Financial terms can often seem like a foreign language, especially for those just starting in the industry or interested in taking control of their finances. That’s where these definitions help. Our comprehensive financial dictionary breaks down and defines the most important financial terms to know, making it easier for you to navigate the financial landscape.
Our guide covers a wide range of financial terms to know, from basics like ‘assets’ and ‘credit’ to more complex concepts such as ‘hedging’ and ‘dollar cost averaging’. The aim is to simplify these terms, ensuring that you can speak and understand the language of finance easily and confidently.
So, whether you’re a student studying finance, an entrepreneur managing your own business, or an individual interested in personal finance, this financial dictionary provides the answers.
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
Financial Terms Beginning With A
Account – A record or statement of transactions and financial events relating to a particular item or entity.
Accrual – The recognition of revenue or expenses incurred but not received or paid.
Accumulation Phase – The period when an investor builds up the value of their investment.
Amortisation – The process of gradually paying off a debt over a fixed period.
Annual Percentage Rate (APR) – The yearly rate charged for borrowing, expressed as a single percentage number.
Annuity – A financial product that pays out a fixed stream of payments to an individual, typically used as an income stream for retirees.
Arbitrage – The practice of taking advantage of a price difference between two or more markets.
Asset – Any resource owned by an individual or a business with economic value.
Asset Allocation – Implementing an investment strategy that balances risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s risk tolerance, goals, and investment time frame.
Asset Class – A group of securities that exhibits similar characteristics, behaves similarly in the marketplace and is subject to the same laws and regulations.
Audit – An official inspection of an individual’s or organisation’s accounts, typically by an independent body.
Automated Teller Machine (ATM) – An electronic banking machine that allows customers to complete basic transactions without the aid of a branch representative or teller.
Average Cost Basis – A method of calculating the value of an investment by averaging the cost of all the shares purchased.
Adjustable-Rate Mortgage (ARM) – A type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan.
Appreciation – The increase in value of an asset over time.
Ask Price – The lowest price a seller is willing to accept for a security.
Authorised User – A person who has permission to use and/or carry another person’s credit card but isn’t legally responsible for paying the bill.
Availability Schedule – The time frame in which a bank must make funds available to its customers after receiving the cash deposits.
Average Daily Balance – A method credit card companies use to calculate the amount of interest owed.
Account Balance – The amount of money in a financial repository, such as a checking account, at any given moment.
Annual Report – A comprehensive report on a company’s activities throughout the preceding year intended to give shareholders and other interested people information about the company’s activities and financial performance.
Automatic Investment Plan (AIP) – An investment program allowing investors to contribute small amounts of money, such as $20 a month, regularly.
Automatic Savings Plan (ASP) – A scheduled transfer from checking to savings that is automatic.
Adjusted Gross Income (AGI) – A measure of income calculated from your gross income and used to determine how much of your income is taxable.
Alternative Investment – An investment in asset classes other than stocks, bonds, and cash.
Annual Fee – A fee automatically charged once a year to your credit card account for the benefits of that credit card.
Actively Managed Fund – A fund in which a manager or a management team decides how to invest the fund’s money.
Asset Management Company (AMC) – A firm that invests the pooled funds of retail investors in securities in line with the stated investment objectives.
Asset Turnover Ratio – The number of sales or revenues generated per dollar of assets.
Account Payable – The amount of money a company owes creditors (suppliers, etc.) in return for goods/services they have delivered.
Account Receivable – Money customers owe to another entity in exchange for goods or services delivered or used.
Accrued Interest – The amount of loan interest that has already occurred but has not yet been paid to the lender by the borrower.
Acquisition – When one company purchases most or all of another company’s shares to gain control of that company.
Affordability Index – A measure of a population’s ability to purchase a given item, such as a house, indexed to the population’s income.
After-Hours Trading – The buying and selling of securities completed outside regular trading hours.
Agency Bonds – Securities issued by federal agencies and government-sponsored enterprises.
Alternative Minimum Tax (AMT) – An alternative method of calculating taxes that certain filers must use, it often leads to a higher tax bill.
American Depositary Receipts (ADRs) – A negotiable certificate issued by a U.S. bank representing a specified number of shares in a foreign stock traded on a U.S. exchange.
Amortised Loan – A loan paid off in equal instalments during its term.
Annualised Rate – A rate of return for less than one year computed as if the rate were for an entire year.
Anti-Money Laundering (AML) – A set of laws, regulations, and procedures to prevent criminals from disguising illegally obtained funds as legitimate income.
Application Fraud – Intentionally falsifying information when applying for a financial product or service.
Arbitration – A dispute resolution method involving one or more neutral third parties usually agreed to by the disputing parties and whose decision is binding.
Articles of Incorporation – A set of formal documents filed with a government body to legally document the creation of a corporation.
Ask – The price a seller is willing to accept for a security, also known as the offer price.
Asset-Backed Securities (ABS) – Financial securities backed by the cash flows from a pool of underlying assets, such as loans.
Asset-Liability Management – The process of using assets and cash flows to meet company obligations and reduce the firm’s risk of loss due to inability to pay.
Assignment – The receipt of an exercise notice by an options writer that requires him to sell the security in the case of a call option or to buy the security in the case of a put option at the specified strike price.
At-the-Money – A situation where an option’s strike price is identical to the underlying security price.
Auction Market – A market where buyers and sellers enter competitive bids simultaneously.
Audit Trail – A step-by-step record by which financial, business, and quality assurance data can be traced to its source.
Authorised Stock – The maximum number of shares a corporation is legally permitted to issue, as specified in its articles of incorporation.
Automatic Bill Payment – A money transfer scheduled on a predetermined date to pay a recurring bill.
Automatic Reinvestment – Using dividends, interest, and capital gains earned in an investment or mutual fund to purchase additional shares or units rather than receiving the distributions in cash.
Average Rate of Return – The average amount of money an investment earns annually over a given period.
Average Tax Rate – The total tax paid divided by the total income earned.
