Financial Risk Manager: Financial and Business Terms

Financial and Business Terms - from Bas to Bef
Friday, May 8, 2009

Base probability of loss: The probability of not achieving a portfolio expected return.
Basic balance: In a balance of payments, the basic balance is the net balance of the combination of the current account and the capital account.
Basic business strategies: Key strategies a firm intends to pursue in carrying out its business plan.
Basic IRR rule: Accept the project if IRR is greater than the discount rate; reject the project is lower than the discount rate.
Basis: Regarding a futures contract, the difference between the cash price and the futures price observed in the market. Also, it is the price an investor pays for a security plus any out-of-pocket expenses. It is used to determine capital gains or losses for tax purposes when the stock is sold.
Basis point: In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage point of yield in bonds equals 100 basis points. Basis points also are used for interest rates. An interest rate of 5% is 50 basis points greater than an interest rate of 4.5%.
Basis price: Price expressed in terms of yield to maturity or annual rate of return.
Basis risk: The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for price risk.
Basket options: Packages that involve the exchange of more than two currencies against a base currency at expiration. The basket option buyer purchases the right, but not the obligation, to receive designated currencies in exchange for a base currency, either at the prevailing spot market rate or at a prearranged rate of exchange. A basket option is generally used by multinational corporations with multicurrency cash flows since it is generally cheaper to buy an option on a basket of currencies than to buy individual options on each of the currencies that make up the basket.
Bear: An investor who believes a stock or the overall market will decline. A bear market is a prolonged period of falling stock prices, usually by 20% or more.
Bearer bond: bonds that are not registered on the books of the issuer. Such bonds are held in physical form by the owner, who receives interest payments by physically detaching coupons from the bond certificate and delivering them to the paying agent.
Bear market: Any market in which prices are in a declining trend.
Bear raid: A situation in which large traders sell positions with the intention of driving prices down.
Before-tax profit margin: The ratio of net income before taxes to net sales.