A program used to place simultaneous orders for stock index futures and the underlying stocks. |||The ATP attempts to exploit price variations (market arbitrage). The term is better known as program trading.
A situation in which government regulations prevent the free conversion of the home currency into a foreign one. Because the government is only able to regulate currency transactions within its borders, foreigners are still able to trade the currency. only residents are unable to convert a currency with limited convertibility. |||Limited convertibility can have a cooling effect on trade as well as foreign direct investment. However, countries that are in the process of moving to a more open economy may need to open up currency restrictions in steps rather than all at once. This has been the case in the development of countries that once had centrally planned economies, as opening up domestic markets would subject the home market to foreign competition.
A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the investment scope of the funds investment. Comparing a fund's performance to a benchmark index gives investors an idea of how well the fund is doing compared to the market. Also known referred to as "bogy". For example, the performance of a small-cap fund may be compared to the Russell 2000, which is a benchmark for small-cap funds. The Russell 2000 would be referred to as the small-caps bogey, when talking of its over- or underperformance to the fund. One of the most common benchmarks is the S&P 500 index.
1. Borrowed money that is used to purchase securities. This practice is referred to as "buying on margin". 2. The amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account.3. In a general business context, the difference between a product's (or service's) selling price and the cost of production.4. The portion of the interest rate on an adjustable-rate mortgage that is over and above the adjustment-index rate. This portion is retained as profit by the lender. 1. Buying with borrowed money can be extremely risky because both gains and losses are amplified. That is, while the potential for greater profit exists, this comes at a hefty price - the potential for greater losses. Margin also subjects the investor to a number of unique risks such as interest payments for use of the borrowed money.2. For example, if you hold futures contracts in a margin account, you have to maintain a certain amount of margin depending on how the market value of the contracts change.3. Gross profit margin (which is the difference between revenue and expenses) is one measure of a company's performance.4. The formula for calculating the interest rate on an adjustable-rate mortgage is the adjustment-index rate (e.g. Treasury Index) plus the percentage of the margin. For example, if the Treasury Index is 6% and the interest rate on the mortgage is 8%, the margin is 2%.
An asset pricing model based on the idea that an asset's returns can be predicted using the relationship between that same asset and many common risk factors. Created in 1976 by Stephen Ross, this theory predicts a relationship between the returns of a portfolio and the returns of a single asset through a linear combination of many independent macro-economic variables. |||The arbitrage pricing theory (APT) describes the price where a mispriced asset is expected to be. It is often viewed as an alternative to the capital asset pricing model (CAPM), since the APT has more flexible assumption requirements. Whereas the CAPM formula requires the market's expected return, APT uses the risky asset's expected return and the risk premium of a number of macro-economic factors. Arbitrageurs use the APT model to profit by taking advantage of mispriced securities. A mispriced security will have a price that differs from the theoretical price predicted by the model. By going short an over priced security, while concurrently going long the portfolio the APT calculations were based on, the arbitrageur is in a position to make a theoretically risk-free profit.
A situation where inflation pushes income into higher tax brackets. The result is an increase in income taxes but no increase in real purchasing power. This is a problem during periods of high inflation as income tax codes typically take a longer time to change.
The bid side in a two-way price quote. A two-way price quote denotes both the bid price and the ask price of a security. The left-hand side or bid indicates the price at which the dealer or market maker is willing to buy a security or currency, and the right-hand side or ask indicates the price at which the dealer or market maker is willing to sell the security or currency. |||For example, in currency trading, a two-way price quote could be US$1 = 1.0500 / C$1.0510. The left-hand side or bid price of 1.0500 (Canadian dollars) denotes the price that the currency dealer is willing to pay for a U.S. dollar, while the right-hand side or ask price denotes the price at which the dealer will sell a U.S. dollar. The difference between the bid and ask prices is referred to as the spread. A corporate entity that wishes to exchange U.S. dollars for Canadian dollars in the above example would therefore sell the U.S. dollars at the dealer's bid price or the left-hand side price, while one that wishes to exchange Canadian dollars for U.S. dollars would buy the latter at the dealer's ask price or right-hand side price. Retail customers face much larger spreads than those shown in the above example.
A set of procedures, laws or regulations designed to stop the practice of generating income through illegal actions. In most cases money launderers hide their actions through a series of steps that make it look like money coming from illegal or unethical sources was earned legitimately. |||Though anti-money-laundering laws cover only a relatively limited number of transactions and criminal behaviors, their implications are extremely far reaching. An example of AML regulations are those that require institutions issuing credit or allowing customers open accounts to complete a number of due-diligence procedures to ensure that these institutions are not aiding in money-laundering activities. The onus to perform these procedures is on the institutions, not the criminals or the government.
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