Financial Terms related to Market This document is part of the valuable contents available at www.ftpall.com, a free online glossary with more than five thousand financial and business terms. This document can be copied and distributed freely Find thousands of financial terms at www.ftpall.com respecting its original format. It is forbidden its transcription, translation or change on its format without authorization of its author or editor. MARKET Aftermarket • Refers to trading in the secondary market following a new securities issuance. Auction market • Markets in which the prevailing price is determined through the free interaction of prospective buyers and sellers, as on the floor of the stock exchange. • A market in which buyers enter competitive bids, and sellers enter competitive offers simultaneously. The NYSE is an auction market. Bank market • Is the spot and forward markets for currencies. Here, there are known counterparties to the transactions. Bear market • Any market in which prices are in a declining trend. www.ftpall.com 2|Page • A declining market or a period of pessimism when declines in the market are anticipated. (A way to remember: "Bear down.") • A market in which prices of a certain group of securities are falling or are expected to fall. See also: Bull Market. • A period of declining prices in a financial market. Black market • An illegal market. Find thousands of financial terms at www.ftpall.com Breadth of a market • A characteristic of a ready market, determined by the number of participants (buyers) in the market. Brokered market • A market where an intermediary offers search services to buyers and sellers. Bull market • A period of optimism when increases in market prices are anticipated. (A way to remember "Bull ahead.") • Any market in which prices are in an upward trend. • A market or a certain group of securities in which prices are rising or are expected to rise. See also: Bear Market. • A period of rising prices in a financial market. Bulldog market • The foreign market in the United Kingdom. Buyer's market • Refers to a situation when a purchaser has greater flexibility and influence in receiving concessions. Often the choices are more plentiful and the prices lower www.ftpall.com 3|Page than previously transacted. Capital market • The market that trades long-term debt securities and common and preferred equity securities. • The market for trading long-term debt instruments (those that mature in more than one year). Capital market efficiency Find thousands of financial terms at www.ftpall.com • Reflects the relative amount of wealth wasted in making transactions. An efficient capital market allows the transfer of assets with little wealth loss. See: efficient market hypothesis. Capital market imperfections view • The view that issuing debt is generally valuable but that the firm's optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of asymmetric information, asymmetric taxes, and transaction costs. Capital market line • Abbreviated CML. The line defined by every combination of the risk-free asset and the market portfolio. Carrying charge market • Is the implied term structure for a commodity market. It lists progressively higher prices for the more distant delivery months. This progression in prices reflects the assumption of cumulatively higher storage and financing costs over time. Cash market • Traditionally, this term has been used to denote the market in which commodities www.ftpall.com 4|Page were traded, for immediate delivery, against cash. Since the inception of futures markets for T bills and other debt securities, a distinction has been made between the cash markets in which these securities trade for immediate delivery and the futures markets in which they trade for future delivery. • Also called spot markets, these are markets that involve the immediate delivery of a security or instrument. Related: derivative markets. Common market • An agreement between two or more countries that permits the free movement of Find thousands of financial terms at www.ftpall.com capital and labor as well as goods and services. Common stock market • The market for trading equities, not including preferred stock. Complete capital market • A market in which there is a distinct marketable security for each and every possible outcome. Corner a market • To purchase enough of the available supply of a commodity or stock in order to manipulate its price. Crossed market • Occurs when a broker/dealer's bid is greater than the lowest or best offer made by another. This condition can also occur when a broker/dealer's offer is lower than another's bid. Sometimes, this can occur because of slow updates in a broker/dealer's range of marketing making activities. However, when a crossed market occurs because of intention behavior, then this activity is prohibited by the NASD. Currencies and major foreign market hedge funds www.ftpall.com 5|Page • Invest in securities and derivatives which go across borders. These funds try to capitalize on interest rate differentials between currencies, varying investment climates for different countries, relative volatilities in equity or credit markets, and variations of the other hedge fund themes. Dealer market • A market where traders specializing in particular commodities buy and sell assets for their own accounts. Debt market Find thousands of financial terms at www.ftpall.com • The market for trading debt instruments. Depth of a market • A characteristic of a ready market, determined by its ability to absorb the purchase or sale of a large dollar amount of a particular security. Derivative markets • Markets for derivative instruments. Direct search market • Buyers and sellers seek each other directly