T - Page 21

T-Bill: Common term for a government treasury bill, which is a short-term government debt issue.

T-period holding-period return:
The percentage return over the T-year period an investment lasts.

Tactical Asset Allocation (TAA):
An asset allocation strategy that allows active departures from the normal asset mix based upon rigorous objective measures of value. Often called active management. It involves forecasting asset returns, volatilities and correlations. The forecasted variables may be functions of fundamental variables, economic variables or even technical variables.

Tail: (1) The difference between the average price in Treasury auctions and the stop out price. (2) A future money market instrument (one available some period hence) created by buying an existing instrument and financing the initial portion of its life with a term repo. (3) The extreme end of a probability curve. (4) The odd amount in an MBS pool.

Take: (1) A dealer or customer who agrees to buy at another dealer's offered price is said to take that offer. (2) Also, Euro bankers speak of taking deposits rather than buying money.

Take a position:
To buy or sell short; that is, to have some amount that is owned or owed on an asset or derivative security.

Take-or-pay contract: A contract that obligates the purchaser to take any product that is offered to it (and pay the cash purchase price) or pay a specified amount if it refuses to take the product.

Take-out: A cash surplus generated by the sale of one block of securities and the purchase of another, e.g. selling a block of bonds at 99 and buying another block at 95. Also, a bid made to a seller of a security that is designed (and generally agreed) to take him out of the market.

Take-up fee: A fee paid to an underwriter in connection with an underwritten rights offering or an underwritten forced conversion as compensation for each share of common stock he underwriter obtains and must resell upon the exercise of rights or conversion of bonds.

Takeover:
General term referring to transfer of control of a firm from one group of shareholder's to another group of shareholders.

Takeover Bid: An offer made to security holders of a company to purchase their voting securities which, together with the offering individual's already owned securities, will total over 20% of the outstanding voting securities of the company. For federally incorporated companies, the equivalent requirement is more than 10% of the outstanding voting shares of the target company.

Taking a view: A London expression for forming an opinion as to where market prices are headed and acting on it.

Taking delivery:
Refers to the buyer's actually assuming possession from the seller of the asset agreed upon in a forward contract or a futures contract.

Tandem programs:
Under Ginnie Mae, mortgage funds provided at below-market rates to residential mortgage buyers with FHA Section 203 and 235 loans and to developers of multifamily projects with Section 236 loans initially and later with Section 221(d)(4) loans.

TANs (tax anticipation notes): Tax anticipation notes issued by states or municipalities to finance current operations in anticipation of future tax receipts.

Tangible asset: An asset whose value depends on particular physical properties. These include reproducible assets such as buildings or machinery and non-reproducible assets such as land, a mine, or a work of art. Also called real assets.

Target cash balance: Optimal amount of cash for a firm to hold, considering the trade-off between the opportunity costs of holding too much cash and the trading costs of holding too little cash.

Target firm: A firm that is the object of a takeover by another firm.

Target payout ratio:
A firm's long-run dividend-to-earnings ratio. The firm's policy is to attempt to pay out a certain percentage of earnings, but it pays a stated dollar dividend and adjusts it to the target as base-line increases in earnings occur.

Target zone arrangement:
A monetary system under which countries pledge to maintain their exchange rates within a specific margin around agreed-upon, fixed central exchange rates.

Targeted repurchase:
The firm buys back its own stock from a potential bidder, usually at a substantial premium, to forestall a takeover attempt.

Tax anticipation bills (TABs): Special bills that the Treasury occasionally issues that mature on corporate quarterly income tax dates and can be used at face value by corporations to pay their tax liabilities.

Tax books: Set of books kept by a firm's management for the IRS that follows IRS rules. The stockholder's books follow Financial Accounting Standards Board rules.

Tax bracket: Although income tax is paid by most wage or income earners, the rate of income tax paid increases as income exceeds certain amounts, called brackets.

Tax clawback agreement: An agreement to contribute as equity to a project the value of all previously realized project-related tax benefits not already clawed back to the extent required to cover any cash deficiency of the project.

Tax credit: Tax credits reduce taxes payable to the same extent for all taxpayers, regardless of their income level and marginal tax rate. Deductions from taxable income, however, are more valuable as your income and tax rate increases.

Tax deferral option: The feature of the U.S. Internal Revenue Code that the capital gains tax on an asset are payable only when the gain is realized by selling the asset.

Tax deferred retirement plans: Employer-sponsored and other plans that allow contributions and earnings to be made and accumulate tax-free until they are paid out as benefits.

Tax differential view ( of dividend policy): The view that shareholders prefer capital gains over dividends, and hence low payout ratios, because capital gains are effectively taxed at lower rates than dividends.