Financial Terms Beginning With B
Backdoor Roth IRA – A method for higher-income taxpayers to fund a Roth IRA even if their income exceeds the IRS’s income limits for Roth IRAs.
Bad Debt – An amount written off by the business as a loss to the firm and classified as an expense because the debt owed to the business cannot be collected.
Balance Sheet – A financial statement that reports a company’s assets, liabilities, and shareholders’ equity at a specific point in time.
Balanced Fund – A mutual fund that aims to provide a mix of safety, income, and capital appreciation by investing in a combination of equities and bonds.
Balloon Payment – A large payment due at the end of a loan when the loan agreement calls for a series of smaller payments throughout the loan.
Bank – A financial institution licensed to receive deposits and make loans.
Bank Run – A situation where many bank customers withdraw their deposits because they believe the bank might fail.
Bankruptcy – Legal proceeding involving a person or business that cannot repay their outstanding debts.
Basis Point – One-hundredth of a percent, used chiefly to express interest rate differences.
Bear Market – A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining.
Bearish – An investor behaviour marked by the belief that the prices of securities or the values of indices, etc., will drop.
Bearer Bond – A bond not registered in the investor’s name and is payable to the person who possesses the bond.
Benchmark – A standard against which the performance of a security, mutual fund or investment manager can be measured.
Beneficiary – A person or entity who receives the benefits of trust, will, retirement account, or life insurance policy.
Beta – A measure of the volatility, or systematic risk, of a security or portfolio compared to the whole market.
Bid-Ask Spread – The amount by which the ask price exceeds the bid price for an asset in the market.
Blue Chip Stocks – Shares in large, well-known companies with a history of sound financial performance.
Bond – A fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental).
Bond Fund – A fund invested primarily in bonds and other debt instruments.
Bond Rating – A grade given to bonds that indicates their credit quality.
Book Value – The value of an asset according to its balance sheet account balance.
Broker – A person or firm that conducts transactions on behalf of a client.
Bull Market – A market where share prices are rising, encouraging buying.
Bullish – An investor behaviour marked by the belief that the prices of securities will rise.
Business Cycle – A cycle or series of economic expansion and contraction cycles.
Buyback – The purchase by a company of its own stock to reduce the number of shares available on the market.
Buyout – The purchase of a controlling percentage of a company’s stock.
Bearer Instrument – A document that entitles the holder of the document rights to the property, such as a check payable to cash or bearer.
Benchmark Rate – The minimum interest rate investors will demand for investing in a non-Treasury financial security.
Beneficial Owner – The person or entity who enjoys the benefits of ownership even though the title is in another name.
Big Board – A nickname for the New York Stock Exchange (NYSE), the oldest and largest stock exchange in the U.S.
Bill of Exchange – A binding agreement by one party to pay a fixed amount of cash to another party as of a predetermined date or on demand.
Black Swan – An unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences.
Block Trade – A high volume of securities being traded at once.
Bottom Line – Refers to a company’s net earnings, net income or earnings per share (EPS).
Break-Even Point – The point at which total revenue equals total costs.
Bullion – Gold, silver, or other precious metals in bars or other storage shapes.
Business Day – Any day an exchange is open for business, and trades can be made.
Buy Limit Order – An order to purchase a security at or below a specified price.
Buy-Sell Agreement – An agreement that outlines the parameters for the transfer of business ownership.
Buy to Cover – To buy a security to close a short position.
Buying on Margin – The act of borrowing money to buy securities.
Bylaws – The rules and regulations enacted by a company or organisation to provide a framework for its operation and management.
Financial Terms Beginning With C
Call Option – A financial contract that gives the buyer the right, but not the obligation, to buy a stock, bond, commodity or other asset or instrument at a specified price within a specific period.
Callable Bond – A bond that the issuer can redeem before its maturity.
Capital – Wealth in the form of money or other assets owned by a person or organisation or available for a purpose such as starting a company or investing.
Capital Adequacy Ratio (CAR) – A measure of a bank’s capital and financial strength, usually expressed as a percentage of a bank’s risk-weighted credit exposures.
Capital Expenditure (CapEx) – Funds a company uses to acquire, upgrade, and maintain physical assets such as property, buildings, or equipment.
Capital Gain – The increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price.
Capital Loss – The decrease in the value of an investment or real estate that makes it worth less than the purchase price.
Capital Structure – The mix of debt and equity a company uses to finance its operations and growth.
Capitalisation Rate – A real estate valuation measure used to compare different real estate investments.
Cash Advance – A service provided by credit card issuers allowing cardholders to withdraw a certain amount of cash.
Cash Basis Accounting – An accounting method where payment receipts are recorded during the period they are received, and expenses are recorded in the period they are paid.
Cash Equivalent – An investment security that is as good as cash in terms of its liquidity.
Cash Flow – The net cash and cash equivalents being transferred into and out of a business.
Certificate of Deposit (CD) – A savings certificate with a fixed maturity date and specified fixed interest rate.
Chapter 11 – A form of bankruptcy in the US that involves reorganising a debtor’s business affairs, debts, and assets.
Charge Off – A declaration by a creditor (usually a credit card account) that an amount of debt is unlikely to be collected.
Clearing House – An intermediary between buyers and sellers of financial instruments.
Closed-End Fund – An investment fund and exchange-traded fund (ETF) with a fixed number of shares and trades on an exchange.
Collateral – An item of value used to secure a loan.
Commercial Loan – A loan extended to businesses by a financial institution.
Compound Interest – Interest on a loan or deposit calculated based on the initial principal and the accumulated interest from previous periods.
Commodity – A basic good used in commerce that is interchangeable with other commodities of the same type.
Common Stock – A security representing ownership in a corporation and entitles part of the corporation’s assets and earnings.
Consumer Price Index (CPI) – A measure that examines the weighted average prices of a basket of consumer goods and services.
Contingent Liability – A potential obligation that may be incurred depending on the outcome of a future event.
