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Macaulay duration: The weighted-average term to maturity of the cash flows from the bond, where the weights are the present value of the cash flow divided by the price.

Magic of diversification: The effective reduction of risk (variance) of a portfolio, achieved without reduction to expected returns through the combination of assets with low or negative correlations (covariances).

Mail float: Refers to the part of the collection and disbursement process where checks are trapped in the postal system.

Maintenance margin requirement:
A sum, usually smaller than -but part of the original margin, which must be maintained on deposit at all times. If a customer's equity in any futures position drops to, or under, the maintenance margin level, the broker must issue a margin call for the amount of money required to restore the customer's equity in the account to the original margin level.

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.

Making delivery: Refers to the seller's actually turning over to the buyer the asset agreed upon in a forward contract.

Major Trend:
Underlying price trend prevailing in a market despite temporary declines or rallies.

Majority voting:
A voting system under which each director is voted upon separately.

Managed Account:
This is similar to a discretionary account where a client has given specific written authorization to a partner, director or qualified portfolio manager of an investment dealer to select securities and execute trades, but on a continuing basis and for a fee. Managed accounts can be solicited whereas discretionary accounts are opened as a matter of convenience to clients who are ill or out of the country.

Managed float: Also known as "dirty" float, this is a system of floating exchange rates with central bank intervention to reduce currency fluctuations.

Management/closely held shares:
Percentage of shares held by persons closely related to a company, as defined by the Securities and exchange commission. Part of these percentages often is included in Institutional Holdings -- making the combined total of these percentages over 100. There is overlap as institutions sometimes acquire enough stock to be considered by the SEC to be closely allied to the company.

Management buyout (MBO): Leveraged buyout whereby the acquiring group is led by the firm's management.

Management Expense Ratio (MER):
The percentage of all management fees and expenses to the total assets of a mutual fund. Expense ratios can range from .75% to as high as 5% on occasion.

Management fee: An investment advisory fee charged by the financial advisor to a fund based on the fund's average assets, but sometimes determined on a sliding scale that declines as the dollar amount of the fund increases.

Management fees: The charges paid by a mutual fund portfolio to its manager for the investment advice and portfolio management services provided. Management fees typically range from .75% to 2.5% per year, plus related expenses for legal, accounting, shareholder communications, meetings, etc.

Management’s discussion: A report from management to the shareholders that accompany the firm's financial statements in the annual report. This report explains the period's financial results and enables management to discuss other ideas that may not be apparent in the financial statements in the annual report.

Managerial decisions: Decisions concerning the operation of the firm, such as the choice of firm size, firm growth rates, and employee compensation.

Mandatory redemption schedule:
Schedule according to which sinking fund payments must be made.

Manipulation: The illegal practice of buying or selling a security for the purpose of creating a false or misleading appearance of active trading, or for the purpose of raising or depressing the price to induce purchases or sales by others.

Manufactured housing securities (MHSs):
Loans on manufactured homes - that is, factory-built or prefabricated housing, including mobile homes.

This allows investors to buy securities by borrowing money from a broker. The margin is the difference between the market value of a stock and the loan a broker makes. Related: security deposit (initial).

Margin account (Stocks): A leverageable account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock drops sufficiently, the owner will be asked to either put in more cash or sell a portion of the stock. Margin rules are federally regulated, but margin requirements and interest may vary among broker/dealers.

Margin call: A demand for additional funds because of adverse price movement. Maintenance margin requirement, security deposit maintenance.

Margin of safety:
With respect to working capital management, the difference between 1) the amount of long-term financing, and 2) the sum of fixed assets and the permanent component of current assets.

Margin requirement (Options): The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position valuation and reasonably foreseeable intra-day price changes.


Marginal tax rate (MTR): The tax rate that would have to be paid on any additional dollars of taxable income earned.

Marginal tax rate (MTR): The ratio of the increase in tax to the increase in the tax base (i.e. the tax rate on each additional dollar of income). A single individual earning $40,000 who experiences a $1,000 increase in income and has to pay an additional $452 in income tax has a marginal tax rate of 45.2 per cent ($452 divided by $1,000).