Tax-exempt sector:
The municipal bond market where state and local governments raise funds. Bonds issued in this sector are exempt from federal income taxes.

Tax free acquisition:
A merger or consolidation in which 1) the acquirer's tax basis in each asset whose ownership is transferred in the transaction is generally the same as the acquiree's, and 2) each seller who receives only stock does not have to pay any tax on the gain he realizes until the shares are sold.

Tax haven:
A nation with a moderate level of taxation and/or liberal tax incentives for undertaking specific activities such as exporting or investing.

Tax Reform Act of 1986:
A 1986 law involving a major overhaul of the U.S. tax code.

Tax Shelter:
This is an investment that offers tax savings in some form, such as immediate deductions, credits or income deferral.

Tax shield: The reduction in income taxes that result from taking an allowable deduction from taxable income.

Tax swap: Swapping two similar bonds to receive a tax benefit.

Tax-timing option:
The option to sell an asset and claim a loss for tax purposes or not to sell the asset and defer the capital gains tax.

Taxable acquisition:
A merger or consolidation that is not a tax-fee acquisition. The selling shareholders are treated as having sold their shares.

Taxable income: Gross income less a set of deductions.

Taxable transaction: Any transaction that is not tax-free to the parties involved, such as a taxable acquisition.

TBA (to be announced):
A contract for the purchase or sale of an MBS to be delivered at an agreed-upon future date but does not include a specified pool number and number of pools or precise amount to be delivered.

Technical analysis: Security analysis that seeks to detect and interpret patterns in past security prices.

Technical analysts:
Also called chartists or technicians, analysts who use mechanical rules to detect changes in the supply of and demand for a stock and capitalize on the expected change.

Technical condition of a market:
Demand and supply factors affecting price, in particular, the net position, either long or short, of the dealer community.

Technical descriptors: Variables that are used to describe the market on a technical basis.

Technical insolvency:
Default on a legal obligation of the firm. For example, technical insolvency occurs when a firm doesn't pay a bill.

TED spread: Difference between U.S. Treasury bill rate and Eurodollar rate; used by some traders as a measure of investor/trader anxiety.

Temporal method: Under this currency translation method, the choice of exchange rate depends on the underlying method of valuation. Assets and liabilities valued at historical cost (market cost) are translated at the historical (current market) rate.

Tender: To offer for delivery against futures.

Tender offer:
General offer made publicly and directly to a firm's shareholders to buy their stock at a price well above the current market price.

Tender offer premium:
The premium offered above the current market price in a tender offer.

Tenor:
Maturity of a loan.

10-K: Annual report required by the SEC each year. Provides a comprehensive overview of a company's state of business. Must be filed within 90 days after fiscal year end. A 10Q report is filed quarterly.

Term bonds: Often referred to as bullet-maturity bonds or simply bullet bonds, bonds whose principal is payable at maturity.

Term Deposit Receipt: A deposit instrument most commonly available from chartered banks requiring a minimum investment at a predetermined rate of interest for a stated term. The interest rate varies according to the amount invested and the term to maturity but is competitive with comparable alternative investments. A reduced interest rate usually applies if funds are withdrawn prior to maturity.

Term Fed Funds: Fed Funds sold for a period of time longer than overnight.

Term life insurance: A contract that provides a death benefit but no cash build-up or investment component. The premium remains constant only for a specified term of years, and the policy is usually renewable at the end of each term.

Term loan:
A bank loan, typically with a floating interest rate, for a specified amount that matures in between one and ten years and requires a specified repayment schedule.

Term insurance: Provides a death benefit only, no build-up of cash value.

Term repo: A repurchase \agreement with a term of more than one day.

Term structure of interest rates: Relationship between interest rates on bonds of different maturities usually depicted in the form of a graph often depicted as a yield curve. Harvey shows that inverted term structures (long rates below short rates) have proceeded every recession over the past 30 years.

Term to maturity: The time remaining in a bond's life, or the date on which the debt will cease to exist and the borrower will have completely paid off the amount borrowed.

Term premiums: Excess of the yields to maturity on long-term bonds over those of short-term bonds.

Term trust: A closed-end fund that has a fixed termination or maturity date.

Terminal value: The value of a bond at maturity, typically its par value, or the value of an asset (or an entire firm) on some specified future valuation date.

Terms of sale:
Conditions on which a firm proposes to sell its goods services for cash or credit.

Terms of trade:
The weighted average of a nation's export prices relative to its import prices.

Theoretical futures price:
Also called the fair price, the equilibrium futures price.