and transact directly. Domestic market • Part of a nation's internal market representing the mechanisms for issuing and trading securities of entities domiciled within that nation. Compare external market and foreign market. Efficient capital market • A market in which new information is very quickly reflected accurately in share prices. Efficient market www.ftpall.com 6|Page • A market that allocates funds to their most productive uses due to competition among wealth-maximizing investors; it determines and publicizes prices that are believed to be close to their true or intrinsic value (inherent worth). It is an assumed perfect market in which there are many small invewstors, each having the same information and expectations with respect to securities; there are no restrictions on investment, no taxes, and no transaction costs; and all investors are rational, view securities similarly, and are risk-averse, preferring higher returns and lower risk. Efficient market hypothesis Find thousands of financial terms at www.ftpall.com • In general the hypothesis states that all relevant information is fully and immediately reflected in a security's market price thereby assuming that an investor will obtain an equilibrium rate of return. In other words, an investor should not expect to earn an abnormal return (above the market return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis exist: weak form (stock prices reflect all information of past prices), semi-strong form (stock prices reflect all publicly available information) and strong form (stock prices reflect all relevant information including insider information). • Theory describing the behaviour of an assumed perfect market in which securities are typically in equilibrium, security prices fully reflect all public information available and react swiftly to new information, and, since stocks are fairly priced, investors need not waste time looking for mispriced securities. A market that allocates funds to their most productive uses as a result of competition among wealth-maximizing investors that determines and publicizes prices that are believed to be close to their true value. An assumed perfect market in which there are many small investors, each having the same information and expectations with respect to securities; there are no restrictions on investment, no taxes, and no transaction costs; and all investors are rational, they view securities similarly, and they are risk-averse, preferring higher returns and lower risk. www.ftpall.com 7|Page Either way market • In the interbank Eurodollar deposit market, an either-way market is one in which the bid and offered rates are identical. • In the interbank Eurodollar deposit market, an either-way market is one in which the bid and asked rates are identical. Emerging markets • The financial markets of developing economies. Find thousands of financial terms at www.ftpall.com • Is a term which broadly categorizes countries in the midst of developing their financial markets and economic infrastructures. This development is viewed in terms of freer, more liquid markets, which facilitate trade. Privitization of former state owned or administered businesses is a key factor in this process. Emerging markets funds • Are investment vehicles, either open-end or closed-end, which invest in countries whose economies are becoming more capitalistic. Often this emergence is from socialistic, communistic or other tightly controlled economic systems. There are also Hedge Funds which participate in emerging markets. Emerging markets hedge funds • Narrow their investment horizon to issues in markets which are not as mature or liquid as the previous group. However, these less developed markets are believed to offer greater risk adjusted rates of return. A general perspective is akin to getting in on the ground floor. Equilibrium market price of risk • The slope of the capital market line (CML). Since the CML represents the return offered to compensate for a perceived level of risk, each point on the line is a balanced market condition, or equilibrium. The slope of the line determines the www.ftpall.com 8|Page additional return needed to compensate for a unit change in risk. Equity market • Related: Stock market Eurocurrency loan market • A large number of international banks that make long-term, floating rate, hard- currency (typically U.S. dollar-denominated) loans in the form of lines of credit to international corporate and government borrowers. Find thousands of financial terms at www.ftpall.com Eurocurrency market • The money market for borrowing and lending currencies that are held in the form of deposits in banks located outside the countries of the currencies issued as legal tender. • The market for short-term bank deposits denominated in U.S. dollars or other easily convertible currencies. International equivalent of the domestic money market. The portion of the Euromarket that provides short-term, foreign-currency financing to subsidiaries of MNCs. Euroequity market • The capital market around the world that deals in international equity issues; London has become the center of Euro-equity activity. Euromarket • The international financial market that provides for borrowing and lending currencies outside their country of origin. European open market • The transformation of the European Union into a single market at year-end 1992. Excess return on the market portfolio www.ftpall.com 9|Page • The difference between the return on the market portfolio and the risk less rate. External market • Also referred to as the international market, the offshore market, or, more popularly, the Euromarket, the mechanism for trading securities that (1) at issuance are offered simultaneously