Mark-to-market: The process whereby the book value or collateral value of a security is adjusted to reflect current market value.

Marked-to-market: An arrangement whereby the profits or losses on a futures contract are settled each day.

Market capitalization: The total dollar value of all outstanding shares. Computed as shares times the current market price. It is a measure of corporate size.

Market capitalization rate:
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 the 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 impact costs: Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.

Market liquidity: The ability of market participants to easily enter into or unwind a particular type of transaction.

Market maker: A financial intermediary which will provide both bid and offer prices.

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 order: This is an order to immediately buy or sell a security at the current trading price.

Market out clause: A clause in an underwriting agreement allowing the underwriter to cancel the agreement without penalty for certain specified reasons, such as the issue becoming unsaleable due to an unexpected change in securities markets, or in the affairs of the company whose securities are being underwritten.

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 price of risk:
A measure of the extra return, or risk premium, that investors demand to bear the 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 seller, when a buyer and seller are independent and when such an exchange is motivated by only commercial consideration.

Market return: The return on the market portfolio.

Market risk: Risk that cannot be diversified away.

Market risk: The risk of loss resulting from changes in foreign exchange rates, interest rates, commodity prices, or equity prices or indices.

Market sectors: The classifications of bonds by issuer characteristics, such as state government, corporate, or utility.

Market segmentation theory or preferred habitat theory:
A biased expectations theory that asserts that the shape of the yield curve is determined by the supply of and demand for securities within each maturity sector.

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.

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.

Market value: (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 number of shares outstanding by the current market price of a firm's shares.

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-book ratio:
Market price of a share divided by book value per share.

Market-if-touched (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.

Marketability: A negotiable security is said to have good marketability if there is an active secondary market in which it can easily be resold.

Marketable: Easily bought or sold.

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.

Markowitz diversification:
A strategy that seeks to combine assets a portfolio with returns that are less than perfectly positively correlated, in an effort to lower portfolio risk (variance) without sacrificing return.

Markowitz efficient frontier: The graphical depiction of the Markowitz efficient set of portfolios representing the boundary of the set of feasible portfolios that have the maximum return for a given level of risk. Any portfolios above the frontier cannot be achieved. Any below the frontier are dominated by Markowitz efficient portfolios.

Markowitz efficient portfolio:
Also called a mean-variance efficient portfolio, a portfolio that has the highest expected return at a given level of risk.

Markowitz efficient set of portfolios:
The collection of all efficient portfolios, graphically referred to as the Markowitz efficient frontier.

Master limited partnership (MLP):
A publicly traded limited partnership.

Matador market: The foreign market in Spain.

Match fund: A bank is said to match fund a loan or other asset when it does so by buying (taking) a deposit of the same maturity. The term is commonly used in the Euromarket.

Matched book: A bank runs a matched book when the distribution of maturities of its assets and liabilities are equal.

Matching concept: The accounting principle that requires the recognition of all costs that are associated with the generation of the revenue reported in the income statement.

Material Change: A change in the affairs of a company that is expected to have a significant effect on the market value of its securities - such as a change in the nature of the business, a change in the Board of Directors or the principal officers, a change in the share ownership of the company that could affect control, or the acquisition or disposition of any securities in another company. A material change must be reported to the applicable self-regulatory organization.

Materials requirement planning:
Computer-based systems that plan backward from the production schedule to make purchases in order to manage inventory levels.

Mathematical programming: An operations research technique that solves problems in which an optimal value is sought subject to specified constraints. Mathematical programming models include linear programming, quadratic programming, and dynamic programming.

Mature: To cease to exist; to expire.

Maturity: For a bond, the date on which the principal is required to be repaid. In an interest rate swap, the date that the swap stops accruing interest.

Maturity factoring: Factoring arrangement that provides collection and insurance of accounts receivable.

Maturity phase: A phase of company development in which earnings continue to grow at the rate of the general economy.

Maturity spread: The spread between any two maturity sectors of the bond market.

Maximum price fluctuation: The maximum amount the contract price can change, up or down, during one trading session, as fixed by exchange rules in the contract specification.

MBS Depository: A book-entry depository for GNMA securities. The depository was initially operated by MBSCC and is currently in the process of becoming a separately incorporated, participant-owned, limited-purpose trust company organized under the State of New York Banking Law.