Theoretical spot rate curve: A curve derived from theoretical considerations as applied to the yields of actually traded Treasury debt securities because there are no zero-coupon Treasury debt issues with a maturity greater than one year. Like the yield curve, this is a graphical depiction of the term structure of interest rates.

Theta:
Also called time decay, the ratio of the change in an option price to the decrease in time to expiration.

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.

Thinly traded:
Infrequently traded.

Third market: Exchange-listed securities trading in the OTC market.

Three-phase DDM: A version of the dividend discount model which applies a different expected dividend rate depending on a company's life-cycle phase, growth phase, a transition phase, or maturity phase.

Threshold for refinancing: The point when the WAC of an MBS is at a level to induce homeowners to prepay the mortgage in order to refinance to a lower-rate mortgage, generally reached when the WAC of the MBS is 2% or more above currently available mortgage rates.

Throughput agreement: An agreement to put a specified amount of product per period through a particular facility. For example, an agreement to ship a specified amount of crude oil per period through a particular pipeline.

Tick: Refers to the minimum change in price a security can have, either up or down.

Tick indicator: A market indicator based on the number of stocks whose last trade was an uptick or a downtick. Used as an indicator of market sentiment or psychology to try to predict the market's trend.

Tick-test rules:
SEC-imposed restrictions on when a short sale may be executed, intended to prevent investors from destabilizing the price of a stock when the market price is falling. A short sale can be made only when either (1) the sale price of the particular stock is higher than the last trade price (referred to as an uptick trade) or (2) if there is no change in the last trade price of the particular stock, the previous trade price must be higher than the trade price that preceded it (referred to as a zero uptick).

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.

Tilted portfolio: An indexing strategy that is linked to active management through the emphasis of a particular industry sector, selected performance factors such as earnings momentum, dividend yield, price-earnings ratio, or selected economic factors such as interest rates and inflation.

Time deposit: Interest-bearing deposit at a savings institution that has a specific maturity.

Time draft: Demand for payment at a stated future date.

Time Limit Order: A client order that specifies the time during which it can be executed.

Time premium: Also called time value, the amount by which the option price exceeds its intrinsic value. The value of an option beyond its current exercise value representing the option holder’s control until expiration, the risk of the underlying asset, and the riskless return.

Time to maturity:
The time remaining until a financial contract expires. Also called time until expiration.

Time until expiration:
The time remaining until a financial contract expires. Also called time to maturity.

Time value: The time value is equal to the difference between the premium of an option and its intrinsic value. This portion of the premium is attributable to the amount of time remaining to expiration and the fact that components that determine the value of the contract may change in that time.

Time value of an option:
The portion of an option's premium that is based on the amount of time remaining until the expiration date of the option contract, and that the underlying components that determine the value of the option may change during that time. Time value is generally equal to the difference between the premium and the intrinsic value.

Time value of money:
The idea that a dollar today is worth more than a dollar in the future because the dollar received today can earn interest up until the time the future dollar is received.

Timely disclosure: The obligation for companies to promptly release to the news media any favorable or unfavorable corporate information which is of a material nature. This obligation is imposed by the securities administrators of companies. Broad dissemination of this news allows all investors to trade the company's securities with the same knowledge about the company as insiders.

Times-interest-earned ratio: Earnings before interest and tax, divided by interest payments.

Timing option: For a Treasury Bond or note futures contract, the seller's choice of when in the delivery month to deliver.

Tobin's Q:
Market value of assets divided by replacement value of assets. A Tobin's Q ratio greater than 1 indicates the firm has done well with its investment decisions.

Tolling agreement: An agreement to put a specified amount of raw material per period through a particular processing facility. For example, an agreement to process a specified amount of alumina into aluminum at a particular aluminum plant.

Tom next: In the interbank market in Eurodollar deposits and the foreign exchange market, the value (delivery) a date on a Tom next transaction is the next business day.

Tombstone:
Advertisement listing the underwriters to a security issue.

Top-down equity management style: A management style that begins with an assessment of the overall economic environment and makes a general asset allocation decision regarding various sectors of the financial markets and various industries. The bottom-up manager, in contrast, selects the specific securities within the favored sectors.

Total asset turnover: The ratio of net sales to total assets.

Total debt to equity ratio:
A capitalization ratio comparing current liabilities plus long-term debt to shareholders' equity.

Total dollar return: The dollar return on a non-dollar investment, which includes the sum of any dividend/interest income, capital gains or losses, and currency gains or losses on the investment.

Total return: In performance measurement, the actual rate of return realized over some evaluation period. In fixed income analysis, the potential return that considers all three sources of return (coupon interest, interest on interest, and any capital gain/loss) over some investment horizon.

