Glossary

Back-End Load
See Redemption Fee.

Back Office
See Front Office.

Back Spread
In options trading, a position in which more options are purchased than sold, and where all options have the same underlying security and expire at the same time. Back spreads usually have a neutral delta.

Backwardation
A situation which occasionally occurs in futures or options markets, whereby current commodities or contracts with an earlier maturity date have a higher value than contracts with a later maturity date. (Opposite of Contango).

Badged Product
An investment product that is administered and/or managed by one organisation, but labelled with the name of another organisation which is typically responsible for distribution of the product.

BAD Tax
Aptly named abbreviation for Bank Accounts Debit Tax, a federal government tax on withdrawals from bank accounts by cheque.

Balance Date
The completion of an accounting period typically 30 June for the majority of Australian companies and superannuation funds.

Balanced Fund
An investment portfolio which diversifies its holdings over a range of asset classes which typically include shares, fixed interest, property, overseas securities and cash.

Balanced Manager
An investment manager whose expertise includes asset allocation and the supervision of portfolios containing a variety of classes of investments (as distinct from expertise in managing a particular asset class such as shares). (See also Specialist Manager).

Balance of Payments
A record of a nation's position in relation to financial transactions with all other nations. Balance of Payments figures are made up of both current account items (eg. imports and exports) and capital account items (eg. borrowings and investments). In Australia, Balance of Payments figures are published monthly by the Australian Bureau of Statistics.

Balance Sheet
A key financial statement showing the nature and amount of a company's assets, liabilities and capital on a given date. In one column all the company's assets are listed with their values, and in the other all its liabilities and the equity of the shareholders. (See also Profit and Loss Account).

Balloon Payment
The final payment terminating a debt, in which the amount paid is substantially more than previous instalments.

Bank Bill
A Bill of Exchange of which the acceptor and/or endorser is a bank. If the bank is the acceptor, the bill is known as a bank accepted bill. If the bank is the endorser, the bill is known as a bank endorsed bill.

Banker's Acceptance
An American term for a Bank Accepted Bill. Used in domestic and/or international trade or commerce to finance the shipment and storage of goods or to facilitate currency exchange transactions with foreign banks. A popular money market investment.

Bankers' Blanket Bond Insurance
A form of insurance taken out by a fund manager against losses incurred from the negligence or fraudulent activity of an employee. Also called a Blanket Fidelity Bond.

Bank of England
The central bank of the United Kingdom. The bank was established privately in 1694 and was nationalised by the British Parliament in 1946.

Bankruptcy
A declaration by the Federal Court to place all of an individual's assets and liabilities with an official receiver to liquidate and distribute to creditors, according to prescribed legal guidelines. Bankruptcy can be declared if an individual's liabilities exceed his or her assets and/or accounts can not be paid. It should be noted that bankruptcy applies to an individual; the equivalent status for a corporation is receivership or liquidation.

BARRA
Software programs developed by the international investment consulting firm Barra International used to evaluate risk profiles, chiefly in equity investments.

Barrier Option
A conventional option which cannot be exercised above or below a specified price. If the price of the underlying security moved outside this specified price range during the life of the option, the option cannot be exercised.

Basic Rate
Applied to loans commonly called 'No Frills Loans' which have are generally cheaper than Standard Variable Rate Loans but do not have features such as a redraw facility or mortgage offset.

Basis
The price difference between the actual or spot commodity and derivative market valuations. (See also Basis Risk).

Basis Point
A measurement of fluctuation of an investment, equal to 1/100 of one percent.

Basis Risk
The extent to which valuations for derivative securities do not accurately reflect valuations for the underlying physical securities on which they are based. Basis risk is sometimes exploited by investors engaged in index arbitrage.

Basket Option
An option constructed around a series (or <169>basket<170>) of different commodities, securities or currencies. For example, a currency basket option gives its holder the right to buy (call) or sell (put) a specified basket of foreign currencies in exchange for a fixed price (denominated in the investor's native currency) at a specified future date. Currency basket options have become prominent in modern portfolio management practices, as they allow investors to hedge all or most of their foreign currencies simultaneously, often at lower cost than would be incurred for individual option contracts on each currency.