MBS servicing: The requirement that the mortgage servicer maintains payment of the full amount of contractually due principal and interest payments whether or not actually collected.

Mean: The expected value of a random variable.

Mean of the sample:
The arithmetic average; that is, the sum of the observations divided by the number of observations.

Mean-variance analysis:
Evaluation of risky prospects based on the expected value and variance of possible outcomes.

Mean-variance criterion:
The selection of portfolios based on the means and variances of their returns. The choice of the higher expected return portfolio for a given level of variance or the lower variance portfolio for a given expected return.

Measurement error: Errors in measuring an explanatory variable in a regression that leads to biases in estimated parameters.

Medium-Term Bond or Debenture: A bond or debenture which matures in more than three years, but less than 10.

Medium-term note: A corporate debt instrument that is continuously offered to investors over a period of time by an agent of the issuer. Investors can select from the following maturity bands: 9 months to 1 year, more than 1 year to 18 months, more than 18 months to 2 years, etc., up to 30 years.

Member Firm: An investment dealer which owns a seat on a particular stock exchange or is a member of the Investment Dealers Association of Canada.

Membership or a seat on the exchange:
A limited number of exchange positions that enable the holder to trade for the holder's own accounts and charge clients for the execution of trades for their accounts.

All movable goods such as cars, textiles, appliances, etc. and 'f.o.b.' means free on board.

Merchant bank:
A British term for a bank that specializes not in lending out its own funds, but in providing various financial services such as accepting bills arising out of trade, underwriting new issues, and providing advice on acquisitions, mergers, foreign exchange, portfolio management, etc.

Merger: (1) Acquisition in which all assets and liabilities are absorbed by the buyer. (2) More generally, any combination of two companies.

Mimic: An imitation that sends a false signal.

Minimum price fluctuation:
Smallest increment of price movement possible in trading a given contract. Also called point or tick. The zero-beta portfolio with the least risk.

Minimum purchases: For mutual funds, the amount required to open a new account (Minimum Initial Purchase) or to deposit into an existing account (Minimum Additional Purchase). These minimums may be lowered for buyers participating in an automatic purchase plan.

Minimum-variance frontier:
Graph of the lowest possible portfolio variance that is attainable for a given portfolio expected return.

Minimum-variance portfolio:
The portfolio of risky assets with the lowest variance.

Minority interest: An outside ownership interest in a subsidiary that is consolidated with the parent for financial reporting purposes.

Mismatch bond:
Floating rate note whose interest rate is reset at more frequent intervals than the rollover period (e.g. a note whose payments are set quarterly on the basis of the one-year interest rate).

Modeling: The process of creating a depiction of reality, such as a graph, picture, or mathematical representation.

Modern portfolio theory:
Principles underlying the analysis and evaluation of rational portfolio choices based on risk-return trade-offs and efficient diversification.

Modified duration:
The ratio of Macaulay duration to (1 y), where y = the bond yield. Modified duration is inversely related to the approximate percentage change in price for a given change in yield.

Modified pass-throughs:
Agency pass-throughs that guarantee (1) timely interest payments and (2) principal payments as collected, but no later than a specified time after they are due.

Modigliani and Miller Proposition I:
A proposition by Modigliani and Miller which states that a firm cannot change the total value of its outstanding securities by changing its capital structure proportions. Also called the irrelevance proposition.

Modigliani and Miller Proposition II:
A proposition by Modigliani and Miller which states that the cost of equity is a linear function of the firm's debt-equity ratio.

Monetary gold:
Gold held by governmental authorities as a financial asset.

Monetary policy:
Actions taken by the Board of Governors of the Federal Reserve System to influence the money supply or interest rates.

Monetary Policy:
A policy followed by the federal government through the Bank of Canada for controlling credit and the money supply in the economy. The policy will vary according to the anti-inflationary or job-creating results the government primarily desires to achieve.