to investors in a number of countries and (2) are issued outside the jurisdiction of any single country. Related: internal market Fair market price Find thousands of financial terms at www.ftpall.com • Amount at which an asset would change hands between two parties, both having knowledge of the relevant facts. Also referred to as market price. Fast market • Is a trading condition when prices change quickly and volume is dramatic. At these times, the price reports are behind and a trading range of prices is substituted for price dissemination. Often special rules apply at such times. Federal funds market • The market where banks can borrow or lend reserves, allowing banks temporarily short of their required reserves to borrow reserves from banks that have excess reserves. Federal open market committee • Abbreviated FOMC. A committee that makes decisions concerning the Fed's operations to control the money supply. • Abbreviated FOMC. Consists of seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of Government Securities in the open market as a means of influencing the volume of bank credit and money. The FOMC www.ftpall.com 10 | P a g e establishes monetary policy and executes it through temporary and permanent changes to the supply of bank reserves. Financial market • An organized institutional structure or mechanism for creating and exchanging financial assets. • Provide a forum in which suppliers of funds and demanders of loans and investments can transact business directly. Find thousands of financial terms at www.ftpall.com Financial supermarket • An institution at which the customer can obtain a full array of the financial services now allowed under federal bank, trust and insurance company legislation. Fixed income market • The market for trading bonds and preferred stock. Flat market • Is a term structure whereby the various delivery months are basically trading at the same price level or yield. Foreign banking market • That portion of domestic bank loans supplied to foreigners for use abroad. Foreign bond market • That portion of the domestic bond market that represents issues floated by foreign companies to governments. Foreign equity market • That portion of the domestic equity market that represents issues floated by foreign companies. Foreign market www.ftpall.com 11 | P a g e • Part of a nation's internal market, representing the mechanisms for issuing and trading securities of entities domiciled outside that nation. Compare external market and domestic market. Foreign market beta • A measure of foreign market risk that is derived from the capital asset pricing model. Forward market Find thousands of financial terms at www.ftpall.com • A market in which participants agree to trade some commodity, security, or foreign exchange at a fixed price at some future date. • A market in which participants agree to trade some commodity, security, or foreign exchange at a fixed price for future delivery. Fourth market • Direct trading in exchange-listed securities between investors without the use of a broker. Futures market • A continuous auction market in which participants buy and sell commodities contracts for delivery on a specified future date. Trading is traditionally carried on through open outcry and hand signals in a trading pit or ring. • A market in which contracts for future delivery of a commodity or a security are bought and sold on an organized futures exchange such as CBOT, CME. • A market in which contracts for future delivery of a commodity or a security are bought or sold. Gray market • Purchases and sales of eurobonds that occur before the issue price is finally set. Index and option market www.ftpall.com 12 | P a g e • Abbreviated IOM. A division of the CME established in 1982 for trading stock index products and options. Related: Chicago Mercantile Exchange (CME). Inside market • The highest bid and the lowest offer prices among all competing Market Makers in a NASDAQ security, i.e., the best bid and offer prices. Intermarket sector spread • The spread between the interest rate offered in two sectors of the bond market for Find thousands of financial terms at www.ftpall.com issues of the same maturity. Intermarket spread swaps • An exchange of one bond for another based on the manager's projection of a realignment of spreads between sectors of the bond market. Intermarket trading system • Is the network which links the trading floors of several registered exchanges. It encourages competition in issues listed on the American or New York Stock Exchanges with the other participating regional exchanges. The competitive edge occurs if there is a better price out in the network than on a particular exchange. If so, then a broker or market maker can execute at that better price. Internal market • The mechanisms for issuing and trading securities within a nation, including its domestic market and foreign market. Compare: external market. Internally efficient market • Operationally efficient market. International equity market • A vibrant equity market that emerged in the past 20 years to allow corporations to sell large blocks of shares in several different countries simultaneously. www.ftpall.com 13 | P a g e International market • Related: See external market. International monetary market • Abbreviated IMM. A division of the CME established in 1972 for trading financial futures. Related: Chicago Mercantile Exchange (CME). Intramarket sector spread • The spread between two issues of the same maturity within a market sector. For Find thousands of financial terms at www.ftpall.com instance, the difference in interest rates offered for five-year industrial corporate bonds and five-year utility corporate bonds. Inverted market • A futures