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Financial Terms related to Security

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Asset backed security

• A security that is collateralized by loans, leases, receivables, or installment

contracts on personal property, not real estate.

Bearer security

• A security the owner of which is not registered on the books of the issuer. A bearer
security is payable to the holder.

Bullet loan or security

• All principal is due at maturity.

Cash commodity or security

• The actual commodity or security as opposed to futures contracts for it.

Cash equivalent security 2|Page

• Is a term which has several meanings. It often refers to high grade instruments
which are very liquid and have very little time to maturity. Among these are treasury
bills, commercial paper, and bankers' acceptances. In a somewhat broader sense it
can include money market shares and short-term municipal paper.

Convertible security

• A security that can be converted into common stock at the option of the security
holder, including convertible bonds and convertible preferred stock.

Debt security

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• A security representing a loan by an investor to an issuer such as a corporation,
municipality, the federal government, or a federal agency. In return for the loan, the
issuer promises to repay the debt on a specified date and to pay interest.

Derivative security

• A financial security that is neither debt nor equity but derives its value from an
underlying asset that is other another security; called derivative for short.

• A financial security, such as an option, or future, whose value is derived in part

from the value and characteristics of another security, the underlying security.

Exchangeable security

• Security that grants the security holder the right to exchange the security for the
common stock of a firm other than the issuer of the security.

Fixed dollar security

• A nonnegotiable debt security that can be redeemed at some fixed price or

according to some schedule of fixed values, e.g., bank deposits and government
savings bonds.

• A nonnegotiable debt security that can be redeemed at some fixed price or

according to some schedule of fixed values (e.g., bank deposits and government 3|Page

savings bonds).

Government security

• A debt obligation of the U.S. government, backed by its full faith, credit and taxing
power, and regarded as having no risk of default. The government issues short-term
Treasury Bills, medium-term Treasury notes, and long-term Treasury bonds.

Government security dealer

• An institution that purchases for resale various government securities and other

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money market instruments.

Host security

• The security to which a warrant is attached.

Hybrid security

• A form of debt or equity financing that possesses characteristics of both debt and

• A convertible security whose optioned common stock is trading in a middle range,

causing the convertible security to trade with the characteristics of both a fixed-
income security and a common stock instrument.

Monthly income preferred security

• Abbreviated MIP. Preferred stock issued by a subsidiary located in a tax haven.

The subsidiary relends the money to the parent.

Mortgage pass through security

• Also called a pass-through, a security created when one or more mortgage holders
form a collection (pool) of mortgages sells shares or participation certificates in the
pool. The cash flow from the collateral pool is passed through to the security holder
as monthly payments of principal, interest, and prepayments. This is the
predominant type of MBS traded in the secondary market. 4|Page

Municipal security

• See Municipal Bond.

Primitive security

• An instrument such as a stock or bond for which payments depend only on the
financial status of the issuer.


• Any claim that trades in the marketplace. Stocks, bonds, negotiable CDs, bankers

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acceptances are examples of securities. A bank loan is a private contract and it can
not be bought or sold. Hence, it is not a security.

• According to the Securities Exchange Act of 1934, a security is any note, stock,
treasury stock, bond, debenture, certificate of interest or participation in any profit-
sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-
trust certificate, preorganization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit, for a security, any
put, call, straddle, option, or privilege on any security, certificate of deposit, or group
or index of securities (including any interest therein or based on the value thereof),
or any put, call, straddle, option, or privilege entered into on a national securities
exchange relating to foreign currency, or in general, any instrument commonly
known as a security'; or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any
of the foregoing; but shall not include currency or any note, draft, bill of exchange, or
banker's acceptance which has a maturity at the time of issuance of not exceeding
nine months, exclusive of days of grace, or any renewal thereof the maturity of which
is likewise limited.
A simpler definition is that a security is a piece of paper that can be assigned a value
and sold, or any investment made with the expectation of a profit. 5|Page

• Piece of paper that proves ownership of stocks, bonds and other investments.

Security agreement

• The agreement between the borrower and the lender that specifies the collateral
held against a secured loan.

Security analyst

• See Analyst.

Security characteristic line

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• A plot of the excess return on a security over the risk-free rate as a function ofthe
excess return on the market.

Security deposit initial

• Synonymous with the term margin. A cash amount of funds that must be deposited
with the broker for each contract as a guarantee of fulfillment of the futures contract.
It is not considered as part payment or purchase. Related: margin

Security deposit maintenance related

• Maintenance margin security market line (SML). A description of the risk return
relationship for individual securities, expressed in a form similar to the capital market

Security market line

• Abbreviated SML. The depiction of the capital asset pricing model (CAPM) as a
graph that reflects the required return for each level of nondiversifiable risk (beta).

• Line representing the relationship between expected return and market risk.

Security market plane

• A plane that shows the equilibrium between expected return and the beta
coefficient of more than one factor. 6|Page

Security selection

• See: security selection decision.

Security selection decision

• Choosing the particular securities to include in a portfolio.

Social security

• A U.S. government program that provides retirement, survivors, and disability

income benefits for eligible workers and their families. Formally known as Federal

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Old-Age and Survivors Insurance and Disability Insurance or OASDI.

Underlying security

• Options: the security subject to being purchased or sold upon exercise of an option
contract. For example, IBM stock is the underlying security to IBM options.
Depository receipts: The class, series and number of the foreign shares represented
by the depository receipt.

Variable price security

• A security, such as stocks and bonds, that sells at a fluctuating, market-determined


• A security, such as stocks or bonds, that sells at a fluctuating, market-determined