Total revenue: Total sales and other revenue for the period shown. Known as "turnover" in the UK.

Tracking error: In an indexing strategy, the difference between the performance of the benchmark and the replicating portfolio.

Trade: A verbal (or electronic) transaction involving one party buying a security from another party. Once a trade is consummated, it is considered "done" or final. Settlement occurs 1-5 business days later.

Trade acceptance: Written demand that has been accepted by an industrial company to pay a given sum at a future date.

Trade credit: Credit granted by a firm to another firm for the purchase of goods or services.

Trade date: In an interest rate swap, the date that the counterparties commit to the swap. Also, the date on which a trade occurs. Trades generally settle (are paid for) 1-5 business days after a trade date. With stocks,the settlement is generally 3 business days after the trade.

Trade debt: Accounts payable.

Trade draft: A draft addressed to a commercial enterprise.

Trade on top of:
Trade at a narrow or no spread in basis points relative to some other bond yield, usually Treasury bonds.

Trade house: A firm which deals in actual commodities.

Traders:
Persons who take positions in securities and their derivatives with the objective of making profits. Traders can make markets by trading the flow. When they do that, their objective is to earn the bid/ask spread. Traders can also be of the sorts who take proprietary positions whereby they seek to profit from the directional movement of prices or spread positions.

Trading: Buying and selling securities.

Trading costs: Costs of buying and selling marketable securities and borrowing. Trading costs include commissions, slippage, and the bid/ask spread.

Trading halt: Trading of a stock, bond, option or futures contract can be halted by an exchange while the news is being broadcast about the security.

Trading paper: CDs purchased by accounts that are likely to resell them. The term is commonly used in the Euromarkets.

Trading posts: The posts on the floor of a stock exchange where the specialists stand and securities are traded.

Trading range: The difference between the high and low prices traded during a period of time; with commodities, the high/low price limit established by the exchange for a specific commodity for any one day's trading.

Trading Units: Different par values make up trading units for the over-the-counter market. For example, one trading unit of Government of Canada treasury bills is $250,000 par value, while one trading unit of provincial bonds and guarantees is $25,000 par value.

Traditional view (of dividend policy): An argument that "within reason," investors prefer large dividends to smaller dividends because the dividend is sure but future capital gains are uncertain.

Tranche: One of the several related securities offered at the same time. Tranches from the same offering usually have different risk, reward, and/or maturity characteristics.

Transaction Date:
The date on which the purchase or sale of a security takes place.

Transaction exposure: Risk to a firm with known future cash flows in a foreign currency that arises from possible changes in the exchange rate.

Transactions costs:
The time, effort, and money necessary, including such things as commission fees and the cost of physically moving the asset from seller to buyer.

Transaction loan: A loan extended by a bank for a specific purpose. In contrast, lines of credit and revolving credit agreements involve loans that can be used for various purposes.

Transaction demand (for money): The need to accommodate a firm's expected cash transactions.

Transactions motive: A desire to hold cash for the purpose of conducting cash based transactions.

Transfer agent: Individual or institution appointed by a company to look after the transfer of securities. A trust company appointed by a company to keep a record of the names, addresses and number of shares held by its shareholders. Frequently the transfer agent also distributes dividend cheques.

Transfer price: The price at which one unit of a firm sells goods or services to another unit of the same firm.

Transferable put right: An option issued by the firm to its shareholders to sell the firm one share of its common stock at a fixed price (the strike price) within a stated period (the time to maturity). The put right is "transferable" because it can be traded in the capital markets.

Transition phase: A phase of development in which the company's earnings begin to mature and decelerate to the rate of growth of the economy as a whole.

Translation exposure:
Risk of adverse effects on a firm's financial statements that may arise from changes in exchange rates.

Translation risk: An accounting or financial reporting risk. It is the risk that the consolidated earnings of a company will be negatively impacted due to the method of accounting for foreign operations.

Treasurer: The corporate officer responsible for designing and implementing many of the firm's financing and investing activities.

Treasurer's check:
A check issued by a bank to make a payment. Treasurer's checks outstanding are counted as part of a bank's reservable deposits and as part of the money supply.

Treasury bills:
Debt obligations of the U.S. Treasury that have maturities of one year or less. Maturities for T-bills are usually 91 days, 182 days, or 52 weeks.

Treasury bills or T-bills: Government of Canada T-bills is issued in denominations ranging from $1,000 to $1,000,000. New issues are sold by public tender at a discount. T-bills with terms to maturity of 3, 6 or 12 months are auctioned on a bi-weekly basis, typically on Tuesday for delivery on Thursday. From time to time, shorter-term cash management bills are also auctioned. The difference between the purchase price and the face amount represents the return to the investor.