market in which the nearer months are selling at price premiums to the more distant months. Related: premium. • Is the market condition whereby the deferred or more forward delivery months are at a progressive discount to the spot or nearby month. This condition is marked by premiums for immediate or nearby deliveries. This is also known as a backwardation market. This is opposite to a contango or carrying charge market. Locked market • A market is said to be locked if the bid price equals the asked price. This can occur, for example, if the market is brokered and brokerage is paid by one side only, the initiator of the transaction. • A market is locked if the bid = ask price. This can occur, for example, if the market is brokered and brokerage is paid by one side only, the initiator of the transaction. Make a market • A dealer is said to make a market when he quotes bid and offered prices at which he stands ready to buy and sell. www.ftpall.com 14 | P a g e • A dealer is said LO make a market when he quotes bid and offered prices at which he stands ready to buy and sell. • To stand ready to buy or sell a particular security as a dealer for its own account. A market maker accepts the risk of holding the security. See also: Market Maker. Mark to market • The process whereby the book value or collateral value of a security is adjusted to reflect current market value. Find thousands of financial terms at www.ftpall.com • Is the valuation process which provides an indication of reasonable prices for positions on a daily basis or some other proscribed time frame. Marked to market • An arrangement whereby the profits or losses on a futures contract are settled each day. Market • Is an order to buy or sell an instrument at the prevailing price (bids and offers). In the case of a buy order it means taking the offers whereas for a sell order it means hitting the bids. Market arbitrage • The simultaneous purchase and sale of the same security in different markets to take advantage of a price disparity between the two markets. Market book ratio • Market price of a share divided by book value per share. Market cap or market capitalization • Is a value placed on a company. It is computed by multiplying the number of outstanding shares by the current share price. www.ftpall.com 15 | P a g e Market capitalization • The total dollar value of all outstanding shares. Computed as shares times current market price. It is a measure of corporate size. • The dollar valuation of the total number of shares times the current price. This value is sometimes used by investors to classify stocks by size. It is not as reliable as classifying by sales dollar value because the price of a stock can be inflated by the market and not accurately representative of its size. Market capitalization rate Find thousands of financial terms at www.ftpall.com • Expected return on a security. The market-consensus estimate of the appropriate discount rate for a firm's cash flows. Market clearing • Total demand for loans by borrowers equals total supply of loans from lenders. The market, any market, clears at the equilibrium rate of interest or price. Market conversion price • Also called conversion parity price, the price that an investor effectively pays for common stock by purchasing a convertible security and then exercising the conversion option. This price is equal to the market price of the convertible security divided by the conversion ratio. Market cycle • The period between the 2 latest highs or lows of the S&P 500, showing net performance of a fund through both an up and a down market. A market cycle is complete when the S&P is 15% below the highest point or 15% above the lowest point (ending a down market). The dates of the last market cycle are: 12/04/87 to 10/11/90 (low to low). Market efficiency hypotheses www.ftpall.com 16 | P a g e • Refer to theories which try to explain financial market behavior. Some hypotheses state that the markets are rigorously efficient and operate by an immediate discounting of perfect information. Other theories state that the markets are relatively inefficient, particularly when socially-oriented goals are also to be considered. Other hypotheses state that information is good or even very good but not perfect. Also, not all market participants believe or simultaneously act on new data or information. The latter theorists believe that the markets try to attain pure efficiency. However, they also recognize that competition breeds asymmetrical change and this Find thousands of financial terms at www.ftpall.com influences the discounting and adaption processes. A simple example will highlight this view. While improvements in technology are reducing costs and communication times, not everyone updates their systems given each and every change in chip speeds and processing power. To do so would be too expensive and this creates one of example of a marketplace paradox. Market if touched • Abbreviated MIT. A price order, below market if a buy or above market if a sell, that automatically becomes a market order if the specified price is reached. • Is an order that becomes market action when a price is hit. Buy Market if Touched orders are activated when the market price declines to the stated level. Then the broker is authorized to buy to satisfy the quantity. This is different than a limit order where all the quantity must be executed at the stated price or better. Market impact costs • Also called price impact costs, the result of a bid/ask spread and a dealer's price concession. Market maker • On the NASDAQ system, a broker-dealer willing to accept the risk of holding a particular number of shares of a particular security in order to facilitate trading in that