About Money 101

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Objective (mutual funds) The fund's investment strategy category as stated in the prospectus. There are more than 20 standardized categories. Odd lot A trading order for less than 100 shares of stock. Compare round lot. Odd lot dealer A broker who combines odd lots of securities from multiple buy or sell orders into round lots and executes transactions in those round lots. Off-balance-sheet financing Financing that is not shown as a liability in a company's balance sheet. Offer Indicates a willingness to sell at a given price. Related: bid Offer price See: offer. Offerings Often refers to initial public offerings. When a firm goes public and makes an offering of stock to the market. Offering memorandum A document that outlines the terms of securities to be offered in a private placement. Official reserves Holdings of gold and foreign currencies by official monetary institutions. Official statement A statement published by an issuer of a new municipal security describing itself and the issue Official unrequited transfers Include a variety of subsidies, military aid, voluntary cancellation of debt, contributions to international organizations, indemnities imposed under peace treaties, technical assistance, taxes, fines, etc. Offset Elimination of a long or short position by making an opposite transaction. Related: liquidation. Offshore finance subsidiary A wholly owned affiliate incorporated overseas, usually in a tax haven country, whose function is to issue securities abroad for use in either the parent's domestic or its foreign business. Old-line factoring Factoring arrangement that provides collection, insurance, and finance for accounts receivable. Omnibus account An account carried by one futures commission merchant with another futures commission merchant in which the transactions of two or more persons are combined and carried in the name of the originating broker, rather than designated separately. Related: commission house. On the run The most recently issued (and, therefore, typically the most liquid) government bond in a particular maturity range. One man picture The picture quoted by a broker is said to be a one-man picture if both the bid and offered prices come from the same source. One-factor APT A special case of the arbitrage pricing theory that is derived from the one-factor model by using diversification and arbitrage. It shows the expected return on any risky asset is a linear function of a single factor. One-way market (1) A market in which only one side, the bid or asked, is quoted or firm. (2) A market that is moving strongly in one direction. OPEC (Organization of Petroleum Exporting Countries) A cartel of oil-producing countries. Open account Arrangement whereby sales are made with no formal debt contract. The buyer signs a receipt, and the seller records the sale in the sales ledger. Open book See: unmatched book. Open contracts Contracts which have been bought or sold without the transaction having been completed by subsequent sale or purchase, or by making or taking actual delivery of the financial instrument or physical commodity. Open interest The total number of derivative contracts traded that not yet been liquidated either by an offsetting derivative transaction or by delivery. Related: liquidation Open (good-til-cancelled) order An individual investor can place an order to buy or sell a security. That open order stays active until it is completed or the investor cancels it. Open position A net long or short position whose value will change with a change in prices. Open repo A repo with no definite term. The agreement is made on a day-to-day basis and either the borrower or the lender may choose to terminate. The rate paid is higher than on overnight repo and is subject to adjustment if rates move. Open-end fund Also called a mutual fund, an investment company that stands ready to sell new shares to the public and to redeem its outstanding shares on demand at a price equal to an appropriate share of the value of its portfolio, which is computed daily at the close of the market. Open-end mortgage Mortgage against which additional debts may be issued. Related: closed-end mortgage. Open-market operation Purchase or sale of government securities by the monetary authorities to increase or decrease the domestic money supply. Open-market purchase operation A systematic program of repurchasing shares of stock in market transactions at current market prices, in competition with other prospective investors. Open-outcry The method of trading used at futures exchanges, typically involving calling out the specific details of a buy or sell order, so that the information is available to all traders. Opening, the The period at the beginning of the trading session officially designated by the exchange during which all transactions are considered made "at the opening". Related: Close, the Opening price The range of prices at which the first bids and offers were made or first transactions were completed. Opening purchase A transaction in which the purchaser's intention is to create or increase a long position in a given series of options. Opening sale A transaction in which the seller's intention is to create or increase a short position in a given series of options. Operating cash flow Earnings before depreciation minus taxes. It measures the cash generated from operations, not counting capital spending or working capital requirements. Operating cycle The average time intervening between the acquisition of materials or services and the final cash realization from those acquisitions. Operating exposure Degree to which exchange rate changes, in combination with price changes, will alter a company's future operating cash flows. Operating profit margin The ratio of operating margin to net sales. Operating lease Short-term, cancelable lease. A type of lease in which the period of contract is less than the life of the equipment and the lessor pays all maintenance and servicing costs. Operating leverage Fixed operating costs, so-called because they accentuate variations in profits. Operating risk The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is created by operating leverage. Also called business risk. Operationally efficient market Also called an internally efficient market, one in which investors can obtain transactions services that reflect the true costs associated with furnishing those services. Opinion shopping A practice prohibited by the SEC which involves attempts by a corporation to obtain reporting objectives by following questionable accounting principles with the help of a pliable auditor willing to go along with the desired treatment. Opportunity cost of capital Expected return that is foregone by investing in a project rather than in comparable financial securities. Opportunity costs The difference in the performance of an actual investment and a desired investment adjusted for fixed costs and execution costs. The performance differential is a consequence of not being able to implement all desired trades. Most valuable alternative that is given up. Opportunity set The possible expected return and standard deviation pairs of all portfolios that can be constructed from a given set of assets. Optimal contract The contract that balances the three types of agency costs (contracting, monitoring, and misbehavior) against