Contingent Order – An order that is executed only when certain conditions are fulfilled.
Conventional Loan – A mortgage loan not insured or guaranteed by the government.
Convertible Bond – A bond that the holder can convert into shares of common stock in the issuing company or cash of equal value.
Corporate Bond – A type of bond issued by a corporation to raise money for capital expenditures, operations, and acquisitions.
Cost of Capital – The required return to make a capital budgeting project, such as building a new factory, worthwhile.
Counterparty Risk – The risk to each party of a contract that the counterparty will not live up to its contractual obligations.
Credit – The ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.
Credit Card – A card issued by a bank, business, etc., enabling the holder to purchase goods or services on credit.
Credit Default Swap (CDS) – A financial derivative or contract allowing an investor to “swap” or offset his or her credit risk with another investor.
Credit Derivative – A financial asset in the form of a bilateral contract between two parties where the borrower is obligated to pay the lender the amount of an underlying asset’s credit risk.
Credit History – A record of a borrower’s responsible repayment of debts.
Credit Report – A detailed report of an individual’s credit history prepared by a credit bureau.
Credit Score – A number assigned to a person that indicates their capacity to repay a loan to lenders.
Credit Union – A nonprofit-making money cooperative whose members can borrow from pooled deposits at low interest rates.
Crowdfunding – The practice of funding a project or venture by raising small amounts of money from many people, typically via the Internet.
Cryptocurrency – A digital or virtual currency that uses cryptography for security.
Current Account – A deposit account that caters to professionals and businessmen alike. Dealing largely with liquid deposits, this product allows for the withdrawal of funds and checks being written against the balance and does not limit the number of transactions in a day.
Current Asset – An asset on the balance sheet that can be converted to cash or used to pay current liabilities within 12 months.
Current Liability – A company’s debts or obligations to be paid to creditors within one year.
Custodial Account – An account created at a bank, brokerage firm or mutual fund company managed by an adult for a minor under the age of 18 to 21 (depending on state legislation).
Custodian Bank – A financial institution that holds customers’ securities for safekeeping to minimise the risk of theft or loss.
Currency Exchange Rate – The rate at which one currency can be exchanged for another.
Current Yield – The annual income (interest or dividends) divided by the security’s current price.
Cyclical Stock – A type of stock that’s price is affected by macroeconomic or systematic changes in the overall economy.
Financial Terms Beginning With D
Day Trading – The practice of buying and selling within the same trading day before the close of the markets on that day.
Debit – An accounting entry that results in either an increase in assets or a decrease in liabilities on a company’s balance sheet.
Debit Card – A card issued by a bank allows the holder to transfer money electronically from their bank account when purchasing.
Debt – Money borrowed that is expected to be paid back with interest.
Debt-to-Equity Ratio (D/E) – A financial ratio indicating the relative proportion of shareholders’ equity and debt used to finance a company’s assets.
Default – Failure to meet the repayment obligation of interest or principal on a debt or bond.
Deflation – A decrease in the general price level of goods and services.
Depreciation – The allocation of the cost of assets to periods in which the assets are used.
Derivative – Financial security with a price dependent upon or derived from one or more underlying assets.
Dividend – A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders.
Dow Jones Industrial Average (DJIA) – A price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
Due Diligence – An investigation or audit of a potential investment or product to confirm all facts.
Delinquency Rate – The percentage of loans within a loan portfolio with delinquent payments.
Diversification – A risk management strategy that mixes various investments within a portfolio.
Dividend Yield – A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.
Dollar Cost Averaging (DCA) – An investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset to reduce the impact of volatility on the overall purchase.
Duration – A measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates.
Debenture – A type of debt instrument unsecured by collateral since it is based upon the creditworthiness and reputation of the issuer.
Deferred Tax – A tax liability or asset that results from temporary differences between the tax and accounting treatment of certain items.
Demand Deposit – A deposit of money that can be withdrawn without prior notice, e.g., in a checking account.
Direct Investment – The purchase or acquisition of a controlling interest in a foreign business by means other than the purchase of shares.
Discount Rate – The interest rate charged to commercial banks and other depository institutions for loans from a Reserve Bank’s discount window.
Distressed Sale – The sale of an asset or property forced by conditions on a seller other than the open market.
Double Entry – A principle of bookkeeping requiring that for every financial transaction made, two entries are recorded.
Down Payment – An upfront payment made when buying expensive items/services on credit.
Drawdown – The peak-to-trough decline during a specific record period of an investment, fund or commodity.
Due-on-Sale Clause – A clause in a loan or promissory note stipulating that the full balance may be called due upon the sale or transfer of ownership of the property used to secure the note.
Dutch Auction – An auction in which the auctioneer begins with a high asking price, and then lowers it until it reaches a price level where a bidder accepts the price or it reaches the predetermined reserve price.
Dynamic Asset Allocation – An investment strategy that frequently adjust the weights in a portfolio of assets based on an investor’s short-term risk-return trade-off preferences.
Financial Terms Beginning With E
Earnings – The profit a company produces during a specific period, usually defined as a quarter (three calendar months) or a year.
Earnings Before Interest and Taxes (EBIT) – An indicator of a company’s profitability, calculated as revenue minus expenses, excluding tax and interest.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) – A company’s operating performance measure. It’s a way to evaluate a company’s performance without having to factor in financing decisions, accounting decisions or tax environments.
Earnings Per Share (EPS) – The portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability.
Economic Indicator – A statistic about economic activity, such as unemployment rate or gross domestic product.
Economic Order Quantity (EOQ) – The order quantity that minimises the total holding costs and ordering costs.
Efficient Market Hypothesis (EMH) – An investment theory stating that share prices reflect all information and consistent alpha generation is impossible.
Emergency Fund – Funds set aside to improve financial security by creating a safety net to be used for unexpected expenses.
Equity – Ownership interest in a corporation in the form of common stock or preferred stock.
Equity Financing – The process of raising capital through the sale of shares.