security. There are over 500 member firms that act as NASDAQ Market Makers. www.ftpall.com 17 | P a g e One of the major differences between The NASDAQ Stock Market and other major markets in the U.S. is NASDAQ's structure of competing Market Makers. Each Market Maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the Market Maker will immediately purchase for or sell from its own inventory, or seek the other side of the trade until it is executed, often in a matter of seconds. • Is a party who is prepared to buy and sell securities from all parties at the market maker s bid and offer. Find thousands of financial terms at www.ftpall.com Market maker spread • The difference between the price at which a Market Maker is willing to buy a security and the price at which the firm is willing to sell it. Simply put, the Market Maker Spread is the difference between the bid and ask for a given security. Since each Market Maker can either buy or sell a stock at any given time, the spread is representative of the profit Market Maker makes on each trade. Market model • This relationship is sometimes called the single-index model. The market model says that the return on a security depends on the return on the market portfolio and the extent of the security's responsiveness as measured, by beta. In addition, the return will also depend on conditions that are unique to the firm. Graphically, the market model can be depicted as a line fitted to a plot of asset returns against returns on the market portfolio. Market on close • Is an order to buy or sell on the close of a market. Typically, there is a brief period prior to the day's cessation of trading which is defined as the close. This period varies from market-to-market and exchange-to-exchange. Market on opening www.ftpall.com 18 | P a g e • Is an order to buy or sell on the opening of a market. Typically, there is a brief period at the commencement of the day's trading which is defined as the opening. This period varies from market-to-market and exchange-to-exchange. Market order • This is an order to immediately buy or sell a security at the current trading price. • Also known as an Unrestricted Order. An order to buy or sell a stock immediately at the best available current price. A market order is the only order that guarantees execution. Find thousands of financial terms at www.ftpall.com Market overhang • The theory that in certain situations, institutions wish to sell their shares but postpone the share sales because large orders under current market conditions would drive down the share price and that the consequent threat of securities sales will tend to retard the rate of share price appreciation. Support for this theory is largely anecdotal. Market portfolio • A portfolio consisting of all assets available to investors, with each asset held -in proportion to its market value relative to the total market value of all assets. Market premium convertible securities • The amount by which the market value exceeds the straight or conversion value of a convertible security. Market price of risk • A measure of the extra return, or risk premium, that investors demand to bear risk. The reward-to-risk ratio of the market portfolio. Market prices • The amount of money that a willing buyer pays to acquire something from a willing www.ftpall.com 19 | P a g e seller, when a buyer and seller are independent and when such an exchange is motivated by only commercial consideration. Market return • The expected return on the market portfolio of all traded securities. Since it is an expected return, it is always greater than the risk-free rate of return because market participants are assumed to be risk-averse wealth maximizers. • The return on the market portfolio. Find thousands of financial terms at www.ftpall.com Market risk • Market risk is the risk that investments will change in value based on changes in general market prices. • Risk that cannot be diversified away. Related: systematic risk • The potential for an investor to experience losses owing to day-to-day fluctuations in the prices at which securities can be bought or sold. The Market Risk expresses the volatility of a stock price relative to the overall market as indicated by beta. Market risk return function • A graph of the discount rates associated with each level of project risk. Market sectors • The classifications of bonds by issuer characteristics, such as state government, corporate, or utility. Market segmentation theory or preferred habitat theory • Theory suggesting that the market for loans is segmented on the basis of maturity and that the sources of supply and demand for loans within each segment determine its prevailing interest rate; the slope of the yield curve is determined by the general relationship between the prevailing rates in each segment. • A biased expectations theory that asserts that the shape of the yield curve is www.ftpall.com 20 | P a g e determined by the supply of and demand for securities within each maturity sector. Market stabilization • The process in which an underwriting syndicate places orders to buy the security that it is attempting to sell to keep the demand for the issue, and therefore its price, at the desired level. Market surveillance • The department responsible for investigating and preventing abusive, manipulative, Find thousands of financial terms at www.ftpall.com or illegal trading practices on The NASDAQ Stock Market. Considerable resources are devoted to surveilling The NASDAQ Stock Market. A vast array of sophisticated automated systems reviews each trade and price quotation on an on-line, real-time basis. Off-line computer-based analyses are conducted to evaluate trading patterns on a monthly, weekly, and daily