Monetary policy:
The process of managing the supply of money and credit to contribute to economic performance. The Bank of Canada manages Canadian monetary policy mainly through its influence on short-term interest rates, though it is ultimately answerable to the federal government for its actions. The Bank influences short-term interest rates by adjusting its own bank rate. A rise in the bank rate "tightens" the supply of money and credit, at once restraining elements in the economy that contribute to inflation and elements that contribute to economic performance. A lowering of the bank rate does the reverse. The bank rate and the money supply influence interest rates and the exchange rate of the Canadian dollar and determine the monetary conditions under which the Canadian economy operates.

Monetary / non-monetary method: Under this translation method, monetary items (e.g. cash, accounts payable and receivable, and long-term debt) are translated at the current rate while non-monetary items (e.g. inventory, fixed assets, and long-term investments) are translated at historical rates.

Money base: Composed of currency and coins outside the banking system plus liabilities to the deposit money banks.

Money center banks:
Banks that raise most of their funds from the domestic and international money markets, relying less on depositors for funds.

Money market:
Money markets are for borrowing and lending money for three years or less. The securities in a money market can be U.S. government bonds, treasury bills and commercial paper from banks and companies.

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.

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 notes:
Publicly traded issues that may be collateralized by mortgages and MBSs.

Money purchase plan:
A defined benefit contribution plan in which the participant contributes some part and the firm contributes at the same or a different rate. Also called and individual account plan.

Money rate of return:
Annual money return as a percentage of asset value.

Money supply:

M1-A: Currency plus demand deposits

M1-B: M1-A plus other checkable deposits.

M2: M1-B plus overnight repo, money market funds, savings, and small (less than $100M) time deposits.

M3: M-2 plus large time deposits and term repos.

L: M-3 plus other liquid assets.

Monitor: To seek information about an agent's behavior; a device that provides such information.

Monoline: A financial company that specializes in a single line of products, such as credit cards, mortgages or home equity loans, and that may use direct marketing practices and statistical models to target specific customers. In many cases, monolines have no expensive overheads from large branch networks and have low-cost financing open to them by securitizing their loans on the capital markets. These features make such companies highly competitive.

Monte Carlo simulation: An analytical technique for solving a problem by performing a large number of trail runs, called simulations and inferring a solution from the collective results of the trial runs. A method for calculating the probability distribution of possible outcomes.

Monthly income preferred security (MIP):
Preferred stock issued by a subsidiary located in a tax haven. The subsidiary lends the money to the parent.

Moral hazard: The risk that the existence of a contract will change the behavior of one or both parties to the contract, e.g. an insured firm will take fewer fire precautions.

Moral suasion: A type of approach used by an authority to get members to adhere to a policy, goal or initiative. It involves applying pressure on members, rather than using legislation or force, to achieve the desired result.

Mortality tables:
Tables of probability that individuals of various ages will die within one year.

Mortgage: A loan secured by the collateral of some specified real estate property which obliges the borrower to make a predetermined series of payments.

Mortgage Backed Securities (MBS): Similar to bonds, these securities are backed by a share in a pool of home mortgages insured under the National Housing Act. The securities pay interest and a part of the principal each month and, if home owners prepay their mortgages, may pay out additional amounts of the principal before normal maturity. They trade in the bond market at prices reflecting current interest rates.

Mortgage bond: A bond in which the issuer has granted the bondholders a lien against the pledged assets. Collateral trust bonds.

Mortgage broker: An independent contractor who offers the loan products of different lenders. A mortgage broker is an agent for lenders in much the same way that an insurance broker is an agent for insurance companies. Mortgage brokers act as agents for banks, trust companies, credit unions, mortgage corporations, finance companies and individual private investors. Some mortgage brokers are exclusively lenders of their own money and provide a direct source of mortgage funds.

Mortgage Default Insurance:
Mortgage default insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with little or no down payment. Mortgage default insurance is not to be confused with mortgage life insurance.

Mortgage duration: A modification of standard duration to account for the impact on duration of MBSs of changes in prepayment speed resulting from changes in interest rates. Two factors are employed: one that reflects the impact of changes in prepayment speed or price.

Mortgage Life Insurance: Mortgage Life Insurance guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.

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.

Mortgage pipeline: The period from the taking of applications from prospective mortgage borrowers to the marketing of the loans.

