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Term Definition
"As Is" (1) A clause that is sometimes used in the transfer of property. It means that the present property is being transferred with no guarantee or warranty provided by the seller. (2) A phrase included in a contract of sale disclaiming any warranty or guarantee on the part of the seller. A person purchasing real estate "as is" takes it in exactly the condition in which it is found and must trust his or her own inspection of the property.
"Chollar" Formerly referred to as New York Stock Exchange Rule 80A, the chollar restricts traders who simultaneously buy stocks and sell stock-index futures, or vice versa, to profit from discrepancies between the two. The chollar serves as a trigger point for stock trading that is activated whenever the Dow Jones Industrial Average has moved 50 points in either direction during a trading day. When activated, the chollar curtails stock-index arbitrage, or back-and-forth trading between stocks and stock-index futures. The chollar was first implemented in 1988 (and modified in 1990) in response to a widespread belief that "program trading" was fueling enormous intraday swings in the stock market. However, due to the rapid rise in the level of the DJ Index, the chollar is now activated almost daily, and sometimes more than once. New trading-halt rules are based on a percentage change in the overall index versus an absolute amount, thereby taking into account the overall level of the index.
"Flight to Quality" A term used to describe an uncertain time in the financial markets during which investors are willing to accept lower returns on investment for a lower risk of default. Such periods normally follow a major corporate failure or unusual bankruptcy or unexpected default by a major borrower, e.g., major corporation or municipality.
"Funds-of-Funds" A term applied to mutual funds that invest in a portfolio of mutual funds. Such funds are particularly attractive for amateur for first-time investors as they allow investment diversity among a dozen or more funds with a single minimum investment. One drawback, however, is that the increased diversity is typically accompanied by lower returns, which holders appear willing to assume given the inherent greater diversification and reduced risk.
"In-the-Money" Option An option having intrinsic value. A call option is in-the-money if its strike price is below the current price of the underlying futures contract. A put option is in-the-money if its strike price is above the current price of the underlying futures contract. See intrinsic value.
"Invisible Hand" The idea from Adam Smith's Wealth of Nations (1776) that as people follow their own self interest, they are automatically directed into those activities which will most benefit the society. The idea is that people get their greatest rewards when they best serve the wants of others.
"Law" of Downward-Sloping Demand The tendency of buyers normally to buy larger quantities of something when its price is lower, all else being equal.
"Law" of Upward-Sloping Supply The tendency of sellers normally to offer for sale larger quantities of an item when its price is higher, all else being equal.
"Soft Landing" A term applied to monetary policy and other Federal Reserve Board actions intended to slow an expanding economy so as to extend the growth phase without being so overly restrictive as to create a recession.
"Subject To" Taking title to property with a lien but not agreeing to be personally responsible for the lien. If the holder who forecloses the lien can take the property but may not collect any money from the owner who took "subject to." Compare to assumption.
"Yield Burning" A term used to describe what occurs when investment banks place excessive price markups on bonds used to complete certain types of municipal bond issues, known as advanced refunding. By marking up the bonds, and thereby "burning" down (i.e., lowering) their yields, underwriters receive money that should have gone to the federal government, or sometimes, to the respective municipality.
(Agricultural) Loan Program A federal program in which the government lends money at pre-announced rates to farmers and allows them to use the crops they plant for the upcoming crop year as collateral. Default on these loans is the primary method by which the government acquires stock of agricultural commodities.
(Bank) Holding Company A company whose sole purpose is to hold stock in other companies or in its own subsidiaries. Also see single bank holding company and multibank holding company.
(Commercial) Bank An entity involved in financial intermediation by receiving funds from depositors and lenders to the bank and lending funds to a variety of borrowers. Unlike other financial intermediaries, banks deal with the broadest spectrum of lending and borrowing units in the economy and provide the most important component in the nation's check processing and clearing system. Banks are required to be chartered and meet certain criteria, to include capital adequacy. Chartering is done by the Comptroller of the Currency for national banks, by the Federal Reserve System for state member banks, by the Federal Deposit Insurance Corporation (FDIC) for insured banks, and by state regulatory agencies. The term bank or commercial bank is synonymous with full-service bank. Also referred to as commercial bank.