basis. Market timer • A money manager who assumes he or she can forecast when the stock market will go up and down. Market timing • Asset allocation in which the investment in the market is increased if one forecasts that the market will outperform T-bills. • An attempt to sell a stock or portfolio when a market is at a high and buying at a low, or an attempt to leave the market entirely during downturns and reinvesting when it heads back up. Requires a crystal ball to be effective, and is generally an exercise in futility. Market timing costs • Costs that arise from price movement of the stock during the time of the transaction which is attributed to other activity in the stock. www.ftpall.com 21 | P a g e Market to book ratio • See Price-to-Book Ratio. Market value • The price at which a security is trading and could presumably be purchased or sold. • (1) The price at which a security is trading and could presumably be purchased or sold. (2) The value investors believe a firm is worth; calculated by multiplying the Find thousands of financial terms at www.ftpall.com number of shares outstanding by the current market price of a firm's shares. • The price at which a security is trading and could presumably be purchased or sold. Market Value accounting reflects the current prices of all assets and liabilities. • The price at which investors buy or sell a share of common stock or a bond at a given time. Market value is determined by the interaction between buyers and sellers. • Is the value of an open position. It is determined by multiplying the known or implied prevailing price by the quantity. Market value ratios • Ratios that relate the market price of the firm's common stock to selected financial statement items. Market value weighted index • An index of a group of securities computed by calculating a weighted average of the returns on each security in the index, with the weights proportional to outstanding market value. Market value weights • Weights that use market values to measure the proportion of each type of capital in the firm's financial structure; used in calculating the weighted average cost of capital. www.ftpall.com 22 | P a g e Marketability • A negotiable security is said to have good marketability if there is an active secondary market in which it can easily be resold. • A negotiable security is said to have good marketability if there is an active secondary market in which it can easily be resold. Marketable securities • Short-term debt instruments, such as Government of Canada treasury bills, Find thousands of financial terms at www.ftpall.com commercial paper, and negotiable certificates of deposit issued by government, business, and financial institutions, respectively. Marketed claims • Claims that can be bought and sold in financial markets, such as those of stockholders and bondholders. Marketplace price efficiency • The degree to which the prices of assets reflect the available marketplace information. Marketplace price efficiency is sometimes estimated as the difficulty faced by active management of earning a greater return than passive management would, after adjusting for the risk associated with a strategy and the transactions costs associated with implementing a strategy. Marking to market • The process of posting current market values for securities in a portfolio. Matador market • The foreign market in Spain. Money market • The market in which short-term debt instruments (bills, commercial paper, bankers' acceptances, etc.) are issued and traded. www.ftpall.com 23 | P a g e • The market where debt securities that will mature within one year are traded. • Money markets are for borrowing and lending money for three years or less. The securities ina money market can be U.S.government bonds, treasury bills and commercial paper from banks and companies. • The securities market that deals in short-term debt. Money-market instruments are forms of debt that Mature in less than one year and are very Liquid. Treasury bills make up the bulk of the money-market instruments. • The market in which short-term debt instruments (bills, commercial paper, bankers' Find thousands of financial terms at www.ftpall.com acceptances, etc.) are issued and traded. Money market center bank • A bank that is one of the nation's largest and consequently plays an active and important role in every sector of the money market. Money market certificates • Abbreviated MMCs. Six-month certificates of deposit with a minimum denomination of $10,000 on which banks and thrifts may pay a maximum rate tied to the rate at which the U.S. Treasury has most recently auctioned 6-month bills. Money market demand account • An account that pays interest based on short-term interest rates. Money market fund • A mutual fund that invests only in short term securities, such as bankers' acceptances, commercial paper, repurchase agreements and government bills. The net asset value per share is maintained at $1. 