizontal takeover A takeover in which the companies involved in a merger and acquisition are in the same business host bond The original bond to which a warrant is attached hostile takeover A situation in which the target company rejects the advances of the takeover company humped yield curve The shape of a yield that curve changes over time from normal to inverse hybrid security A financial instrument that incorporates the characteristics of both debt and equity; for example a preference share or a convertible note immediate annuity The purchase of a specified, periodic income stream imputation credit The amount of company tax paid on a franked dividend transferred to the shareholder income effect on interest rates If interest rates rise, economic activity will begin to slow, thus allowing rates to begin to ease income protection insurance An insurance policy that will pay a limited income stream if the insured person is unable to work due to illness or accident index fund An investment fund that acquires a share portfolio that replicates a specific stock market index index market capitalisation Index share prices multiplied by the number of shares issued multiplied by the liquidity factor indicator interest rate (reference rate) The adjusted average of an interest rate applicable to a specific market debt security; for example, BBSW or LIBOR indirect finance Also called intermediation. Surplus and deficit units interact via a financial intermediary such as a bank indirect interest-rate risk The risk that a change in interest rates will affect the future actions of market participants

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indirect investment Investing through a funds manager; for example, buying units in an equity trust indirect quote An FX quotation in which the USD is the terms currency and the other currency is the unit currency inflation A rise in prices resulting in a depletion in the value of money over time. Generally measured by comparing price changes of a basket of goods in a consumer price index inflation effect on interest rates As the economy slows the upward pressure on prices will ease, thus allowing interest rates to fall further inflation theory An interest rate determination hypothesis that an inflationary premium, reflecting expected inflation, is included in the nominal interest rate in order to maintain the real rate of interest information memorandum Limited information provided to institutional investors by a company issuing securities in a private placement issue information transparency Level of information provided to the market initial basis risk Basis risk that exists at the commencement of a hedging strategy initial margin A deposit lodged with an exchange to cover adverse price movements in a contract initial public offering (IPO) An offer to investors of ordinary shares in a newly listing company on a stock exchange inscribed stock Stock for which there is no physical bond issued; ownership is registered electronically with a registry instalment receipt A receipt issued upon payment of the first instalment on a share issue, in lieu of the ordinary share institutional investors These include funds managers, insurance companies and superannuation funds interbank market The lending and borrowing of very-shortterm funds by banks operating within a financial system intercompany market Direct, wholesale money market borrowing and lending between large, creditworthy corporations with surplus funds and those with short-term funding needs interest capitalised Occurs when payments due, but deferred, are added to the total amount owing interest cover ratio The number of times a firms financial commitments are covered by earnings interest rate The return on investment due to the lender from the borrower. It can be expressed in a number of ways: real, nominal and effective. Calculation may be simple or compounding interest rate market Listing, quotation and trading in corporate and government debt securities interest rate parity Principle that exchange rates will adjust to reflect interest rate differentials between countries interest rate risk Exists when unexpected changes in interest rates affect the cash flows of a business. Movements in interest rates may also affect the value of existing financial instruments, or the repricing of associated cash flows and maturing instruments interest rate sensitivity Occurs when an asset or liability is to be repriced during a planning period
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interest rate structure A debt facility with either a fixed

interest rate or a variable interest rate interest rate swap The exchange between two parties of interest payments associated with a notional principal amount interest withholding tax A tax applied to the amount of interest paid by a local borrower to a non-resident lender interest-indexed bond A bond with periodic coupons that increase relative to increases in inflation intermediated finance A financing arrangement whereby surplus and deficit units interact via a financial intermediary such as a bank. Two financial contracts are created: one between the lender and the financial intermediary, and the second between the financial intermediary and the borrower internal rate of return (IRR) The required rate of return that results in a NPV of zero in-the-money A situation in which the strike price of a call option is lower than the price of the underlying commodity or financial asset; alternatively, where the strike price of a put option is above the price of the underlying commodity or financial asset. In these instances an option has a positive intrinsic value; the buyer is able to exercise the contract at a profit intrinsic value The market price of the underlying asset relative to the option exercise price inverse or negative yield curve The yield curve evident when shorter-term interest rates are higher than longer-term interest rates investment banks Specialist providers of financial and advisory services to corporate and government clients. Often specialise in off-balance-sheet services, including international trade finance, project finance, corporate finance advice, balance sheet restructuring advice, mergers and acquisition advice, and funding advice (debt and equity, domestic and offshore) investment decision The capital budgeting process that determines the strategic activities of a firm investment grade A debt issue with a credit rating of BBB, or its equivalent, and above invoice A document that describes the goods supplied and payment arrangements junk bond market The issue of securities with a credit rating less than the investment grade of BBB lagging indicator An economic variable that changes after the business cycle has changed lagging A strategy of changing the timing of existing transactions by delaying the cash flows lead manager The dealer financial institution that acts as the arranger of a syndicated debt facility; structures the issue, forms the syndicate, prepares documentation leading indicator An economic variable that changes before there is a change in the business cycle leading A strategy of changing the timing of existing transactions by bringing cash flows forward lease A contract where the lessor allows the lessee to use certain property for a specified period in return for lease payments. The lessor retains ownership of the asset during the contract. The two basic types are financial leases and operating leases