Equity Multiplier – A financial leverage ratio equal to a firm’s total assets divided by total equity.
Escrow – A financial arrangement where a third party holds and regulates payment of the funds required for two parties involved in a transaction.
Exchange Rate – The value of one currency for conversion to another.
Exchange Traded Fund (ETF) – A type of investment fund and exchange-traded product traded on stock exchanges.
Exercise Price – The price at which the underlying security can be purchased (call option) or sold (put option). The exercise price is determined at the time the option contract is formed.
Expense Account – An account that records all costs incurred in a business to sustain its operating activities.
Expense Ratio – A measure of what it costs an investment company to operate a mutual fund.
Exponential Growth – Growth whose rate becomes ever more rapid in proportion to the growing total number or size.
Extension Risk – The risk that rising interest rates will slow the assumed prepayment speeds of mortgage-backed securities.
External Audit – An audit performed by an outside accountant to verify a company’s financial records and compliance with accounting standards.
Extraordinary Item – Gains or losses included in a company’s financial statements, which are infrequent and unusual.
Ex-Dividend Date – The date on or after which a security is traded without a previously declared dividend or distribution. After the ex-date, a stock is said to trade ex-dividend.
Financial Terms Beginning With F
Face Value – The nominal or dollar value of a security stated by the issuer.
Fair Market Value – An estimate of the market value of a property based on what a knowledgeable, willing, and unpressured buyer would pay to a knowledgeable, willing, and unpressured seller in the market.
Federal Funds Rate – The interest rate at which depository institutions lend reserve balances to other depository institutions overnight.
Financial Advisor – A professional who provides financial services to clients based on their financial situation.
Financial Ratios – Mathematical comparisons of financial statement accounts or categories designed to reveal the strengths and weaknesses of a company.
Fiscal Policy – How a government adjusts its spending and tax rates to monitor and influence a nation’s economy.
Fixed Assets – Long-term tangible piece of property or equipment that a firm owns and uses to produce its income and is not expected to be consumed or converted into cash any sooner than at least one year.
Fixed Income – A type of investment in which real return rates or periodic income is received at regular intervals and reasonably predictable levels.
Foreclosure – The legal process by which a lender takes control of a property, evicts the homeowner and sells the home after a homeowner cannot make full principal and interest payments on his or her mortgage.
Futures Contract – A legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time.
Fair Value – The estimated worth of all assets and liabilities of an acquired company used to consolidate the financial statements of both companies.
Fiduciary – A person or organisation that owes to another the duties of good faith, trust and confidence.
Financial Institution – An establishment that deals with financial transactions, such as investments, loans, and deposits.
Financial Market – A marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies, and derivatives.
Fixed Cost – Business costs, such as rent, that are constant, whatever the quantity of goods or services produced.
Foreign Exchange (Forex) – The global marketplace for exchanging national currencies against one another.
Franchise – A type of license that a party (franchisee) acquires to allow them to have access to a business’s (the franchisor) proprietary knowledge, processes, and trademarks to allow the party to sell a product or provide a service under the business’s name.
Front-End Load – The sales charge or commission that an investor pays “upfront”—upon asset purchase.
Fungible – Goods contracted for without mentioning or fixing any particular ship are called “fungibles”.
Future Value – The value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.
Financial Terms Beginning With G
Gap Financing – Interim financing, bridge financing, or a bridge loan used to cover, or ‘bridge’, the gap between the funds needed to purchase a new property and the net proceeds available from the sale of a prior property.
General Ledger – A company’s set of numbered accounts for its official accounting records.
Gross Domestic Product (GDP) – The total value of all goods and services produced by a country in a specific period.
Gross Margin – A company’s total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage.
Guaranteed Loan – A loan backed by a third party in case the borrower defaults.
Gearing Ratio – A general classification describing a financial ratio that compares some form of owner’s equity (or capital) to borrowed funds.
General Partner – A partner with unlimited liability for the partnership’s debts.
Gross Profit – The profit a company makes after deducting the costs associated with making and selling its products or the costs associated with providing its services.
Growth Stock – Shares in a company whose earnings are expected to grow at an above-average rate relative to the market.
Financial Terms Beginning With H
Hedge – Investing to reduce the risk of adverse price movements in an asset.
Hedge Fund – An offshore investment fund, typically formed as a private limited partnership, that uses credit or borrowed capital to speculate.
High-Yield Bond – A high paying bond with a lower credit rating than investment-grade corporate, Treasury, and municipal bonds.
Home Equity Loan – A loan in which the borrower uses the equity of his or her home as collateral.
Hedging – A risk management strategy used to limit or offset the probability of loss from fluctuations in the prices of commodities, currencies, or securities.
Holding Company – A company created to buy and own the shares of other companies, which it then controls.
Hostile Takeover – The acquisition of one company (called the target company) by another (called the acquirer) is accomplished not by agreeing with the target company’s management but by going directly to the company’s shareholders or fighting to replace management to get the acquisition approved.
Financial Terms Beginning With I
Income Statement – A financial statement that measures a company’s financial performance over a specific accounting period.
Index Fund – A type of mutual fund with a portfolio constructed to match or track the components of a market index.
Inflation – The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Interest Rate – The amount charged, expressed as a percentage of the principal, by a lender to a borrower for the use of assets.
Inventory Turnover – A ratio showing how often a company has sold and replaced inventory during a given period.
Investment – An asset or item acquired to generate income or appreciation.
Income Tax – A tax the government imposes on the income you earn. Income tax is a key source of funds that the government uses to fund its activities and serve the public.
Initial Public Offering (IPO) – The process of offering shares in a private corporation to the public for the first time.
Insider Trading – The trading of a public company’s stock or other securities by individuals with access to nonpublic information about the company.
Insurance – A contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.
Intangible Asset – An asset that is not physical in nature. Examples are patents, copyright, franchises, goodwill, trademarks, and trade names.
Interest Rate Swap – A forward contract in which one stream of future interest payments is exchanged for another based on a specified principal amount.