00. Such funds are not federally insured, although the portfolio may consist of guaranteed securities and/or the fund may have private insurance protection. • Mutual fund that invests solely in money market instruments. www.ftpall.com 24 | P a g e • A Mutual Fund that invests in short-term debt instruments. The fund's objective is to earn interest while maintaining a stable net asset value of $1.00 per share. Generally sold with no load, the fund may also offer draft-writing privileges and low opening investments. • Are mutual funds which invest in short-term instruments such as treasury bills, commercial paper, and asset backed securities (ABS). Broadly defined, these investments have maturities, and for some, durations less than a year. Often, these funds try to keep the average maturity or quantitative duration within 2-3 months. Find thousands of financial terms at www.ftpall.com Also, these funds try to maintain a net asset value (NAV) of $1 per share. However, this price level is not guaranteed and there have been cases where it was broken. In the latter case, it is known as breaking a buck. Money market hedge • The use of borrowing and lending transactions in foreign currencies to lock in the home currency value of a foreign currency transaction. Money market mutual funds • Professionally managed portfolios of various popular marketable securities, having instant liquidity, competitive yields, and low transaction costs. Money market notes • Publicly traded issues that may be collateralized by mortgages and MBSs. National market • Related: internal market Negotiated markets • Markets in which each transaction is separately negotiated between buyer and seller (i.e. an investor and a dealer). New issues market www.ftpall.com 25 | P a g e • The market in which a new issue of securities is first sold to investors. • The market in which a new issue of securities is first sold to investors. Nonmarketed claims • Claims that cannot be easily bought and sold in the financial markets, such as those of the government and litigants in lawsuits. Normal market • Is the typical activity for an instrument or exchange. It is also a pricing term Find thousands of financial terms at www.ftpall.com structure which exhibits appropriate financing and storage costs over time. In its general form it shows prices to be progressively higher as delivery dates are further away from the current or spot market. One sided one way market • A market in which only one side, the bid or the asked, is quoted or firm. One way market • (1) A market in which only one side, the bid or asked, is quoted or firm. (2) A market that is moving strongly in one direction. OPEC (Organization of Petroleum Exporting Countries) A cartel of oil-producing countries. Open market operation • Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank or directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. • Purchase or sale of government securities by the monetary authorities to increase or decrease the domestic money supply. www.ftpall.com 26 | P a g e Open market purchase operation • A systematic program of repurchasing shares of stock in market transactions at current market prices, in competition with other prospective investors. Open market share repurchases • Company purchases of its own shares on a stock exchange at the market price once approval from the stock exchange is received; termed a normal course issuer bid in Canada. Find thousands of financial terms at www.ftpall.com Operationally efficient market • Also called an internally efficient market, one in which investors can obtain transactions services that reflect the true costs associated with furnishing those services. Otc market • See Over The Counter Market. Over the counter market • Abbreviated OTC. A decentralized market (as opposed to an exchange market) where geographically dispersed dealers are linked together by telephones and computer screens. The market is for securities not listed on a stock or bond exchange. The NASDAQ market is an OTC market for U.S. stocks. • Abbreviated OTC. Not an organization but an intangible market consisting of electronic communication links established between securities dealers to permit the purchase and sale of securities not listed on the organized exchanges. For example NASDAQ, • The term used to describe a security that is traded through the telephone- and computer-connected OTC Market rather than through an exchange. • The security exchange system in which broker-dealers negotiate directly with one www.ftpall.com 27 | P a g e another rather than through an auction on an exchange floor. The trading takes place over computer and telephone networks that link brokers and dealers around the world. Both listed and OTC securities, as well as municipal and U.S. government securities, are traded in the OTC market. • Is the marketplace where securities are not listed on an exchange. Many derivatives, fixed income securities, and very small capitalization stocks belong in this group. Another notable difference between Over the Counter instruments and listed securities is that OTC instruments tend to be customized whereas listed Find thousands of financial terms at www.ftpall.com instruments are standardized. Over the counter otc market • Market created by dealer trading as opposed to the auction market prevailing on organized exchanges. Perfect capital market • A market in which there are never any arbitrage opportunities. Perfect market view of capital structure • Analysis of a firm's capital structure decision, which shows the irrelevance of capital structure in a perfect capital market. Perfect market view of dividend policy • Analysis of a decision on dividend policy, in a perfect capital market environment, that shows the irrelevance of dividend policy in a perfect capital market. Perfectly competitive financial markets • Markets in which no trader has the power to change the price of goods or services. Perfect capital markets are characterized by the following conditions: 1) trading is costless, and access to the financial markets is free, 2) information about borrowing and lending opportunities is freely available, 3) there are many traders, and no single www.ftpall.com 28 | P a g e trader can have a significant impact on market prices. Primary market • The first buyer of a newly issued security buys that security in the primary market. All subsequent trading of those securities is done in the secondary market. • Market in which financial securities are initially issued