Treasury bonds: Debt obligations of the U.S. Treasury that have maturities of 10 years or more.

Treasury notes: Debt obligations of the U.S. Treasury that have maturities of more than 2 years but less than 10 years.

Treasury securities:
Securities issued by the U.S. Department of the Treasury.

Treasury stock: A common stock that has been repurchased by the company and held in the company's treasury. Authorized but an unissued stock of a company, or previously issued shares that have been re-acquired by the corporation.

Trend:
The general direction of the market.

Treynor Index: A measure of the excess return per unit of risk, where the excess return is defined as the difference between the portfolio's return and the risk-free rate of return over the same evaluation period and where the unit of risk is the portfolio's beta.

Triangular arbitrage: Striking offsetting deals among three markets simultaneously to obtain an arbitrage profit.

Triple witching hour:
The four times a year that the S&P futures contract expire at the same time as the S&P 100 index options contract and options contracts on individual stocks.

Trough: The transition point between economic recession and recovery.

True interest cost: For a security such as commercial paper that is sold on a discount basis, the coupon rate required to provide an identical return assuming a coupon-bearing instrument of like maturity that pays interest in arrears.

True lease: A contract that qualifies as a valid lease agreement under the Internal Revenue code.

Trust: An arrangement under which money or other property is held by one person or company (often a trust company) for the benefit of another person or persons. These assets are administered according to the terms of the trust agreement. Each province has a trustee act, which regulates the kinds of investments that can be made by the trustees of a trust fund.

Trust and Loan Companies Act: Federal legislation governing the structure and operation of federally incorporated or registered trust and loan companies in Canada.

Trust company: A financial institution that operates under either provincial or federal legislation, and conducts activities similar to those of a bank. However, because of its fiduciary role, a trust company can administer estates, trusts, pension plans and agency contracts, which banks cannot do directly.

Trust deed: Agreement between trustee and borrower setting out terms of the bond.

Trust receipt: Receipt for goods that are to be held in trust for the lender.

Trustee: 1. Usually, a trust company appointed by the company to protect the security behind the company's bonds and to make certain that all covenants of the trust deed relating to the bonds are honored. 2. A person who holds property and securities in trust for another person.

Trustee services: Services associated with administering and managing a trust on behalf of a client. They can include the establishment of a trust, handling tax issues and distributing assets to the client's beneficiaries.

TT&L account:
Treasury tax and loan account at a bank.

Turnaround: Securities bought and sold for settlement on the same day. Also, when a firm that has been performing poorly changes its financial course and improves its performance.

Turnaround time:
Time available or needed to effect a turnaround.

Turnkey construction contract:
A type of construction contract under which the construction firm is obligated to complete a project according to pre-specified criteria for a price that is fixed at the time the contract is signed.

Turnover: Mutual Funds: A measure of trading activity during the previous year, expressed as a percentage of the average total assets of the fund. A turnover ratio of 25% means that the value of trades represented one-fourth of the assets of the fund. Finance: The number of times a given asset, such as inventory, is replaced during the accounting period, usually a year. Corporate: The ratio of annual sales to net worth, representing the extent to which a company can growth without outside capital. Markets: The volume of shares traded as a percent of total shares listed during a specified period, usually a day or a year. Great Britain: total revenue.

12B-1 fees: The percent of a mutual fund's assets used to defray marketing and distribution expenses. The amount of the fee is stated in the fund's prospectus. The SEC has recently proposed that 12B-1 fees in excess of 0.25% be classed as a load. A true "no load" fund has neither a sales charge nor 12b-1 fee.

12b-1 funds:
Mutual funds that do not charge an upfront or back-end commission, but instead take out up to 1.25% of average daily fund assets each year to cover the costs of selling and marketing shares, an arrangement allowed by the SEC's Rule 12b-I (passed in 1980).

Two-factor model: Black's zero-beta version of the capital asset pricing model.

Two-fund separation theorem:
The theoretical result that all investors will hold a combination of the risk-free asset and the market portfolio.

Two-sided market:
A market in which both bid and asked prices, good for the standard unit of trading, are quoted.

Two-state option pricing model: An option pricing model in which the underlying asset can take on only two possible (discrete) values in the next time period for each value it can take on in the preceding time period. Also called the binomial option pricing model.

Two-tier tax system:
A method of taxation in which the income going to shareholders is taxed twice.

Type:
The classification of an option contract as either a put or a call.