Inventory – The raw materials, work-in-process products, and finished goods considered to be the portion of a business’s assets that are ready or will be ready for sale.
Investment Bank – A financial intermediary that performs various services, including aiding in the sale of securities, facilitating mergers and other corporate reorganisations, acting as brokers to individual and institutional clients, and trading for its account.
Financial Terms Beginning With J
Jensen’s Measure – A risk-adjusted performance measure that represents the average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio’s beta and the average market return.
Job Market – The market employers search for employees, and employees search for jobs. The job market is not a physical place as much as a concept demonstrating the competition and interplay between different labour forces.
Joint Account – A bank or brokerage account shared between two or more individuals. Joint accounts are most likely to be used by relatives, couples or business partners who have a level of familiarity and trust for each other.
Joint and Several Liability – A legal term that refers to a responsibility that multiple parties share.
Joint Life Annuity – An insurance product that continues regular payments as long as one of the annuitants is alive.
Joint Tenancy – A legal arrangement in which two or more people own a property together, each with equal rights and obligations.
Joint Venture – A commercial enterprise undertaken jointly by two or more parties that retain their distinct identities.
Juice – The compensation for a bookmaker or a loan shark. Also known as Vigorish or Vig.
Jumbo CD – A certificate of deposit (CD) with a minimum denomination of $100,000. Jumbo CDs have higher denominations than regular certificates of deposits and allow investors to deposit a certain amount of money in return for interest earnings.
Jumbo Loan – A type of financing that exceeds the limits set by the Federal Housing Finance Agency. Designed to finance luxury properties and homes in highly competitive local real estate markets.
Junior Debt – Debt with lower priority for repayment than other debt claims in the case of the issuer’s default.
Junior Issue – Any issue of securities that is subordinate to another issue.
Junior Mortgage – A mortgage subordinate to a first or prior (senior) mortgage. A junior mortgage often refers to a second mortgage.
Junk Bond – A bond that carries a higher default risk than most corporate bonds. These bonds are issued by companies with low credit ratings, also known as high-yield bonds.
Just-In-Time (JIT) – An inventory strategy to increase efficiency and decrease waste by receiving goods only as needed in the production process, thereby reducing inventory costs.
J-Curve – In private equity, refers to the phenomenon where in the early years of a private equity fund during the investment period the net asset value is less than the paid in capital.
Financial Terms Beginning With K
Key Man Insurance – A life insurance policy that a company purchases on the life of a key executive, employee or company owner. The company is the beneficiary of the plan and pays the insurance policy premiums.
Keynesian Economics – An economic theory stating that active government intervention in the marketplace and monetary policy is the best method to ensure economic growth and stability.
Kickback – An illegal payment intended as compensation for preferential treatment or any other type of improper services received.
Killer Bees – Firms or individuals that help a company fend off a takeover attempt.
Kiting – Commonly referred to as a fraudulent act involving the alteration or issuance of a cheque or bank draft with insufficient funds.
Knock-In Option – An option contract that becomes active when the underlying security price reaches a certain barrier level.
Key Rate Duration – The measure of duration that calculates effective or empirical duration by changing the market rate for one specific maturity point on the yield curve while holding all other variables constant.
Knock-Out Option – An option with a built-in mechanism to expire worthless if a specified price level in the underlying asset is reached before it expires.
Krugerrand – A South African gold coin. Krugerrands were first minted in 1967, and the South African government produced them to help market South African gold.
KYC (Know Your Customer) – The process of a business verifying the identity of its clients and assessing potential risks of illegal intentions for the business relationship.
K-Bond – A type of surety bond that investors use to protect their investments against default.
Knucklehead Insurance – A slang term for liability insurance that covers lawsuit expenses caused by negligent acts and omissions.
Kodak Millionaire – A slang term from the 1980s and 1990s that refers to early Kodak employees who became millionaires by investing in the company’s stock.
Kakaku Yusen – The practice of taking orders from clientele using a priority scale. It is a Japanese term that translates to “price precedence”.
Key Currency – The currency used as a reference in an international transaction or when setting an exchange rate. The key currency used is usually issued by a stable, globally-recognized country.
Kappa – A measure of an option’s price rate of change, given a 1% change in the implied volatility. In other words, this shows an option’s sensitivity to volatility changes.
Financial Terms Beginning With L
Leverage – The investment strategy of using borrowed money, specifically, the use of various financial instruments or borrowed capital to increase the potential return of an investment.
Liabilities – A company’s legal and financial debts or obligations that arise during business operations.
Liquidity – The degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.
Loan – A sum of money borrowed, often from a bank, and has to be paid back, usually along with an additional interest.
Long Position (Long) – A position expressing a view that the asset, such as a stock or futures contract, will increase in price.
Limited Liability – A type of liability that does not exceed the amount invested in a partnership or limited liability company.
Line of Credit – A facility extended by a bank that may be used for borrowing at the borrower’s discretion.
Liquidity Risk – The risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimise a loss.
Load Fund – A mutual fund with a sales charge or commission. The fund investor pays the load to compensate a sales intermediary (broker, financial planner, investment advisor, etc.) for their time and expertise in selecting an appropriate fund.
Long-Term Debt – Loans and financial obligations lasting over one year.
Financial Terms Beginning With M
Margin Call – A broker’s demand on an investor using margin to deposit additional money or securities to bring the margin account up to the minimum maintenance margin.
Market Capitalization – The total dollar market value of a company’s outstanding shares of stock. It is calculated by multiplying the company’s shares outstanding by the current market price of one share.
Market Order – A request by an investor – usually made through a broker – to buy or sell a security at the best available price in the current market.
Mutual Fund – An investment vehicle comprised of a pool of funds from many investors to invest in securities such as stocks, bonds, money market instruments, and similar assets.
Maturity Date – The final payment date of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid.
Money Market – The trade in short-term debt investments.
Municipal Bond – A debt security issued by a state, municipality or county to finance its capital expenditures.