lease manager The arranger of a leveraged lease that brings

together the lessor, debt parties and lessee lender of last resort The provider (usually a central bank) of a loan facility to banks under certain circumstances. Penalty rates are generally charged. It is, as the term suggests, a last-resort option only. In Australia, the Reserve Bank has withdrawn this facility to banks, but offers a rediscount facility for banks holdings of government securities lessee The user of an asset subject to a lease agreement; makes lease rental payments to lessor lessor The owner of an asset that is subject to a lease agreement; receives lease rental payments letter of comfort Advice given by a parent company that its subsidiary can meet its obligations letter of credit A guarantee issued by a borrowers bank on behalf of a customer, giving a third party the right to approach the bank that issued the letter of credit for funds should the customer default on a financial commitment. Often used in conjunction with a bill of exchange in import/export transactions leveraged finance lease A partnership in which a lessor borrows a substantial portion of the funds required to buy an asset for leasing liability management The current practice of financial intermediaries whereby they actively manage their sources of funds (liabilities) in order to meet future loan demand (assets) LIBOR (see London Interbank Offered Rate) limit order An instruction to a broker to buy or sell a certain quantity of a commodity or financial asset at a specific price, at or within a nominated time period limited liability company A company structure where the claims of creditors against shareholders are limited to the value of fully paid shares limited recourse lending Lenders have restricted claims on project sponsor assets if project cash flows are insufficient to cover loan repayments line fee A fee charged by a lender on the total amount of funds advanced to a borrower liquid ratio Ratio of current assets, less inventory, to current liabilities, less bank overdraft liquidation The legal process, carried out by a liquidator, of winding-up the affairs of a company in financial distress, through the sale of its assets and payment of liabilities liquidity effect on interest rates The effect on the money supply and system liquidity of a central banks market operations liquidity preference theory The hypothesis that investors perceive that risk and the period of investment are positively correlated. Therefore, they require a greater reward, via a liquidity premium, from longer-term investments liquidity transformation Term describing the ability of a saver to convert a financial asset into cash liquidity Having sufficient cash or liquid assets to meet day-today operating needs. Banks must also meet liquidity prudential standards. A liquid asset is one that is quickly and easily converted into cash without loss of value

