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Glossary of Terms

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Accrued interest

Interest rate accrued since a bond's last coupon payment.

Alternative investment

Any investment which is not directed towards traditional financial products (short and long term fixed income, shares, money markets). Alternative investments (commodities, derivatives, private equity funds, real estate) are usually complex, relatively illiquid and their markets not very regulated as operators are institutional or wealthy individual investors.

American Depository Receipt (ADR)

A negotiable certificate issued by a U.S. bank which represents a specific amount of shares of a foreign company listed in the U.S. ADRs are quoted in American dollars and the underlying asset is warranted by an American financial institution. ADRs help simplify and reduce the cost of transactions involving foreign shares in the U.S.

Amortize

Payment of a debt's principal. The effect of amortizing a debt is the reduction of the balance of the debt. Given that interests are usually calculated based on the debt balance amortizing the debt decreases the interest payment in the future.

Arbitrage

A zero risk money making activity. It consists in buying and selling the same or almost identical instruments simultaneously to take advantage of price differentials in different markets. The chance of performing arbitrage presents itself when markets are inefficient. Then, arbitrage provides a mechanism to ensure that prices do not deviate substantially (or for very long) from the real value of the asset.

Asset

A company's tangible and intangible goods, they are goods most likely to generate a future economic benefit. A company's assets vary depending on the nature of the business.

At-the-money

An option is said to be “at-the-money” when its execution price is equal to, or approximately the same as, the underlying asset's market price.
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