Financial Terms Beginning With N
Naked Option – An options strategy where investors write or sell options on securities they do not own.
National Debt – The total amount of money a country’s government has borrowed by various means.
Negotiable Instrument – A document guaranteeing the payment of a specific amount of money, either on demand or at a set time, with the payer named on the document.
Nest Egg – A substantial amount of money or other assets saved or invested, usually for some specific purpose.
Net Asset Value (NAV) – A mutual fund’s price per share or an ETF’s per-share value. In both cases, the per-share dollar amount of the fund is calculated by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding.
Net Income – Also known as net earnings or net profit, it is a company’s total earnings or profit. It’s calculated as revenue minus costs of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes and other expenses.
Net Worth – The total assets minus the total outside liabilities of an individual or a company. For individuals, this represents the properties owned, less any debt the person has.
New Issue – Refers to a security that has been recently issued and is being sold on the market for the first time.
No-Load Fund – A mutual fund in which shares are sold without a commission or sales charge. This is because the investment company distributes the shares directly instead of going through a secondary party.
Nominal Interest Rate – The interest rate before taking inflation into account. It’s the rate quoted in loan and deposit agreements.
Nonrecourse Debt – A type of loan that is secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral but cannot seek out the borrower for any further compensation.
Non-Cumulative Preferred Stock – A preferred stock that does not owe the holder any missed or omitted dividends.
Non-Banking Financial Companies (NBFC) – Financial institutions that provide banking services without meeting the legal definition of a bank, such as holding a banking license.
Non-Performing Asset – A loan or advance for which the principal or interest payment remained overdue for 90 days.
Note – A financial security that generally has a longer term than a bill but a shorter term than a bond.
Notional Value – The total value of a leveraged position’s assets. This term is commonly used in the options, futures and currency markets because a small amount of invested money can control a large position.
Financial Terms Beginning With O
Odd Lot – An order amount for a security less than the normal trading unit for that particular asset.
Offer Price – The price a seller is willing to accept for a security, also often known as the ask price.
Offset – In trading, to liquidate a position to use the proceeds to repay an outstanding loan.
Operating Expense – A category of expenditure a business incurs due to performing its normal business operations.
Operating Income – The profit realised from a business’s operations after deducting operating expenses such as wages, depreciation, and cost of goods sold (COGS).
Outstanding Cheque – A cheque payment written by someone and has yet to be cashed or deposited by the payee.
Opportunity Cost – A benefit a person could have received and given up to take another action.
Open-End Fund – A type of mutual fund that does not have restrictions on the number of shares the fund can issue. Also known as a mutual fund.
Open Market Operations (OMO) – The buying and selling of government securities in the open market to expand or contract the amount of money in the banking system.
Operating Cash Flow – A measure of the cash generated by a company’s normal business operations.
Optimal Portfolio – An ideal portfolio, tailored for the individual investor’s risk tolerance, investment horizon, and investment objectives.
Option – A financial derivative representing a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period or on a specific date (exercise date).
Ordinary Income – Any income earned by an organisation or individual subject to standard tax rates.
Origination Fee – A fee charged by a lender on entering into a loan agreement to cover the cost of processing the loan.
Overhead – Business costs not directly linked to a specific business activity, product, or service. Overhead costs are the expenses paid to keep a business running.
Overweight – A situation where a portfolio holds an excess amount of a particular security compared to the security’s weight in the underlying benchmark portfolio.
Over-the-Counter (OTC) – A decentralised market without a central physical location, where market participants trade with one another through various communication modes such as the telephone, email and proprietary electronic trading systems.
Owner Financing – A transaction in which the seller of a property agrees to finance all or part of the purchase.
Financial Terms Beginning With P
Portfolio – A grouping of financial assets such as stocks, bonds, cash equivalents, and their mutual, exchange-traded and closed-fund counterparts. Portfolios are held directly by investors and/or managed by financial professionals.
Preferred Stock – A class of ownership in a corporation with a higher claim on its assets and earnings than common stock.
Price to Earnings Ratio (P/E Ratio) – A company’s current share price valuation ratio compared to its per-share earnings.
Prime Rate – The interest rate that commercial banks charge their most creditworthy customers.
Private Equity – Capital that is not noted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies, resulting in a delisting of public equity.
Put Option – An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time.
Profit Margin – A profitability ratio calculated as net income divided by revenue or net profits divided by sales.
Public Company – A company that has issued securities through an initial public offering (IPO) and is traded on at least one stock exchange or the over-the-counter market.
Financial Terms Beginning With Q
Quantitative Analysis – The use of mathematical and statistical methods in finance. Those working in the field are quantitative analysts, or in financial jargon, a quant.
Quantitative Easing – A monetary policy in which a central bank purchases government or other securities from the market to increase the money supply and encourage lending and investment.
Quarter – A three-month period on the financial calendar that serves as a basis for periodic financial reports and the paying of dividends.
Quick Assets – Current assets that can be converted to cash within 90 days or in the short term. Cash, cash equivalents, short-term investments or marketable securities, and current accounts receivable are quick assets.
Quick Ratio – A liquidity ratio that measures a company’s ability to cover its short-term obligations with its most liquid assets. It is also known as the acid-test ratio.
Quiet Period – A period of time following an IPO during which an issuer is subject to SEC restrictions on promotional communications.
Financial Terms Beginning With R
Real Estate – Land and any physical property attached to it, including houses, buildings, landscaping, etc.
Real Estate Investment Trust (REIT) – A company that owns, and in most cases operates, income-producing real estate.
Rebalancing – The process of realigning the weightings of a portfolio of assets to maintain a desired asset allocation.
Recession – A significant decline in economic activity spread across the economy, lasting more than a few months.
Refinancing – Replacing an existing loan with a new loan that pays off the debt of the old loan. The new loan should ideally have better terms or features that improve your finances.
Regressive Tax – A tax that takes a larger percentage of income from low-income earners than from high-income earners. Sales taxes are an example.