listed trust A unit trust in which the units are listed and traded on a stock exchange listing rules Specific rules with which an entity seeking listing on a stock exchange must comply loan covenant A condition or restriction specified in a loan contract, designed to protect the lender; for example, minimum liquidity levels and financial reporting requirements loanable funds The amount of funds available within a financial system for lending loanable funds approach Method of determining interest rates by estimating the supply of and demand for loanable funds. Demand for loanable funds is affected by government and business, while the supply is affected by savings, changes in the money supply, and dishoarding London interbank offered rate (LIBOR) A benchmark or reference interest rate. It is an average of the interest rates that major London banks charge one another. Published daily by Reuters long call party The buyer or holder of a call option long position Holding a financial security, currency or commodity in expectation of a future sale long straddle The simultaneous purchase of a long call and a long put, with a common exercise price long strangle The purchase of a long call and a long put option, with out-of-the-money exercise prices maintenance margin The top-up of an initial margin paid to an exchanges clearing house to cover adverse contract price movements managed fund An investment vehicle through which the pooled savings of individuals are invested and managed by professional funds managers managed growth fund A investment fund that seeks greater return through capital growth and less through income streams margin call Made by an exchanges clearing-house; requires a futures contract-holder to top up their margin account in order to cover the risk of closing out an open position margin (1) Funds lodged with an exchanges clearing house as a guarantee of performance in relation to a contract. If the contract price moves adversely the clearing-house require a maintenance margin to be paid; (2) That part of an interest rate charged on a loan facility over a benchmark or reference rate, which reflects the credit risk of a particular borrower; for example, LIBOR plus 0.50 per cent marginal rate of tax The percentage of personal tax paid on the highest level of a persons income marked-to-market The repricing of a contract on a daily basis to reflect current market valuations. Losses are debited and gains credited on contracts each day. For example, if the price specified in the contract is above the days futures price, the seller is credited with a gain and the buyer is debited the loss market capitalisation The number of shares issued by listed corporations on a stock exchange multiplied by the current share prices market convention A common practice that occurs within a particular financial market
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market liquidity The ratio of the value of share market turnover to market capitalisation market maker A dealer that quotes buy (bid) and sell (ask) prices on the secondary market market operations Intervention in the short-term money markets by the Reserve Bank in order to affect the level of short-term interest rates, specifically the overnight cash rate. This is achieved by influencing the level of liquidity (money supply) in the market. market order An instruction to a broker to buy or sell at the current market price market rate-related contract A contract that uses a derivative product to manage an exposure to foreign exchange risk, interest rate risk, equity price risk or commodity risk market segmentation theory Interest rate on securities with different maturities are determined by market forces within that market segment. Assumed that investors prefer a particular maturity market segment and will invest in a different market segment only if offered a suitable premium mark-up An increase in the price of exports or imports to cover worst-case scenario changes in an exchange rate matched swap A swap intermediary, such as a bank, enters into opposite swap transactions to offset its net swap exposures matching principle Contends that short-term assets should be funded by short-term liabilities, and longer-term assets should be funded by longer-term liabilities and shareholders funds maturity structure The relative proportions of assets and liabilities on a balance sheet maturing at different time intervals maturity transformation The process whereby financial intermediaries are able to provide savers and borrowers with financial instruments of differing maturities maximising shareholder value Management strategies that seek to increase the share price of a corporation mean The average of a set of observations; an indicator of central tendency medium-term note An unsecured debt instrument that pays a specified coupon; issued in tranches merchant bank Specialist providers of financial and advisory services to corporate and government clients. Often specialise in off-balance-sheet services, including international trade finance, project finance, corporate finance advice, balance sheet restructuring advice, mergers and acquisition advice, and funding advice (debt and equity, domestic and offshore) mergers and acquisitions Corporate manoeuvres in which a takeover company seeks to gain control over a target company modern portfolio theory Concepts that enable an investment portfolio to be constructed with optimal risk and return relationships monetary policy Actions of a central bank that influence the level of interest rates in order to achieve certain economic performance outcomes such as managing inflation, employment and economic growth monetary policy channel The effects of a change in monetary policy on interest rates and economic activity money A commodity that is universally accepted as a medium of exchange
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money market Wholesale market in which securities with a maturity of less than one year are issued and traded, with a minimum transaction size of at least $100 000. This market enables large corporations and financial institutions to manage their short-term liquidity demands money market corporation Official classification of investment banks and merchant banks operating in the Australian financial system money market hedge A strategy that involves borrowing FX today, converting it to local currency at the spot rate, then investing it in money markets money supply Various measures of the amount of funds available within the financial system money-laundering transaction A transaction that enables the movement of illegally gained funds into the financial system moral hazard The risk associated with unnecessarily risky investments undertaken because the downside risk has been removed by some form of insurance or implied guarantee mortgage (service) manager Within a securitisation structure, is responsible the special purpose vehicle trustee for collecting the principal and interest payments from the original securities, and paying interest and principal to investors in the asset-backed securities mortgage insurance Insurance that protects the lender in the event that a borrower defaults on a loan mortgage originator The party responsible for originating a mortgage contract with a borrower. Typically, a mortgage originator will fund its lending program through the process of securitisation mortgage trust A unit trust that invests in mortgages registered as loan securities over land mortgage A form of security that conveys an interest in land and property thereon to a lender mortgagee The lender who registers a mortgage as security for a loan mortgagor The borrower who assigns the mortgage as security over land and property thereon moving averages model A graph of a series of average prices constructed over time mutual fund A managed fund in the USA, established under a corporate structure mutually exclusive projects From a choice of two or more projects, only one project will be chosen naked call option A call option for which the writer does not hold the underlying physical market asset or provide a financial guarantee naked warrant A warrant that is issued independently of a bond National Guarantee Fund A fund established to compensate investors in the event of misconduct by a stockbroker natural hedge The use of matching transactions to offset a potential risk exposure; for example, the matching of foreign currency inflows and outflows negative correlation The relationship between data, such as exchange rates or share prices, that move in opposite directions

negative covenant A restriction imposed on the activities and financial structure of a borrower; for example, restrictions on future borrowings negotiable certificate of deposit (CD) A discount security issued by banks into the money markets to raise short-term funds to meet forecast liquidity needs negotiable security A financial instrument that can easily be sold into a secondary market net interest margin The difference between the cost of funds and the return on assets net lease The lessee is responsible for the insurance and maintenance of the leased asset net present value (NPV) The difference between the cost of an asset and the present value of its returns no liability company A company structure in which shareholders may decide not to meet future calls on an unpaid portion of shares held, but forfeit the shares instead nominal rate of interest The market rate incorporating the real rate of return plus an anticipated inflation component. Typically, interest rates quoted in the market place are nominal rates non-bank financial institution (NBFI) A financial intermediary that has not been granted a banking authority, such as a building society, credit union or finance company non-conventional cash flow Occurs when the ongoing cash flows from an investment are not always positive non-detachable warrant A warrant that can only be sold with the associated bond issue non-executive director A member of a board of directors who is not part of the management of an institution or its subsidiaries non-notification basis Accounts receivables are paid by a firms debtors directly to an address controlled by the factor non-recourse lending The lender is totally reliant on a projects future cash flows for loan repayments non-renounceable right A right attached to a security that can only be exercised by the shareholder; it cannot be sold to a third party normal or positive yield curve An upward-sloping yield curve; longer-term interest rates are higher than shorter-term rates notification basis The firm must notify debtors that accounts receivables should be paid directly to the factor novation An agreement that allows a lender to transfer to a third party all rights and obligations due under a loan agreement NOW account A negotiable order of withdrawal issued on an interest-bearing cheque account objectives and policies What a company intends to achieve and how that will be achieved obligor A person who is bound to another by contract or other legal procedure off-balance-sheet business Transactions conducted by a bank that are currently only a contingent liability and therefore are not recorded on the balance sheet

offer price The price at which an FX dealer will sell a unit of a

quotation

off-exchange transaction Buying and selling of securities

over-the-counter

official interest rate The central banks target interest rate

for the overnight cash rate

official list The list of companies whose securities are quoted

on a stock exchange

official reserve assets Comprise central bank holdings of foreign currencies, gold and international drawing rights open outcry A system of share trading whereby dealers conduct face-to-face transactions using verbal and hand signal conventions open position In the futures market, where a futures contract position has not been closed out operating account A cheque account through which a firm conducts its day-to-day financial transactions operating lease A short-term lease where the asset is returned to the lessor on completion; asset is maintained by lessor operational liquidity Access to cash to meet day-to-day expenses and business opportunities option The right, but not the obligation, to buy or sell a commodity or financial asset at a predetermined exercise price at, or within, a specified time. The buyer of the option pays the option writer or seller a premium. There are two types of options: American and European ordinary annuity An annuity in which regular equal cash flows occur at the end of each period ordinary share A form of equity bestowing ownership rights in a company. The security entitles the holder to voting rights at general meetings and to any dividend declared by the board of directors. It ranks last at liquidation out-clause Specific conditions that preclude an underwriting agreement from being fully enforced out-of-the-money A situation where the strike price of a call option is higher than the price of the underlying commodity or financial asset; alternatively, where the strike price of a put option is below the price of the underlying commodity or financial asset. overdraft facility A fluctuating credit facility provided to a borrower by a bank, that allows a business to place its operating account into deficit without notice, up to an agreed limit over-the-counter contract A derivative market transaction that is not conducted on an organised exchange, but is negotiated with a financial institution such as a bank. Products are not standardised and are designed to meet the specific needs of the client. Examples include forward rate agreements and forward exchange contracts P/E ratio The current share price divided by the earnings per share participating bank A bank that provides funds as part of a syndicated loan facility participating preference share A type of share whose holder will receive a higher dividend if shareholders receive above a specified dividend
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passive investment A portfolio in which the structure is based on the replication of a specific share market index, such as the S&P/ASX 200 index payee The party who receives the funds paying agent The party who arranges periodic coupon payments when due, and redeems bonds at the maturity date payments system The regulated process that enables financial institutions to settle value transactions for goods and services pegged exchange rate An exchange rate that locks one currency into a multiple of another currency, such as the USD. For example, the HKD is currently locked into the USD physical market A market in which a commodity or financial instrument is traded; for example, the bank accepted bill market or the stock market placement The issue of new ordinary shares by a corporation to selected institutional investors point (1) The final decimal place in an FX quotation. (2) The minimum price fluctuation permitted in a contract traded on the futures exchange pole Rapid rise in share prices and volumes before a pennant or flag forms policyholder The person who takes out an insurance policy that covers a defined event portfolio structuring The selection of a combination of assets and liabilities; each asset and liability comprising desired attributes of return, risk, liquidity and timing of cash flows portfolio variance The correlation of pairs of securities within an investment portfolio positive correlation A relationship between data, such as exchange rates, whereby a price change will be a movement in the same direction positive covenant An action stipulated in a loan contract that must be taken by a borrower posted rate The interest rate or yield at which an issuer is willing to sell a security preference share A hybrid security that pays a fixed dividend, and has priority over ordinary shares if the company is liquidated. They may be cumulative, redeemable, converting, participating and of different ranking premium (1) A regular, periodic amount paid by an insurance policyholder. (2) The amount paid to the writer of an option by the buyer present value The current value of a future cash flow discounted by a required rate of return price risk The possibility that a change in interest rates will affect the value of a firms assets and liabilities price series A graph of historic share price or share price index movements over time price to earnings ratio The current share price divided by the earnings per share primary market Markets for the issue of new securities such as shares or debentures; that is, markets in which new funding is raised by the issuer/borrower
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prime assets requirement A prudential liquidity

requirement imposed by the bank regulator in Australia that has now been replaced with new liquidity management guidelines prime rate An indicator interest rate set by a financial institution for the purpose of loan pricing principal The initial, or current, amount borrowed or invested profit and loss profile The potential gains and losses available to the buyers and writers of an option profit test Minimum financial performance requirements to be met by an entity seeking listing program trading Buy and sell orders automatically triggered by computer programs project completion Point at which a project is built and is generating a prescribed level of cash flows project finance Lending for large projects where loan repayments are based on projected cash flows project sponsors The originators and equity providers of a project promissory note (P-note) A short-term discount security issued today for less than the face value which is payable to the holder at maturity. Issued by corporations without an acceptor so the borrower needs to have a good reputation. Also referred to as commercial paper. There is an active secondary market in commercial paper promoter The party seeking to list a corporation on a stock exchange property trust A unit trust that may invest in industrial, commercial or retail property under the terms of the trust deed pro-rata offer A proportional offer to existing shareholders to buy additional shares based on a percentage of their current shareholding prospectus Document prepared by a company stating the terms and conditions of a formal offer to the public to purchase securities proxy A party authorised to vote on behalf of a shareholder at a general meeting prudential liquidity A requirement of the regulator that financial institutions hold a certain amount of liquid assets prudential supervision The imposition and monitoring of standards designed to ensure the soundness and stability of the financial system public liability insurance Insurance that compensates for injury or death of a third party due to negligence of a property owner or occupier public sector borrowing requirement The total borrowing requirements of various levels of government and their instrumentalities public unit trust A trust in which funds from the sale of units in a trust are pooled and invested in asset classes specified in the trust deed. Includes equity trust, property trusts, fixed interest trusts publicly listed corporation An entity whose ordinary shares are quoted and traded on a formal stock exchange purchasing power parity (PPP) The hypothesis that exchange rates will adjust to ensure that the relative prices for the same goods are equal between countries

purchasing power risk The risk that inflation in prices will,

over time, erode the ability of a certain sum to purchase assets

renounceable right A right attached to a security that can be

sold to a third party before it is exercised

put bear spread The simultaneous purchase and sale of put options; short put further out-of-the-money put option An option that gives the buyer the right, but not an obligation, to sell the underlying commodity or financial asset at a predetermined price, at or by a specific date. The buyer pays a premium to the option writer for that right quasi-equity A security that has the attributes of both debt
and equity

repricing gap analysis Monitoring the interest rate sensitivities of assets and liabilities over specified planning periods. Repricing gap equals rate-sensitive assets minus rate-sensitive liabilities repurchase agreement (repo) The sale of a financial
security with an agreement to repurchase that asset at a specified date. For example the Reserve Bank offers repo arrangements intra-day and overnight to assist with the management of financial system liquidity

quota A government restriction on the amount of a specified

good that may be imported

Reserve Bank of Australia (RBA) The Australian central

bank, responsible for the determination of monetary policy, the stability of the financial system, the soundness of the payments system, and gathering statistical data

quoting two-way prices The practice of a dealer in quoting

both buy and sell prices on a security

rally An upward movement in market prices after a period of

decline

random walk hypothesis Contends that each new share

price is independent of the previous price

reserve requirement A prudential requirement that a bank hold a specified percentage of funds in liquid assets resistance line The price level at which an increase in supply
halts a price rise

rate of return The financial benefit gained from an investment;

usually expressed in percentage terms

rating symbol Represents a credit rating given to an issuer;

for example, S&P long-term symbols range from AAA to C

responsible entity The trustee appointed under a trust deed retail market Transactions conducted primarily with financial
intermediaries by the household sector (individuals) and the small- to medium-sized business sector

real interest rate The nominal interest rate less the

anticipated inflation rate; for example, a nominal rate of 7 per cent less expected inflation of 2 per cent equals a real interest rate of 5 per cent

return line A line drawn by technical analysts parallel to the trend line to create a trend channel return on equity Net income of a firm as a percentage of
shareholders funds

real-time gross settlement High-value payments system

transactions are settled immediately through exchange settlement accounts

reasonable benefit limit The amount of concessionally taxed superannuation funds allowable to an individual, based on lump sum and pension limits red herring A preliminary prospectus prepared by the lead
manager

return or yield The total financial compensation received from an investment expressed as a percentage of the amount invested revolving credit A term loan rollover facility for a specified
number of periods

revolving facility An arrangement where a P-note facility

matures, new notes are issued and discounted

redeemable preference share A preference share that may

be redeemed for cash at the expiry date

right of foreclosure The right of a lender to take possession of an asset and realise any amount owing right of perpetual succession The right of a corporation to
continue to operate regardless of changes in ownership

redemption yield The total return (interest and capital gains)

received if a security is held to maturity

rediscount facility An arrangement where the Reserve Bank

repurchases T-notes in order to increase financial system liquidity

rights issues The issue of additional shares to existing shareholders on a pro-rata basis

rediscounting The practice of selling existing discounted

securities, such as bank bills and commercial paper, in the money markets

risk The uncertainty or probability of variance associated with

expected cash flows; the actual return on an investment may vary from the expected return

reference rate A benchmark interest rate published daily and used for pricing variable rate loans; for example, the bank bill swap rate (BBSW) regression analysis A statistical technique that determines
the relationship between a dependent variable and independent variables

risk-free rate of return The yield on a security issued by the

government; zero default risk assumed

RITS An electronic system that facilitates payments system

transactions with the Reserve Bank

rollover facility An arrangement where a bank agrees to

discount new bills over a specified period as existing bills mature

regression coefficient Measures the responsiveness of a

dependent variable to an independent variable

rollover fund A fund that holds eligible termination payments within the superannuation tax concession environment S&P/ASX200 index An aggregate measure of share price movements of the top 200 companies listed on the ASX
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reinvestment risk The impact of interest rate changes on the

earning potential of future cash flows

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sale and lease-back arrangement An arrangement

whereby an asset is sold to a lessor on condition that it is leased back to the original owner same-day funds Funds that do not require clearing through the payments system; used for exchange settlement account transactions SEATS An acronym for the ASXs electronic share trading system secondary market A market that facilitates the buying and selling of existing financial securities. New securities issued in the primary market benefit from liquidity in the secondary market sectorial flow of funds The flow of funds between surplus or deficit sectors in an economy: the business, financial institutions, government and household sectors and the rest-ofthe-world sector secured debt A debt instrument that gives the lender a claim over specified assets of the borrower or a third party in the event that the borrower defaults on loan repayments securities dealers licence Issued by ASIC and required by a stockbroker securities portfolio A portfolio of financial securities held by an institution that can easily be sold into the secondary markets for investment and trading purposes securitisation A process whereby non-marketable assets are sold in order to generate additional funds and manage the structure of the balance sheet. These non-liquid assets are bundled into a parcel and sold into a special-purpose vehicle controlled by a trustee, who issues new asset-backed securities that are then serviced with cash flows from the original assets security A financial asset or instrument that generally can be traded in a secondary market, for example shares, debentures, bank bills, commercial paper segmented markets theory The theory that all bonds are not perfect substitutes for each other; that investors have preferences to invest either short-term or long-term sell-down provision A clause in a loan contract that enables a lender to sell the debt security to another party semi-government security A longer-term coupon security such as a note or bond issued by a State government central borrowing authority semi-strong form efficiency The hypothesis that all publicly available information is fully reflected in a share price serial offering technique A method of releasing new instruments into the market whereby each series tranche has the maturity and coupon characteristics set when the facility is established service fee A fee charged by a lender to offset ongoing loan account administration costs settlement risk The risk that one party to a financial transaction will not deliver value; for example, due to time zone differences share buy-back An arrangement whereby a company uses excess capital to repurchase existing shares share market A formal exchange that facilitates the issue, buying and selling of equity securities, including ordinary shares

share price index Measures changes over time in the price of shares included in the index; for example the S&P/ASX200 index share price to net tangible assets The current share price relative to a firms net tangible assets share split A proportional division of the number of shares issued by a company shelf registration Registration of a delayed or continuous debt issue with the Securities and Exchange Commission (SEC) in the USA short call party The writer or seller of a call option short position Occurs when the underlying asset has been sold forward, but is not actually owned at the time of entering into the transaction short straddle The simultaneous selling a call option and a put option with a single exercise price short strangle The simultaneous selling of a call option and a put option with out-of-the-money exercise prices simple interest Interest paid on the original principal amount borrowed or invested Singapore interbank offered rate (SIBOR) A benchmark interest rate in the South-East Asian markets; it is the average of the interest rates charged among Singapore banks sovereign risk The risk that a foreign government will default on its obligations special-purpose vehicle A trust established to hold assets and issue asset-backed securities within the context of a securitisation structure speculator A trader of securities and derivatives that takes a view to making a profit from price movements in the contracts being traded spot price In the FX market, it is the price quoted today for delivery in two days time spot transaction A transaction in which the FX contract value date is two business days from the date of the transaction spread position Buying and selling of related, same-deliverydate contracts to benefit from price variances spread The points difference or margin between bid and offer prices for the same commodity or financial asset; for example in an FX quotation standard deviation A statistical measure of the dispersion of a set of data around a central point stand-by facility A contingency line of credit that is established with a financial institution stock market index A measure of the price performance of a sector of the share market stockbroker A party who acts as the agent to an investor in the buying and selling of stock market securities straddle Buying and selling of contracts with different delivery dates to benefit from price variances straight bond A fixed-interest bond paying periodic coupons; principal repayable at maturity strategic asset allocation The structuring of a portfolio to meet an investors personal preferences

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strike or exercise price The price specified in an option

contract, at which the option-holder may exercise a right under the terms of the contract strong form efficiency The hypothesis that all publicly available information and private research is fully reflected in a share price structured finance Funding provided for major infrastructure projects subordinated debt A long-term debt issue; holders claims are subordinated against all other creditors subparticipation A lender retains a loan but, for a price, transfers its rights to receive interest and principal repayments subscription to an issue An agreement to purchase some of the securities offered in an issue Superannuation Savings accumulated by an individual to fund his or her retirement; retirement savings that are available for investment superannuation guarantee charge The compulsory superannuation scheme in Australia superannuation savings plan A structured plan of regular contributions into a private superannuation fund support line The price level at which an increase in demand halts a price fall surplus unit An economic unit that saves more than it spends in a given year, providing a source of funds for investment; usually the household sector and overseas sector within the Australian economy swap contract An agreement between two parties to swap future pre-determined cash flows. An interest rate swap exchanges interest payments. A currency swap exchanges foreign currency denominated principal amounts, plus related interest payments SWIFT Society for Worldwide Interbank Financial Telecommunications. Global electronic system for financial transactions symmetrical triangle A series of price fluctuations with each top and bottom smaller than the previous triangle syndicated loan facility A large loan facility made to a borrower by a group of financial institutions. A syndicate will typically include both domestic and international commercial banks, investment banks and other institutional lenders. Syndication is necessary due to the higher level of risk associated with lending a large amount of funds system being down Payments from the private sector exceed payments from the official sector system surplus Payments from the official sector exceed payments from the private sector systematic risk Exposures that affect the price of the majority of shares listed on the stock exchange systemic risk The risk that the failure of an institution will adversely affect the market as a whole T + 3 A term for the settlement of a share transaction that will occur on the transaction day plus three days tactical asset allocation The structuring of a portfolio to take account of a dynamic investment environment

tap system of selling Series of securities continually offered

to the public: as one series closes another is opened tariff A charge levied by a government on imports into the country technical analysis A method of explaining and forecasting price movements based on past price behaviour tender system A system in which investors bid the price they are willing to pay to buy government securities, thus setting the yield term deposit Funds lodged in an account with a bank for a predetermined period and at a specified fixed interest rate term loan A specific amount of funds advanced or lent for a set period, usually for a known purpose term structure of interest rates The relationship between the term to maturity and the yield for securities of the same type. Represented by the shape and slope of a yield curve for a financial instrument term-life policy Life insurance cover for a pre-determined period terms currency The value of the second-named currency relative to the base currency in an FX quote third-party policy A motor vehicle insurance policy that only covers third-party vehicle and property damage third-party, fire and theft policy A motor vehicle insurance policy that covers for fire or theft damage to the vehicle plus third-party damage Tier 1 (core) capital A capital adequacy requirement relating to specified minimum capital holdings by banks that are a more permanent and unrestricted source of capital. Tier 2 (supplementary) capital A capital adequacy requirement relating to specified minimum capital holdings by banks that are considered to be high-quality quasi-equity tod value transaction An FX contract with settlement and delivery today tom value transaction An FX contract with settlement and delivery tomorrow tombstone A notice placed in the financial press advising full details of a completed issue of securities top-down approach A method of forecasting the overall economic environment in which corporations operate total and permanent disablement policy Insurance policy covering loss of limbs or total inability to resume an occupation trade- and performance-related items A form of guarantee provided by a bank to a third party, promising financial payment under the terms of a commercial contract trade bill A bill of exchange issued to finance a specific trade transaction trade credit An arrangement by which a supplier provides goods to a purchaser with payment taking place at a later date tradeable benchmark index A narrow index used as the basis for pricing certain derivative products trader A local member of a derivative exchange who buys and sells contracts, typically very short-term, on their own account