Bear
Someone who believes the market will decline. (Opposite of Bull).

Bearer Bond
A bond made payable to its holder (bearer).

Bear Market
A market in which prices decline sharply against a background of widespread pessimism. The opposite of Bull Market. Bear markets are generally shorter in duration than bull markets.

Bear Spread
In relation to options markets, any spread in which a decline in the price of the underlying asset will theoretically increase the value of the spread. (Opposite of Bull Spread).

Below Par
A price below the face value (par value) of a security.

Benchmark
An index or other market measurement which is used by a fund manager as a yardstick to assess the risk and performance of a portfolio. For example, the All Ordinaries Accumulation Index is a commonly used benchmark for Australian share portfolios.

Benchmark Portfolio
A model portfolio which is developed to provide a standard for measuring the manager's risk/ return performance, and to reflect the investor's preferred level of risk over a complete market cycle. A benchmark portfolio will typically include individual sector indices as benchmarks for each asset class held within the portfolio.

Beneficial Interest
The entitlement to receive benefits generated by assets held in another party's name, such as a Trustee. (See also Beneficiary).

Beneficiary
The person or organisation which is entitled to receive the benefits generated by an asset, where the asset is legally registered in the name of another party, such as a Trustee.

Benefit
In relation to superannuation, the entitlement (eg. pension, lump sum, annuity) received by the member after his or her employment has ceased.

Beta
A measure of market-sensitivity <196> ie. the extent to which a share or a portfolio fluctuates with the market. Beta is a statistical estimate, based on historical data, of the average percentage change in a fund's or a security's rate of return corresponding to a one percent change in the market. For example, a security (or portfolio) with a beta of 1.2 might be expected to perform some 20% better than the market when it rises, and 20% worse when it falls. Similarly, a beta of 0.5% implies a movement equal to only half the market's rise or fall. (See also Alpha).

Bid
The price offered for a commodity, currency or investment instrument which is desired to be purchased.

Bid-Asked
Often referred to as a quotation or quote. The bid is the highest price anyone has indicated that he or she will pay for a security at a given time, and the asked is the lowest price anyone will accept at the same time. Also known as Bid-Offer.

Bid Price
The highest quoted price that any prospective buyer will pay for a security at a particular point in time. The `bid price' is the actual market price for a share, regardless of the price of the last sale.

Bid Rate
The exchange rate at which bank is willing to buy a currency in exchange for another.

Bill of Exchange
An unconditional order in writing requiring the party to whom it is addressed to pay a certain sum on a fixed date in the future. Bills of exchange are negotiable instruments, usually maturing within six months, and sold at a discount to face value. The party to whom the bill is addressed, and who accepts it, is known as the acceptor and assumes primary liability to pay on maturity the face value of the bill to its holder. The drawer who issues the bill is liable should the acceptor fail to pay. If the bill has been endorsed by a third party, such as a bank, the endorser is liable should both the acceptor and the drawer fail to pay. See also Bank Bill.

Black & Scholes Model
A mathematical model used for valuation of options to determine whether the current trading price is an accurate valuation of the option. The model was developed in the early 1980s by American mathematicians Fischer Black and Myron Scholes.

Block
A large holding or transaction of shares. Also known as a Block Trade.

Blue Chip
Referring to the shares of a leading company which is known for excellent management and a strong financial structure. The term has become a generic one for quality securities.

Bond
A debt security issued by such entities as corporations, governments or their agencies (eg. statutory authorities). A bond holder is a creditor of the issuer and not a shareholder.

Bond Interest Coverage
A measure of bond safety, calculated by dividing total income by the annual interest on bonds.

Bond Ratings
A system for measuring the relative creditworthiness of bond issues using rating symbols, which range from the highest investment quality (least investment risk) to the lowest investment quality (greatest risk). (See also Investment Grade Bonds).

Bond Tender
A procedure for selling bonds through the seeking of written bids from institutions. In Australia, sales of Commonwealth bonds have occurred through a periodic tender system since the early 1980s.

Bonus Shares
Shares issued free by a corporation to its existing shareholders on a pro rata entitlement basis.