Reinvestment – Using dividends, interest, or any other distribution earned in an investment to purchase additional shares or units rather than receiving the distributions in cash.
Residential Mortgage-Backed Securities (RMBS) – A type of mortgage-backed debt obligation whose cash flows come from residential debt, such as mortgages, home-equity loans, and subprime mortgages.
Return On Equity (ROE) – A measure of financial performance calculated by dividing net income by shareholders’ equity.
Return on Investment (ROI) – A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of some different investments.
Revenue – The income a business has from its normal business activities, usually from selling goods and services to customers.
Revocable Trust – A trust whereby provisions can be altered or cancelled dependent on the grantor.
Risk Tolerance – The degree of variability in investment returns an investor is willing to withstand.
Right of First Refusal – A contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transaction with a third party.
Risk-Adjusted Return – A calculation of an investment’s profit potential considering the degree of risk that must be accepted to achieve it.
Roll Over – The reinvestment of funds from a maturing security into a new issue of the same or similar security.
Russell 2000 Index – An index measuring the performance of approximately 2,000 small-cap companies in the Russell 3000 Index, which comprises 3,000 of the biggest U.S. stocks.
Financial Terms Beginning With S
Savings Account – A deposit account held at a financial institution that provides principal security and a modest interest rate.
Secured Loan – A loan in which the borrower pledges some asset as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan.
Securities – Financial instruments, such as stocks or bonds, representing rights to ownership, credit, monetary value, or some other type of value.
Securities and Exchange Commission (SEC) – The U.S. government agency, established in 1934, charged with protecting investors and maintaining the integrity of the securities markets.
Securitisation – Turning an asset, particularly loans, into a security that can be bought and sold.
Shareholder – An individual or institution legally owning one or more stock shares in a public or private corporation.
Short Selling – The sale of a security not owned by the seller or that the seller has borrowed in the hope that the price will decrease.
Short Term Investment – An investment typically held for less than 1 year to earn a return over a short period.
Simple Interest – Interest calculated only on the principal amount or on that portion of the principal amount which remains unpaid.
Solvency – The ability of a company to meet its long-term financial obligations.
Speculation – The act of trading in an asset or conducting a financial transaction that has a significant risk of losing most or all of the initial outlay in expectation of a substantial gain.
Stagflation – A condition of slow economic growth and relatively high unemployment, or economic stagnation, accompanied by rising prices or inflation.
Standard Deduction – A portion of income not subject to tax and can be used to reduce a tax bill instead of itemising deductions.
Stock – A type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.
Stock Exchange – A marketplace where securities, commodities, derivatives and other financial instruments are traded.
Stock Option – A privilege sold by one party to another that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed-upon price within a certain period or on a specific date.
Stop Loss Order – An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor’s loss on a security position.
Subprime Loan – A loan offered at a rate above prime to individuals who do not qualify for prime rate loans.
Sunk Cost – A cost that has already been incurred and cannot be recovered.
Supply and Demand – An economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers.
Swap – A derivative in which two counterparties exchange cash flows of one party’s financial instrument for those of the other party’s financial instrument.
Financial Terms Beginning With T
Tax Deduction – An expense that can be subtracted from adjusted gross income to reduce the total amount of income tax.
Tax Exemption – A monetary exemption that reduces taxable income.
Tax Liability – The total amount of tax an entity is legally obligated to pay to authorities, such as a federal or state government.
Term Insurance – An insurance policy that provides coverage for a certain period or a specified term of years. If the insured dies during the period specified in the policy and the policy is active or in force, a death benefit will be paid.
Treasury Bond (T-Bond) – A government debt security with more than 10 years of maturity. Treasury bonds make interest payments semi-annually, and the income received is only taxed at the federal level.
Treasury Bill (T-Bill) – A short-term debt obligation backed by the U.S. government with a maturity of less than one year.
Treasury Note (T-Note) – A government debt security with a fixed interest rate and maturity between one to 10 years.
Time Value of Money (TVM) – The concept that money available at present is worth more than the same amount in the future due to its potential earning capacity.
Total Return – The actual rate of return of an investment or a pool of investments over a given evaluation period.
Transaction Costs – Costs incurred when making an economic exchange.
Trust Fund – A fund comprised of various assets, established by a grantor, to provide financial security to an individual, most often a child or grandchild – or organisations, such as a charity or other non-profit organisation.
Technical Analysis – A trading discipline employed to evaluate investments and identify trading opportunities by analysing statistical trends from trading activity, such as price movement and volume.
Tracking Error – A divergence between the price behaviour of a position or a portfolio and the price behaviour of a benchmark.
Tax-Advantaged Refers to any investment, account, or plan that is either exempt from taxation, tax-deferred, or offers other types of tax benefits.
Tenants in Common – A type of ownership interest where two or more people own property together in unequal shares.
Tangible Asset – An asset with a finite monetary value that can usually be physically seen and touched.
Target Date Fund – A fund offered by an investment company that seeks to grow assets over a specified period for a targeted goal.
Triple Net Lease (NNN) – A lease agreement that designates the lessee (the tenant) as solely responsible for all of the costs relating to the asset being leased and the rent fee applied under the lease.
Turnover Ratio – The percentage of a mutual fund or other investment vehicle’s holdings that have been “turned over” or replaced with other holdings in a given year.
Tax Bracket – The range of incomes taxed at given rates, which typically increase progressively. In a progressive individual or corporate income tax system, rates rise as income increases.
Financial Terms Beginning With U
Umbrella Insurance – Extra liability insurance coverage that goes beyond the insured’s home, auto or watercraft insurance limits.
Undercapitalisation – A situation in which a company does not have enough capital to conduct normal business operations and pay creditors.
Underwriter – A person or entity, such as a securities firm or a bank, that guarantees the sale of a security by buying all unsold shares after the public sale.
Underwriting – The process that a lender or other financial service uses to assess the creditworthiness or risk of a potential customer.
Unemployment Insurance – A source of income for workers who have lost their jobs through no fault of their own.