and where the issuer receives the proceeds from the sale of the financial security (ie. capital formation occurs). Find thousands of financial terms at www.ftpall.com • The first opportunity that investors have to buy a newly-issued security occurs in the Primary Market. After the first purchases, subsequent trading is said to occur in the Secondary Market. Range markets • Markets with lots of sidewise motion. Ratio of exchange in market price • The ratio of the market price per share of the acquiring firm paid to each dollar of market price per share of the target firm. Real market • The bid and offer prices at which a dealer could do size. Quotes in the brokers market may reflect not the real market, but pictures painted by dealers playing trading games. • The bid and offer prices at which a dealer could do size. Quotes in the brokers market may reflect not the real market, but pictures painted by dealers playing trading games. Rembrandt market • The foreign market in the Netherlands. Samurai market www.ftpall.com 29 | P a g e • The foreign market in Japan. Secondary market • A market made for the purchase and sale of outstanding issues following the initial distribution. • The market that allows the owner of a previously created financial security to sell this security, to buy more of this or other securities, or for a buyer to express an interest in acquiring a financial security. Find thousands of financial terms at www.ftpall.com • The market in which previously issued securities are traded. • A market in which an investor purchases an asset from another investor rather than the issuing corporation. An example is the New York Stock Exchange. All stock exchanges are part of the Secondary Market, where investors buy securities from other investors (as opposed to an issuing company). See also: Primary Market. • Is the aftermarket or the status for trades after an initial public offering (IPO). See Initial Public Offering. • The market where securities are traded after they are initially offered in the primary market. Most trading is done in the secondary market. The New York stock Exchange, as well as all other stock exchanges, the bond markets, etc., are secondary markets. Seasoned securities are traded in the secondary 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. www.ftpall.com 30 | P a g e Seller's market • Refers to a situation when a holder of assets has greater flexibility and influence in receiving improved bids or proposals. Often the number of potential buyers is greater and the prices higher than those previously transacted. Side of the market • Refers to the underlying market-driven or market directional position. For example, a long stock position is considered as a long side-of-the-market position. Similarly, a purchased call on the same security is viewed as long the same-side-of-the-market. Find thousands of financial terms at www.ftpall.com A sold or short put position in the same security is considered as long the same- side-of-the market. However, a purchased put is viewed as short or short side of the market. This term enables firms, exchanges, and clearinghouses to quantify positions as to market-side or market direction. This is very useful when evaluating complex positions. Specific issues market • The market in which dealers reverse in securities they want to short. • The market in which dealers reverse in securities they wish to short. Spot market • Market for immediate as opposed to future delivery. In the spot market for foreign exchange, settlement is two business days ahead. • Related: cash markets Stock market • Also called the equity market, the market for trading equities. Technical condition of a market • Demand and supply factors affecting price, in particular the net position-long or short-of dealers. www.ftpall.com 31 | P a g e • Demand and supply factors affecting price, in particular the net position, either long or short, of the dealer community. Thin market • A market in which trading volume is low and in which consequently bid and asked quotes are wide and the liquidity of the instrument traded is low. • A market in which trading volume is low and in which consequently bid and asked quotes are wide and the liquidity of the instrument traded is low. Find thousands of financial terms at www.ftpall.com Third market • Exchange-listed securities trading in the OTC market. • Is when a listed security is traded over-thecounter by non-exchange member brokers. Tight market • A tight market, as opposed to a thin market, is one in which volume is large, trading is active and highly competitive, and spreads between bid and ask prices are narrow. • A tight market, as opposed to a thin market, is one in which volume is large, trading is active and highly competitive, and spreads between bid and ask prices are narrow. Two sided market • A market in which both bid and asked prices, good for the standard unit of trading, are quoted. • A market in which both bid and asked prices, good for the standard unit of trading, are quoted. Two way market • Market in which both a bid and an asked price are quoted. www.ftpall.com 32 | P a g e Underlying market price • Is the price of the designated or benchmark security or index. For example, if a security had a call strike price of 110 and was trading at 107, then the underying market price would be 107 and that call would be $3 out-of-the-money. Upstairs market • A network of trading desks for the major brokerage firms and institutional investors that communicates with each other by means of electronic display systems and telephones to facilitate block trades and program trades. Find thousands of financial terms at www.ftpall.com Yankee market • The foreign market in the United States.