one another to minimize the total cost. Optimal portfolio An efficient portfolio most preferred by an investor because its risk/reward characteristics approximate the investor's utility function. A portfolio that maximizes an investor's preferences with respect to return and risk. Optimal redemption provision Provision of a bond indenture that governs the issuer's ability to call the bonds for redemption prior to their scheduled maturity date. Optimization approach to indexing An approach to indexing which seeks to Optimize some objective, such as to maximize the portfolio yield, to maximize convexity, or to maximize expected total returns. Option Gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a given date. Investors, not companies, issue options. Investors who purchase call options bet the stock will be worth more than the price set by the option (the strike price), plus the price they paid for the option itself. Buyers of put options bet the stock's price will go down below the price set by the option. An option is part of a class of securities called derivatives, so named because these securities derive their value from the worth of an underlying investment. Option elasticity The percentage increase in an option's value given a 1% change in the value of the underlying security. Option not to deliver In the mortgage pipeline, an additional hedge placed in tandem with the forward or substitute sale. Option premium The option price. Option price Also called the option premium, the price paid by the buyer of the options contract for the right to buy or sell a security at a specified price in the future. Option seller Also called the option writer , the party who grants a right to trade a security at a given price in the future. Option writer Option seller. Option-adjusted spread (OAS) (1) The spread over an issuer's spot rate curve, developed as a measure of the yield spread that can be used to convert dollar differences between theoretical value and market price. (2) The cost of the implied call embedded in a MBS, defined as additional basis-yield spread. When added to the base yield spread of an MBS without an operative call produces the option-adjusted spread. Options contract A contract that, in exchange for the option price, gives the option buyer the right, but not the obligation, to buy (or sell) a financial asset at the exercise price from (or to) the option seller within a specified time period, or on a specified date (expiration date). Options contract multiple A constant, set at $100, which when multiplied by the cash index value gives the dollar value of the stock index underlying an option. That is, dollar value of the underlying stock index = cash index value x $100 (the options contract multiple). Options on physicals Interest rate options written on fixed-income securities, as opposed to those written on interest rate futures contracts. Order We plane an order when we buy or sell financial instruments. Organized exchange A securities marketplace wherein purchasers and sellers regularly gather to trade securities according to the formal rules adopted by the exchange. Original face value The principal amount of the mortgage as of its issue date. Original issue discount debt (OID debt) Debt that is initially offered at a price below par. Original margin The margin needed to cover a specific new position. Related: Margin, security deposit (initial) Original maturity Maturity at issue. For example, a five year note has an original maturity of 5 years; one year later it has a maturity of 4 years. Origination The making of mortgage loans. OTC See: over-the-counter. Other capital In the balance of payments, other capital is a residual category that groups all the capital transactions that have not been included in direct investment, portfolio investment, and reserves categories. It is divided into long-term capital and short-term capital and, because of its residual status, can differ from country to country. Generally speaking, other long-term capital includes most non-negotiable instruments of a year or more like bank loans and mortgages. Other short-term capital includes financial assets of less than a year such as currency, deposits, and bills. Other current assets Value of non-cash assets, including prepaid expenses and accounts receivable, due within 1 year. Other long term liabilities Value of leases, future employee benefits, deferred taxes and other obligations not requiring interest payments that must be paid over a period of more than 1 year. Other sources Amount of funds generated during the period from operations by sources other than depreciation or deferred taxes. Part of Free cash flow calculation. Out-of-the-money option A call option is out-of-the-money if the strike price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security. Outright rate Actual forward rate expressed in dollars per currency unit, or vice versa. Outsourcing The practice of purchasing a significant percentage of intermediate components from outside suppliers. Outstanding share capital Issued share capital less the par value of shares that are held in the company's treasury. Outstanding shares Shares that are currently owned by investors. Overbought\oversold indicator An indicator that attempts to define when prices have moved too far and too fast in either direction and thus are vulnerable to reaction. Overfunded pension plan A pension plan that has a positive surplus (i.e., assets exceed liabilities). Overlay strategy A strategy of using futures for asset allocation by pension sponsors to avoid disrupting the activities of money managers. Overnight delivery risk A risk brought about because differences in time zones between settlement centers require that payment or delivery on one side of a transaction be made without knowing until the next day whether the funds have been received in an account on the other side. Particularly apparent where delivery takes place in Europe for payment in dollars in New York. Overnight repo A repurchase agreement with a term of one day. Overperform When a security is expected to appreciate at a rate faster than the overall market. Overreaction hypothesis The supposition that investors overreact to unanticipated news, resulting in exaggerated movement in stock prices followed by corrections. Overshooting The tendency of a pool of MBSs to reflect an especially high rate or prepayments the first time it crosses the threshold for refinancing, especially if two or more years have passed since the date of issue without the WAC of the pool having crossed the refinancing threshold. Oversubscribed issue Investors are not able to buy all of the shares or bonds they want, so underwriters must allocate the shares or bonds among investors. This occurs when a new issue is underpriced or in great demand because of growth prospects. Oversubscription privilege In a rights issue, arrangement by which shareholders are given the right to apply for any shares that are not taken up. Over-the-counter market (OTC) A decentralized market (as opposed to an exchange market) where geographically dispersed dealers are linked together by telephones and computer screens. The market is for securities not listed on a stock or bond exchange. The NASDAQ market is an OTC market for U.S. stocks.

Glossary created by Campbell R. Harvey, Professor of Finance,
Fuqua School of Business at Duke University