Underemployment – The under-use of a worker due to a job that does not use the worker’s skills, is part-time, or leaves the worker idle.
Undervalued Stock – A stock selling at a price significantly below what is assumed to be its intrinsic value.
Underweight – An assessment by an analyst or investor that a stock or a portfolio is expected to underperform relative to a benchmark.
Unencumbered Asset – An asset or property free of any encumbrances, such as creditor claims or liens.
Unit Investment Trust (UIT) – An investment company that offers a fixed portfolio, generally of stocks and bonds, as redeemable units to investors for a specific period of time.
Unit Trust – A form of collective investment constituted under a trust deed.
Universal Life Insurance – A flexible permanent life insurance offering the low-cost protection of term life insurance and a savings element (like whole life insurance), which is invested to provide a cash value buildup.
Unlevered Beta – A measure of how much risk an investment would carry assuming no debt. In other words, it measures the volatility or risk of an investment if the company has no leverage.
Unrealised Gain/Loss – The theoretical increase or decrease in an investor’s portfolio or a particular security that has not yet been cashed.
Unsecured Loan – A loan issued and supported only by the borrower’s creditworthiness rather than by any collateral.
Unsystematic Risk – Company or industry-specific hazard inherent in each investment. Also known as nonsystematic risk, specific risk, diversifiable risk or residual risk.
Upside/Downside Capture Ratio – These statistical measures are used in modern portfolio theory (MPT) to analyse potential investment risks. The upside capture ratio measures a manager’s performance in up markets relative to the market itself. The downside capture ratio measures a manager’s performance in down markets.
Usury – The illegal action or practice of lending money at unreasonably high interest rates.
Financial Terms Beginning With V
Variable Rate Mortgage – A type of home loan in which the interest rate is not fixed. The two most common types of mortgages in the United States are fixed rate and variable rate (also known as adjustable rate).
Venture Capital – Financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential.
Volatility – A statistical measure of the dispersion of returns for a given security or market index. Volatility can be measured using the standard deviation or variance between returns from that same security or market index.
Financial Terms Beginning With W
Withholding Tax – A government requirement for the payer of an item of income to withhold or deduct tax from the payment and pay that tax to the government.
Wealth Tax – A tax based on the market value of owned assets. These assets include but are not limited to cash, bank deposits, shares, fixed assets, private cars, assessed value of real property, pension plans, money funds, owner-occupied housing, and trusts.
Working Capital – A measure of a company’s operational liquidity and ability to meet short-term obligations and fund operations of the business. It is calculated as current assets minus current liabilities.
Wrap Account – An account in which a brokerage manages an investor’s portfolio for a flat quarterly or annual fee. This fee covers all administrative, commission, and management expenses. Sometimes also includes funds of funds.
Write-Off – A reduction in the value of an asset or earnings by the amount of an expense or loss.
Will – A legal document that sets forth your wishes regarding the distribution of your property and the care of any minor children.
Whole Life Insurance – A type of permanent life insurance that provides a death benefit and savings component where cash value may accumulate.
Wage Garnishment – A legal procedure in which a person’s earnings are required by court order to be withheld by an employer to pay a debt such as child support.
Warranty – A type of guarantee that a manufacturer or similar party makes regarding the condition of its product. It also refers to the terms and situations in which repairs or exchanges will be made if the product does not function as originally described or intended.
Wealth Management – A high-level professional service that combines financial and investment advice, accounting and tax services, retirement planning and legal or estate planning for one set fee.
Withdrawal Plan – A plan in which one withdraws a specified amount of money each period (month, quarter, year, etc.).
Wash Sale – A transaction where an investor sells a losing security to claim a capital loss, only to repurchase it for a bargain. Wash sales are a method for investors to try and provide a tax break for themselves.
Weighted Average Cost of Capital (WACC) – A calculation of a firm’s cost of capital in which each category of capital is proportionately weighted.
Window Dressing – A strategy used by mutual funds and other portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders.
With-Profit Policy – An insurance contract that participates in the insurance company’s profit; a part of the profit is distributed as a bonus to the policyholder.
World Fund – A mutual fund that can invest in companies outside its investors’ country of residence.
Warrant – A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame.
Weighted Average – An average in which each quantity to be averaged is assigned a weight, which determines the relative importance of each quantity on the average.
Financial Terms Beginning With X
X-Dividend – This is a classification of trading shares when a declared dividend belongs to the seller rather than the buyer. Shares are labelled as X-dividend when trading without the value of the next dividend payment. Can also be written as ex-dividend.
X-Efficiency – Refers to the degree of efficiency maintained by firms under imperfect competition such as in the case of a monopoly.
Xenocurrency – Refers to a currency that trades in markets outside of its domestic borders. The term derives from the prefix ‘xeno’, which means ‘foreign’ or ‘strange’.
X-Money – A term sometimes used in economics to refer to a hypothetical medium of exchange with no intrinsic value.
X-Market – Used to describe a market where all outside influence is eliminated, allowing for the most “pure” economics to be studied.
X-Shares – Shares excluded from a standard quotation in the financial markets.
Financial Terms Beginning With Y
Yield – The income return on an investment, such as the interest or dividends from holding a particular security.
Yield Curve – A line that plots interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates.
Yield to Maturity (YTM) – The total return anticipated on a bond if held until it matures. YTM is expressed as an annual percentage rate.
Yield to Call (YTC) – The yield of a bond or note if you buy and hold the security until the call date. This yield is valid only if the security is called before maturity.
Yield Spread – The difference between yields on differing debt instruments, calculated by deducting the yield of one instrument from another.
Yearly Renewable Term (YRT) – A one-year term life insurance policy. This type of policy gives policyholders a quote for the year the coverage is bought.
Yield On Cost (YOC) – The annual dividend rate of a security divided by the average cost basis of the investments. It shows the dividend yield of the original investment.
Financial Terms Beginning With Z
Zero-Coupon Bond – A debt security that doesn’t pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.