Face value/Par value: In bond investing, face value, or par value, is
commonly referred to the amount paid to a bondholder at the maturity
date, given the issuer doesn't default. However, bonds sold on the
secondary market fluctuate with interest rates. For example, if interest
rates are higher than the bond's coupon rate, then the bond is sold at a
discount (below par). Conversely, if interest rates are lower than the
bond's coupon rate, then the bond is sold at a premium (above par).
Coupon/Coupon rate: The coupon or coupon rate of a bond is the
amount of interest paid per year expressed as a percentage of the face
value of the bond. It is the interest rate that a bond issuer will pay to a
bondholder. For example, For example if you hold $10,000 nominal of a
bond described as a 4.5% loan stock, you will receive $450 in interest
each year (probably in two installments of $225 each).
Not all bonds have coupons.
Zerocoupon bonds are those which do
not pay interest, but are sold at the initial offering to investors at a price
less than the par value. When held to maturity, the bond is redeemed for
par value.
Convertibility: Currency Convertibility refers to the ease with which a
country's currency can be converted into gold or another currency.
Convertibility is extremely important for international commerce. When a
currency in inconvertible, it poses a risk and barrier to trade with
foreigners who have no need for the domestic currency.
Government restrictions can often result in a currency with a low
convertibility.
Convertible bond: In finance, it refers to a convertible note (or, if it
has a maturity of greater than 10 years, a convertible debenture) is a type
of bond that the holder can convert into shares of common stock in the
issuing company or cash of equal value, at an agreedupon
price. It is a hybrid security with debtand equitylike features. Although it typically
has a low coupon rate, the instrument carries additional value through the
option to convert the bond to stock, and thereby participate in further
growth in the company's equity value. The investor receives the potential
upside of conversion into equity while protecting downside with cash flow
from the coupon payments.
Revertible: Refers to a special kind of convertible corporate bond
that automatically converts itself into shares of the company's stock in the
event that the underlying stock drops below a certain price. This stands in
contrast to traditional convertible bonds, which the bondholder may or
may not choose to convert into shares of company stock. These revertible
bonds generally have a time limit or expiration date when the bond will
automatically convert into stock or forever remain a bond. Typically, these
bonds pay very high interest rates and are offered by companies that are
considered wellbelow investment grade. They are also known as reverse
convertible bonds.
Soft Currency vs. Hard Currency: Soft currency or "weak currency".
The values of soft currencies fluctuate often, and other countries do not
want to hold these currencies due to political or economic uncertainty
within the country with the soft currency. Currencies from most developing
countries are considered to be soft currencies. Often, governments from
these developing countries will set unrealistically high exchange rates,
pegging their currency to a currency such as the U.S. dollar.
While Hard currency, usually from a highly industrialized country, that is
widely accepted around the world as a form of payment for goods and
services. A hard currency is expected to remain relatively stable through a
short period of time, and to be highly liquid in the forex market.
Another criterion for a hard currency is that the currency must come from
a politically and economically stable country. The U.S. dollar and the
British pound are good examples of hard currencies.
Pegging:
1. A method of stabilizing a country's currency by fixing its
exchange rate to that of another country.
2. A practice of and investor buying large amounts of an underlying
commodity or security close to the expiry date of a derivative held by the
investor. This is done to encourage a favorable move in market price.
Capping: It refers to the practice of selling large amounts of a
commodity or security close to the options expiry date in order to prevent
a rise in market price or an attempt to keep a stock's price low or move its
price lower by putting selling pressure on it.
Chit fund: A Chit Fund is a kind of savings scheme practiced in India.
In a chit scheme, a specific number of individuals come together to pool a
specific amount of money at periodic intervals. Usually the number of
individuals and the number of periods will be the same. At the end of each
period, there will be an auction of the money. Members of the chit fund
will participate in this auction for the pooled money during that interval.
The money will be given to the highest bidder. The bid amount will be
divided by number of members, and thus determining per head
contribution during that period. Usually the discount will continue to
decrease over periods. The person getting money in the last period will
receive the full scheme amount.
Mutual Fund: An investment vehicle that is made up of a pool of
funds collected from many investors for the purpose of investing in
securities such as stocks, bonds, money market instruments and similar
assets. Mutual funds are operated by money mangers, who invest the
fund's capital and attempt to produce capital gains and income for the
fund's investors. A mutual fund's portfolio is structured and maintained to
match the investment objectives stated in its prospectus.
One of the main advantages of mutual funds is that they give small
investors access to professionally managed, diversified portfolios of
equities, bonds and other securities, which would be quite difficult (if not
impossible) to create with a small amount of capital. Each shareholder
participates proportionally in the gain or loss of the fund. Mutual fund
units, or shares, are issued and can typically be purchased or redeemed as
needed at the fund's current net asset value (NAV) per share, which is
sometimes expressed as NAVPS.
YShare:
A class of mutual fund shares that often has a high
minimum investment, such as $500,000 per lot, and the added benefit of
waived or limited load charges and fees. Due to the high minimum
investment required, Yshares are often only accessible by large nstitutional investors.
ZShare:
A class of mutual fund shares that employees of the fund's
management company are allowed to own. Employees may have the
option of buying Zshares or receiving them as a part of compensation or a
reward package. While Zclass shares would be sold at the current net asset value, firms
may match the amount of shares purchased to act as a bonus for
employees. