Abitrage : The simultaneous purchase and sale of the same, or essentially similar, security in two

different markets for advantageously different prices.

Accrued Interest : Interest earned but not yet paid. It is the interest accumulated since last payment.

American Depository Receipt (ADR) : A security to investors in U.S. representing equity shares in
foreign companies

Bear Market : A downward trend in share prices.

Bearer Bond : A bond that has attached coupons representing the right to receive interest
payments. The owner submits each coupon on its specified date to receive payment. Ownership is
transferred simply by the seller’s endorsing the board over to the buyer.

Beta (or Beta Coefficient or Market Beta) : A relative measure of the sensitivity of an asset’s return
to changes in the return on the market portfolio. Mathematically, the beta coefficient of a security’s
covariance with market portfolio divided by the variance of the market portfolio.

Bid-Ask Spread : The difference between the price that a market-maker is willing to pay for a
security and the price at which a market-maker is willing to purchase a specified quantity of a
particular security.

Bond : A loan security (instrument) issued by Government or a private sector company to raise
funds. It is redeemable at maturity.

Book-building : A process in which the issue price or buy-back price of a security is decided by the
market forces.

Bull market : An upward trend in share prices.

Business cycle : The recurring patterns of boom, expansion, contraction and recession in the
economy.

Buy-Back : Repurchase of shares by a company under the provisions and guidelines issued by SEBI.

Call option : A contract that gives the buyer the right to buy a specific number of shares of a
company from the option writer at a specific purchase price during a specific time period.

Callable Bond : A bond that an issuer can redeem before the maturity date.

Capital Gain (or Loss) : The difference between the current market value of an asset and the original
cost of the asset, with the cost adjusted for any improvement or depreciation in the asset.

Capital market : Financial market in which financial assets with a term to maturity of typically more
than one year are traded.

Certificate of deposit : A form of time deposit receipts issued by banks and other financial
institutions to raise short-term funds.

Commercial Paper : A type of money market instrument. It represents unsecured promissory notes
of large and financially sound companies.
Consumer price index : A cost-of living index that is representative of the goods and services
purchased by consumers.

Debenture : A bond that may or may not be secured by specific property. It is written
acknowledgement of debt.

Diversification : the process of adding securities to a portfolio in order to reduce the portfolio’s
unique risk and, thereby, the portfolio’s total risk.

Earning per share(EPS) : A company’s after –tax earnings divided by the number of its common
shares outstanding.

Equity : Refers to equity shareholder’s wealth, i.e., equity share capital plus reserves and surpluses.

Financial Leverage : The use of debt to fund a portion of an investment.

Financial Market : A mechanism designed to facilitate the exchange of financial assets by bringing
orders from buyers and sellers of securities together.

Financial risk : Risk associated with changes in factors such as interest rates, share prices, capital
composition, etc.

Fixed charge or fixed income securities : Securities on which fixed amount is periodically payable as
interest/dividend such as bonds and preference shares.

Floating Rate : a rate of interest on a financial asset that may vary over the life of the asset,
depending on changes in a specified indicator or current market interest rates.

Foreign Exchange Market : network of dealers and brokers which are engaged in trading in foreign
currencies.

Forward Contract : A contract in which all the relevant terms and conditions are decided today but
contract is performed at a pre-decided date in future.

Forward Rate : The interest rate that links the current spot interest rate over one holding period to
the current spot interest rate over a longer holding period. Also, the interest rate agreed to at a
point in time at which the associated loan will be made at future date.

Fundamental analysis : A form of security analysis that seeks to determine the intrinsic value of
securities on the basis of underlying economic factors. These intrinsic values are compared with
current market prices to identify current levels of mispricing.

Future Contract : An agreement between two investors under which the seller promises to deliver a
specific asset on a specific future date to the buyer for a predetermined price to be paid on the
delivery date.

Generally Accepted Accounting Principles (GAAPs) : Accounting rules established by recognised U.S.
authorities, such as te Financial Accounting Standards Board (FASB)

Gilt or Gilt Edged : Refers to government securities. There are considered to be risk-free and have
low yield.
Hedge : A transanction to reduce/eliminate risk.

Indenture : A legal document formally describing the terms of the legal relationship between a bond
issuer and bondholders.

Index fund : A passively managed investment in a diversified portfolio of financial assets designed to
mimic the investment performance of a specific market index.

Initial Margin Requirement : The minimum percentage of a margin purchase (or short sale) price
that must come from the investor’s own funds.

Initial Public Offer : The first offering of a shares of a company to the public.

Insider : More broadly defined as anyone who has access to information that is both ‘materially’
related to the value of a company’s securities and unavailable to the general public.

Insider Trading : Dealings in securities by a person who has some unpublished information which is
price sensitive.

Intitutional Investor’s : Mutual Funds, Banks, Insurance Companies, etc., which are engaged in large-
scale investments in securities.

Interest-Rate Parity : An explanation as to why spot and future exchange rates differ. It asserts that
such differences result from different result from different interest rates in the two countries.

Interim dividend : Dividend paid by the company before the finalisation of financial statement for
the year.

Junk bonds : Those bonds which have relatively low credit rating and high expected yield.

LIBOR : London inter-bank offer rate.

Liquidity : The ability of investors to convert securities to cash at a price similar to the price of the
previous trade in security, assuming that no significant new information has arrived since the
previous trade. Equivalently, the ability to sell an asset quickly without having to make a substantial
price concession.

Listed security : A security that is traded on an organised security exchange.

Market Capitalisation : The aggregate market value of a security, equal to the market price per unit
of the security multiplied by the total number of outstanding units of the security.

Market Index : A collecton of securities whose prices are averaged to reflect the overall investment
performance of a particular market for financial assets.

Market Portfolio : A portfolio consisting of a investment in all securities. The proportion invested in
each security equals the percentage of the total market capitalisation represented by the security.

Market Risk : The portion of a security’s total risk that is related to moves in the market portfolio
and, hence, cannot be diversified away.
Merchant Banker : A market intermediary dealing with specified services and transactions in
securities.

Merger : A form of corporate takeover in which two firms combine their operations and become one
firm. Mergers are usually negotiated by the management of the two merging corporations.

Money market : Financial market in which financial assets with a term to maturity of typically one
year or less are traded.

Multi-national firm : A corporation that carries on a substantial portion of its business in countries
other than the country in which it is domiciled.

Mutual Fund : A common pool of funds to invest in securities on behalf of unitholders.

National Association of Securities Dealers Automated Quotations (Nasdaq) : An automated

nationwide communications network operated by the NASD that connects dealers and brokers in
the over-the-counter market. Nasdaq provides current market maker bid and asked price quotes to
market participants.

Net Asset Value : The market value of an investment company’s assets, less any liabilities, divided by
the number of shares outstanding.

Net Present Value : The present value of future cash flows expected to be received from particular
investment less the cost of that investment.

Net Book Value also called Book Value or Written Down Value : The amount equal to historical
cost less depreciation till date.

Net Realisble Value : The amount for which an asset can be disposed off less any direct selling cost.

NIFTY (full name S&P CNX NIFTY) : Index number of closing prices of 50 shares listed at National
Stock Exchange.

Odd Lot : Number of shares that is less than the standard unit of trading, generally from 1 to 99
shares (if lot is 100 shares).

Operating Exchange Ratio : The percentage of an investment company’s assets that were used to
pay for management fees, administrative expense, and other operating expenses in a given year.

Optimal portfolio : The feasible portfolio that offers an investor the maximum level of satisfaction.
This portfolio represents the tangency between the efficient set and an indifference curve of the
investor.

Over-priced security : A security whose expected return is less than its equilibrium expected return.
Equivalently, a security with a negative alpha.

Over-subscription : A situation when a company receives applications for more number of

shares/securities than offered for subscription.
Payout Ratio : The percentage of a firm’s earnings, paid to shareholders in the form of cash
dividends

Portfolio : A basket of different securities held by an investor.

Preference Shares : A share that has preference of repayment and preference of dividend over
equity capital.

Price Earning Ratio : Current stock price divided by its earning per share.

Primary Market : The market in which securities are sold at the time of their initial issuance.

Private Placement : The direct sale of a newly issued security to a small number of institutional or
high net worth investors.

Privatisation : Transfer of ownership of a public enterprise from government to private sector.

Prospectus : The official selling circular that must be given to purchasers of new securities registered
with the securities and exchange commission. The prospectus provides various information about
the issuers’s business, its financial condition, and the nature of the security being offered.

Proxy : The signing by a shareholder of a power of attorney, thereby authorising a designated party
to cast all of the shareholder’s votes on any matter brought up at the corporation’s annual meeting.

Put Option : A contract that gives the buyer the right to sell a specific number of shares of a
company to the writer at a specific price within a specified time period.

Repo-rate : The rate of interest involved in repurchase agreement.

Repurchase offer (Repo) : A type of money market instrument that involves the sale of a financial
asset from one investor to another. The investor selling the asset simultaneously agrees to
repurchase it from the purchaser on a stated future date at a pre-determined price, which is higher
than the original transaction price.

Retention Ratio : The percentage of a firm’s earnings that are not paid to shareholders but instead
are retained by the firm. Equivalently, one minus the payout ratio.