Credit given, evidenced by a written obligation that is backed by property; slang for debt, often used in contexts such as seller financing.
Paper gold refers to certificates that can be converted into gold at the offices of the issuer, whether private or government. It is often used in exchange due to its convenience over the physical metal.
Certificates issued by government (and, at times, private entities) that are generally accepted within the economy as reliable media of exchange.
Participating preferred stock is a type of preferred stock that not only pays a specified dividend but also entitles the holder to participate with common shareholders in additional earnings distributions under certain conditions.
A Pass-Through Certificate is an investment instrument that allows investors to receive income that is derived from another entity, often a group of pooled assets such as mortgages. These pooled assets generate receipts or payments that are subsequently passed through to the certificate holders.
A term describing a bill of exchange in which the payee is named and on which there are no restrictions or endorsements, thus allowing it to be paid to the endorsee.
Payment in due course refers to the payment of a negotiable instrument, such as a check or promissory note, made when it is due or later, to its rightful holder, conducted in good faith and without notice of any defects in the holder's title.
Permanent Interest Bearing Shares (PIBS) are a type of high-yield investment traditionally offered by UK building societies, providing fixed interest payments to investors.
A perpetual annuity, also known as perpetuity, is a financial instrument involving the receipt or payment of a constant amount annually for an indefinite period. The present value of such an annuity can be calculated using a specific formula.
A type of debt instrument for which the issuer typically has neither the right nor the obligation to repay the principal amount of the debt. Interest is usually paid at a constant rate or at a fixed margin over a benchmark, such as the London Inter Bank Offered Rate (LIBOR).
Plain vanilla refers to financial instruments in their simplest, most straightforward form without any exotic features or complexities.
Preference share capital refers to the portion of a company's capital that comes from issuing preference shares, which give holders preferential dividends but typically lack voting rights.
Presentment refers to the process of presenting a financial instrument for payment. It's commonly used in online billing where invoices are sent to customers digitally after their orders have been fulfilled.
Qualified acceptance refers to an acceptance of a bill of exchange that modifies the original terms of the bill. It provides protections for the holder, drawer, and endorsers of the bill.
A raised check is a type of check on which the amount and possibly other information are raised above the smooth surface of the paper to prevent alteration and ensure security.
Rediscounting refers to the process where a bank or financial institution sells short-term negotiable debt instruments, such as bankers' acceptances and commercial paper, which have already been discounted. This service involves the exchange of these instruments for a cash amount that has been adjusted to reflect the prevailing interest rate.
Repackaged perpetual debt is a financial instrument originally issued as perpetual debt, which carries a high-interest rate for a set number of years before interest payments cease or diminish significantly. The residual value is negligible, and the issuer often transfers the debt to a friendly third party for redemption at a nominal amount.
A repurchase agreement (repo) is a form of short-term borrowing for dealers in government securities, involving the sale of securities with an agreement to repurchase them at a higher price.
Reset bonds are bonds issued with a provision that on specified dates, the initial interest rate must be adjusted so that the bonds trade at their original value.
A Reverse Annuity Mortgage (RAM) is a financial instrument that allows elderly homeowners to convert home equity into a steady stream of income or a lump sum, while continuing to live in their home. This facility is especially useful for retirees needing to access additional funds without selling their property.
An in-depth overview of Sale and Repurchase Agreement (often referred to as repurchase agreement or repo) including definition, examples, FAQs, related terms, resources, and suggested readings.
Financial instruments that represent ownership or debt and provide the holder with a right to receive financial returns or an interest in the profits or assets of an enterprise.
A securities loan involves the loaning of securities by one broker to another, typically to facilitate a short sale or, in a broader context, can refer to a loan collateralized by marketable securities.
A short-term note issuance facility (SNIF) is a financing arrangement through which an institution can issue short-term notes to investors. This facility provides liquidity and flexibility for the issuing entity to meet its short-term funding needs.
A cheque that has not been presented for payment within a specific period, typically six months, rendering it invalid as the issuing bank will not honour it.
Stock rights, also known as subscription rights or warrants, are financial instruments that give existing shareholders the right, but not the obligation, to purchase additional shares of a company at a predetermined price before a specified expiration date.
Annual publication by Ibbotson & Associates that provides long-term historical data on various financial instruments including stocks, bonds, treasury bills, and inflation.
Straight debt is a type of debt instrument that has specific characteristics including fixed repayment terms and interest rates, with no contingencies based on the borrower's profits or convertibility into equity.
A contractual right allowing existing shareholders to purchase additional shares of a new issue of common stock before it is offered to the public, aiding in preemptive protection against dilution of ownership.
A substitute cheque, also known as an image replacement document (IRD), is a negotiable instrument used in electronic clearing mechanisms to improve the efficiency and speed of check processing.
A surety bond is a legally binding contract involving three parties: the principal, the surety, and the obligee, where the surety agrees to fulfill the obligation if the principal defaults.
A sweetener is a feature added to a securities offering to make it more attractive to purchasers, often enhancing its appeal and increasing the likelihood of the security being successfully issued.
Tenor refers to the duration of time that must elapse before a financial instrument such as a bill of exchange or promissory note becomes due for payment.
A third-party check is a negotiable instrument involving three parties: the bank (primary party), the drawer (secondary party), and the payee (third party), who often endorses the check to another recipient.
A Transferable Loan Facility (TLF) allows a lender to transfer the rights of the loan to a third party without the need to inform the borrower, making it a flexible financial instrument.
A trust certificate is a financial instrument issued to finance the purchase of railroad equipment. Under this arrangement, trustees hold the title to the equipment as security for the loan until the debt is fully repaid.
In finance, an underlying asset is the security, index, or other financial instrument that the value of a derivative is based on. Understanding the nature of the underlying asset is crucial for evaluating and managing the risk associated with derivatives.
An underlying security refers to the financial instrument (like stocks, bonds, commodities, or indexes) on which derivatives such as options, futures, or other securities are based. It is the asset that must be delivered when specific financial contracts, like put options or call options, are exercised.
An unlisted security is a financial instrument such as a stock or bond that is not listed on any major stock exchange and is typically traded over-the-counter (OTC).
Unsecured Loan Stock (ULS) refers to a type of loan stock or debenture that is not backed by specific assets, making it a type of unsecured debt.
Vanilla finance, also known as plain vanilla finance, refers to basic, standard financial instruments or products that lack any complex features or special conditions. These products are straightforward and easy to understand.
A variable interest rate is the amount of compensation to a lender that is allowed to vary over the maturity of a loan. It is generally governed by an appropriate index.
Variable Life Insurance is a type of life insurance policy where the face value and death benefit can fluctuate based on the performance of investments chosen by the policyholder. The value can increase or decrease but never falls below a guaranteed minimum.
A Venture Capital Trust (VCT) is an investment vehicle in the United Kingdom designed to provide capital to small, expanding companies and give investors tax benefits.
Warrants are securities offering the owner the right to subscribe for the ordinary shares of a company at a fixed date and price, and are also used in warehousing as proof for deposited goods.
Worthless securities are financial instruments that have no value. Ownership of worthless securities typically results in a capital loss for the investor.
Yield to Average Life (YAL) is a calculation used to estimate the expected return of a bond, assuming that parts of the bond issue are retired systematically prior to its final maturity date. This is common in cases where a sinking fund is involved.