Mortgage-pipeline risk:
The risk associated with taking applications from prospective mortgage borrowers who may opt to decline to accept a quoted mortgage rate within a certain grace period.

Mortgage rate:
The interest rate on a mortgage loan.

Mortgage-Backed Securities Clearing Corporation:
A wholly owned subsidiary of the Midwest Stock Exchange that operates a clearing service for the comparison, netting, and margining of agency-guaranteed MBSs transacted for forwarding delivery.

Mortgage-backed securities:
Securities backed by a pool of mortgage loans.

Mortgage mutual funds:
Investment pools that loan money to homeowners, secured by mortgages. They are a low volatility investment for the investors.

The lender of a loan secured by a property.

Mortgager: The borrower of a loan secured by a property.

Most distant futures contract: When several futures contracts are considered, the contract settling last.

Moving average: Used in charts and technical analysis, the average of security or commodity prices constructed in a period as short as a few days or as Long as several years and showing trends for the latest interval. As each new variable is included in calculating the average, the last variable of the series is deleted.

Multicurrency clause:
Such a clause on a Euro loan permits the borrower to switch from one currency to another currency on a rollover date.

Multicurrency loans:
Give the borrower the possibility of drawing a loan in different currencies.

Multifactor CAPM:
A version of the capital asset pricing model derived by Merton that includes extra-market sources of risk referred to as a factor.

Multinational Corporation:
A firm that operates in more than one country.

Multifamily loans: Loans usually represented by conventional mortgages on multi-family rental apartments.

Multi-period immunization:
A portfolio strategy in which a portfolio is created that will be capable of satisfying more than one predetermined future liability regardless if interest rates change.

Multiple rates of return:
More than one rate of return from the same project that makes the net present value of the project equal to zero. This situation arises when the IRR method is used for a project in which negative cash flows follow positive cash flows. For each sign change in the cash flows, there is a rate of return.

Multiple regression:
The estimated relationship between a dependent variable and more than one explanatory variable.

Multiples: Another name for price/earnings ratios.

Multiple-discriminant analysis (MDA):
The statistical technique for distinguishing between two groups on the basis of their observed characteristics.

Multiple-issuer pools:
Under the GNMA-II program, pools formed through the aggregation of individual issuers' loan packages.

Multi-rule system: A technical trading strategy that combines mechanical rules, such as the CRISMA (cumulative volume, relative strength, moving average) Trading System of Pruitt and White.

Multi-option financing facility:
A syndicated confirmed credit line with attached options.

Municipal bond: State or local governments offer muni bonds or municipals, as they are called, to pay for special projects such as highways or sewers. The interest that investors receive is exempt from some income taxes.

Municipal notes:
Short-term notes issued by municipalities in anticipation of tax receipts, proceeds from a bond issue, or other revenues.

Mutual fund: Mutual funds are pools of money that are managed by an investment company. They offer investors a variety of goals, depending on the fund and its investment charter. Some funds, for example, seek to generate income on a regular basis. Others seek to preserve an investor's money. Still, others seek to invest in companies that are growing at a rapid pace. Funds can impose a sales charge, or load, on investors when they buy or sell shares. Many funds these days are no load and impose no sales charge. Mutual funds are investment companies regulated by the Investment Company Act of 1940.

Mutual fund company:
A company that uses its capital to invest in other companies. Its capital is a pool of funds gathered from a number of investors and placed in securities selected to meet specific criteria and goals. Mutual fund companies fall under the jurisdiction of the provincial securities commissions.

Mutual funds:
A method of investing in various underlying investments such as stocks, bonds, mortgages, treasury bills and real estate. Mutual funds provide the advantages of professional investment management, liquidity, investment record keeping and diversification. Investing through mutual funds is the indirect ownership of the underlying investment vehicles.

Mutual fund theorem: A result associated with the CAPM, asserting that investors will choose to invest their entire risky portfolio in a market-index or mutual fund.

Mutual offset:
A system, such as an arrangement between the CME and SIMEX, which allows trading positions established on one exchange to be offset or transferred on another exchange.

Mutually exclusive investment decisions:
Investment decisions in which the acceptance of a project precludes the acceptance of one or more alternative projects.