Feelings of nervousness created by uncertainty or fear about the current investment environment. Market jitters can be caused by (among other things) poor corporate earnings, high rates of unemployment, or uncertainty with the Federal Reserve interest rate decisions.
Dimensions of risk involved in taking a position in an option (or other derivative). Each risk variable is a result of an imperfect assumption or relationship of the option with another underlying variable. Various sophisticated hedging strategies are used to neutralize or decrease the effects of each variable of risk. Neutralizing the effect of each variable requires substantial buying and selling and, as a result of such high transactions costs, many traders only make periodic attempts to rebalance their options portfolios.With the exception of vega (which is not a Greek letter), each measure of risk is represented by a different letter of the Greek alphabet:Δ(Delta) represents the rate of change between the option's price and the underlying asset's price - in other words, price sensitivity.Θ(Theta) represents the rate of change between an option portfolio and time, or time sensitivity.Γ(Gamma) represents the rate of change between an option portfolio's delta and the underlying asset's price - in other words, second-order time price sensitivity. ϒ(Vega) represents the rate of change between an option portfolio's value and the underlying asset's volatility - in other words, sensitivity to volatility.ρ (Rho) represents the rate of change between an option portfolio's value and the interest rate, or sensitivity to the interest rate.
The negative impact of a company's new product on the sales performance of its existing related products. If a company is practicing market cannibalization, it is eating its own market. For example, say Coca Cola puts out a new product called Coke2, and customers buy Coke2 instead of regular Coke. Although sales may be up for the new product, these sales may be eating into Coke's original market, in which case the overall company sales would not be increasing. Because of the possibility of market cannibalization, investors should always dig deeper, analyzing the source and impact of the success of a company's new but similar product.
An estate planning tool used to freeze certain assets of an individual for estate tax purposes, but not for income tax purposes. The intentionally defective trust is created as a grantor trust with a purposeful flaw that ensures that the individual continues to pay income taxes, as income tax laws will not recognize that assets have been transferred away from the individual. For estate tax purposes, however, the value of the grantor's estate is reduced by the amount of the asset transfer. The individual will "sell" assets to the trust in exchange for a promissory note of some length, such as 10 or 15 years. The note will pay enough interest to classify the trust as above market, but the underlying assets are expected to appreciate at a faster rate. |||The beneficiary of an IGDT is typically children or grandchildren, who will receive assets that have been able to grow without reductions for income taxes (which have been paid by the grantor). The IDT can be a very effective estate planning tool if structured properly, allowing a person to lower his or her taxable estate while gifting assets to beneficiaries at a locked in value. The grantor (creator) of the trust can also lower his or her taxable estate by paying income taxes on the trust assets, essentially gifting extra wealth to beneficiaries. An IDT should be structured with the assistance of a certified financial planner and/or estate planning attorney.
A mutual fund that invests in securities from several different countries, including the United States. World funds typically have a significant portion of their capital invested in U.S.-listed securities, but also spread their investment capital among securities from several other countries. This structure limits exposure to any specific country and limits exchange rate risks. It's important to not confuse "international funds" with "world funds". International funds invest exclusively in securities from countries outside of the United States, while world funds can have up to 75% of their capital invested in U.S. securities.In contrast, "country funds" are mutual funds that limit their investments to securities from one particular country. The common argument for the benefits of world funds is that, while still based on the U.S. market, world funds allow their managers to select the best securities out of the global marketplace, instead of being limited to selecting only from a given country and missing out on potentially better investments.
A currency with value that has depreciated significantly over time against other currencies. The long-term outlook for a weak currency is that it will continue to lose value due to fundamental weaknesses in the nation that issues this currency. |||Weak currency nations generally have poor economic fundamentals, which may include a high rate of inflation, chronic current account and budget deficits and sluggish economic growth. Nations with weak currencies usually have much higher levels of imports, compared with their exports, resulting in more supply than demand for such currencies on international foreign exchange markets if they are freely-traded currencies. While a temporarily weak phase in a major currency provides a pricing advantage to its exporters, such a benefit seldom accrues to exporters in weak currency nations, since other factors such as high input costs and bureaucratic red tape may offset this advantage.
Margin creep refers to the behavior of a company that chooses to focus only on the high-end, high-margin products, even if customers show an inclination towards more value-oriented products and/or services. A product's margin is the difference between the cost of the good or service and the retail price; the greater the difference, the higher the margin. While any products or services that are successfully marketed and sold may result in a solid margin, other potential sales will be lost if value-minded consumers are price-sensitive. The tendency for margin creep within a company can have long-term implications on its sustainability.
Occurs when an account cannot provide adequate funds to satisfy the demand of a payment. Also referred to as "non-sufficient funds", or "NSF". |||Insufficient funds occur when someone tries to purchase an item using a check or debit card without having enough money in his or her bank account. As a result of insufficient funding, the check will bounce or, for debit purchases, the transaction will not be completed and the debit machine will return an error message. Some banks charge penalties for NSF transactions and, in some circumstances, a number of NSFs on one account can lower the account owner's credit rating.
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