(Commodity or Security) Futures A contract to buy a commodity or security at some future date at a price that is fixed today. Unlike forward contracts, futures are typically traded on organized exchanges and are marked-to-market on a daily basis.
(Department of) Housing and Urban Development (HUD (1) The federal government agency that oversees Federal Housing Administration (FHA). (2) A cabinet-level federal agency that promotes the development of housing in the United States through direct loans, mortgage insurance programs and loan guarantees. The FHA, a major insurer of mortgage loans originated by private lenders, and the Government National Mortgage Association (GNMA, or Ginnie Mae), which guarantees mortgages pooled for resale in the secondary market, are both within HUD. HUD is directly involved in programs designed for the construction of subsidized public housing and the rehabilitation of single and multi-family housing units. HUD oversees many federal housing programs, including enforcement of fair housing laws.
(Econometric) Model Building An iterative process for developing an analysis or forecast model beginning with some information about the form and structure of the problem and relevant data. The model building process typically follows a sequence of inter-related steps to include: 1. Problem Identification and Data Selection Data is selected, compiled, screened, and analyzed with respect to the data's behavior, trends, and correlations to other data, and the various series tested based on hypotheses of probable causation; 2. Model Identification (or Specification) Selection of a general model structure is made based on the nature of the data and the types of outputs desired. Some of these models may include, for example, a simple single mathematical equation, or multiple (sequential) equations, statistically- based univariate (deterministic) autoregressive functions, multivariate analysis, simple ordinary least squares (OLS) regression, multiple regression, simultaneous equation, etc.; 3. Estimation (Model Fitting) Based on the selection of a model structure, the data is used to best describe the behavior of the variable under observation, e.g., stream flows, reservoir levels, runoff, economic output, employment, consumer spending, etc.; 4. Model Testing (and Refinement, as Necessary) The model's structure and variables chosen are then validated by applying the data and observing forecast errors with respect to know (sample) values, i.e., in-sample forecasts or ex-post forecasts; 5. Forecasting Based upon the ability of the model to accurately "fit" or predict historical values, the model is used to forecast beyond the last data point as prescribed by scenarios under analysis.
(Financial) Intermediaries Financial companies such as commercial banks, savings and loan associations, and credit unions, that accept deposits and invest those funds in securities, loans, and other forms of assets.
(Financial) Leverage The use of debt to increase the expected return on equity. See leverage.
(Financial) Performance Analysis The examination, either with prior periods of operation, or on a comparative basis against financial institutions of similar size and circumstances (i.e., the peer group), of various performance indicators to include return on assets, return on equity, yield on earning assets, cost of borrowed funds, net interest rate differential, net interest margin, etc.
(Form) 10-K A detailed financial report that must be filed by a firm each year with the Securities and Exchange Commission (SEC). It is much more detailed than a typical annual report published and sent to shareholders. Also see Form 10-K.
(Homeowner's) Equity The value of a homeowner's unencumbered interest in real estate. Equity is computed by subtracting from the property's fair market value the total of the unpaid mortgage balance and any outstanding liens or other debts against the property. A homeowner's equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100 percent equity in his property.
(Office of the) Comptroller of the Currency (OCC) The supervisory agency for nationally chartered banks. The Comptroller of the Currency is the individual, appointed by the President and confirmed by the Senate and serving a five-year term who serves as the chief regulator of national banks.
(Principle of) Balance In real estate appraisal, there is an optimal mix of inputs that, when combined with land, will result in the greatest land value. Inputs, or factors of production, include labor, capital, and entrepreneurship.
(To) Guarantee (A Loan) To agree to indemnify the holder of a loan all or a portion of the unpaid principal balance in case of default by the borrower.