Books Closing Date
The date a share registry is closed off after the declaration of a dividend, for the determining of the amount to be paid to each shareholder.

Book Value
The net dollar value at which an asset or security is carried on a balance sheet. In portfolio accounting, book value generally refers to the price paid for the security, as opposed to its current worth or market value.

Bottom
See Trough.

Bottom-up Analysis
A form of security analysis which begins with forecasting returns for individual companies, then moves to industries and finally the economy as a whole. (Opposite of Top-down Forecasting).

Bourse
A vernacular term for a stock exchange, derived from the French word meaning 'purse'.

Box
A package of options comprising a long call and short put at one exercise price, and a short call and long put option at a different exercise price. All four options making up the `box' have the same underlying asset and expire at the same time.

Bracket Creep
The movement of peoples' wages into higher tax brackets as a result of wage increases.

Broad Money
The widest of various measures used to gauge the growth of a nations' money supply. It includes all holdings of notes and coin by the public, as well as borrowings by non-bank financial institutions and all holdings in cash management trusts.

Broker
An agent who handles investors' orders to buy and sell securities, commodities, insurance policies or other property. For this service, a commission is charged which, depending upon the broker and the amount of the transaction, may or may not be negotiated.

Brokerage
A fee charged by a broker for the execution of a transaction; or alternatively an amount per transaction or a percentage of the total value of the transaction. Sometimes also referred to as a commission or fee.

Buffer
The amount by which the LVR can be exceeded after which a margin call is made.

Building Society
A type of non-bank financial institution, established principally for the purposes of providing bank-type savings vehicles and home finance to individual borrowers. Building societies are regulated by the Australian Financial Institutions Commission and individual State-based supervisory bodies.

Bull
One who believes the market will rise. (Opposite of Bear).

Bullion
Gold or silver bars or ingots assaying at least 99.95% purity.

Bull Market
An advancing market. The opposite of Bear Market.

Bull Spread
In relation to options transactions, any spread in which a rise in the price of the underlying asset will theoretically increase the value of the spread. (Opposite of Bear Spread).

Bundesbank
The central bank of Germany. Established in 1957, the Bundesbank was modelled after the US Federal Reserve. It comprises 11 L<132>nder or regional banks, governed by the Bundesbank Central Committee, which meets every two weeks to make decisions on foreign exchange and changes to Lombard and discount rates.

Bundled
Referring to the incorporation of a number of services or features into a single product. For example, a bundled superannuation contract might combine the various activities of investment management, insurance, trusteeship and administration into a single service; whereas an unbundled arrangement would see these activities being conducted by a range of different

Buoyant Market
A market in which prices have a tendency to rise easily with a considerable show of strength.

Business Cycle
An irregular but recurring period of indeterminate scope and origin embracing expansion, prosperity, recession, and recovery. (See also Economic Clock).

Business Rules
Rules governing the procedures, rights and obligations of members of the Australian Stock Exchange in trading and dealing with each other and their clients. The rules are binding on the members and if the members do not obey the rules they can be suspended or expelled.

Butterfly
Referring to the sale (purchase) of two identical options, together with the purchase (sale) of one option with an immediately higher exercise price, and one option with an immediately lower exercise price. All options must be of the same type, have the same underlying asset and expire at the same time. (See also Condor).

Buy a Contract
To enter into a futures or options contract to buy a specified commodity.

Buy-back
a) In relation to managed funds or prescribed interests, a requirement on the investment manager to repurchase units from unitholders seeking to redeem part or all of their investment, even in cases where redemptions cannot be met by liquidating the assets of the fund; b) In relation to derivative markets, an offsetting purchase to 'cover' or liquidate a short sale.

Buyer's Market
A condition of the market in which there is an abundance of goods available and hence buyers can afford to be selective and may be able to buy at a lower price than had previously prevailed. (Opposite of Seller?s Market).

Buying Hedge
The purchase of futures contracts to protect against the possibility that commodities or financial instruments which will be needed in the future will increase in cost.

Buy Order
An order given to a broker or a bank authorising the purchase of a specified quantity of securities or commodities.

Buy/Sell Differential
The difference between the buying and selling price of a security. (See also Spread).

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