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trading pit A recessed area on the floor of an exchange where transactions are conducted by open outcry transaction exposure The risk that future foreign currency denominated cash flows will vary due to exchange rate movements transferable loan certificate A loan arrangement that allows a lender to convert a loan into transferable certificates that have the same terms as the original loan translation exposure The risk that the conversion and consolidation of foreign currency assets or liabilities will adversely affect the balance sheet transparency Term for the level of information that is provided to market participants trauma insurance An insurance policy that provides a lump sum payment if a specified trauma event, such as a stroke, occurs Treasury bond Medium- to longer-term securities issued by the Commonwealth government that pay a specified interest coupon stream; principal repaid at maturity treasury division Business unit within a corporation that is responsible for balance sheet funding, managing cash flows and financial risk management Treasury note (T-note) A discount security issued by the Commonwealth Government and sold by weekly tender. Sold through the Reserve Bank Information and Transfer System (RITS) trust deed Document detailing the sources, uses and disbursement of funds in a trust two-way price A foreign exchange price quoted by a dealer, comprising a bid and an offer component. The difference between the two quotes is the dealers spread uncertificated holder A shareholder whose ownership of stock is recorded electronically; no share certificate is issued underwriter A dealer who promotes a share issue to clients and agrees to purchase any unsold securities underwriting syndicate A group of underwriters that agree to promoters of an issue underwriting A contractual undertaking by an underwriter. The issuer pays an underwriting fee, and the underwriter guarantees the success of the issue and that the issuer will raise the amount of funds required by agreeing to purchase any securities not purchased by investors unit of the quotation The first-named currency in an FX quote; one unit expressed in terms of another currency. For example, AUD/SGD1.0055 the Aussie is the unit or base currency unlisted trust Units are not listed on a stock exchange. To dispose of units the unit-holder must sell them back to the trustee after giving the required notice unsecured note deed Limits the issue of further charges over the assets of the issuing company unsecured note A corporate bond issued without any form of underlying security attached Unsystematic risk Exposures that specifically affect the share price of a particular corporation

Uptrend line Achieved by connecting the lower points of a

rising price series

US commercial paper (USCP) A promissory note issued in

the US money markets

Value at risk (VaR) A statistical probability model that measures financial risk exposures value date The FX contract date at which delivery of the currency and financial settlement occur variable interest rate An interest rate that changes from time to time in accordance with movements in a specified indicator rate such as BBSW venture capital Funds raised for the development of new, high-risk projects vertical bear spread Combination options strategy; buy a put and sell a call with a higher exercise price vertical bull spread Combination of option contracts with the same expiration date, but different exercise prices vertical takeover The target company represents an extension of the existing business of the takeover company Wallis Report A committee report: Financial System Inquiry Final Report, AGPS, Canberra, March 1997 (www.treasury.gov.au) warrant A financial instrument that gives the holder the right to buy (or sell) a security at specified price, on or by a predetermined date weak form efficiency Share price changes are independent and not based on historic price data wealth channel The effects of monetary policy changes on asset values whole-of-life policy A life insurance policy that incorporates an investment component and accumulates a surrender value wholesale market Direct financial flow transactions between institutional investors and borrowers with-recourse factoring The factoring company can recover future accounts receivable bad debts from the originating firm working capital Finance required by a firm to fund its day-today operational expenses Yankee bond A foreign bond issued into the US capital markets by a foreign borrower and denominated in USD yield curve A graphical representation of the relationship between a particular securitys yield and time to maturity. A yield curve will range from normal, inverse and transitional yield The total return on an investment; comprising interest receipts and any capital gain (or loss) zero coupon bond Bonds that have no coupon payments attached. Such securities are issued at a deep discount to face value. The return to the investor is the difference between the face value and the discount price zero sum game One transaction or contractual obligation is exactly offset by another

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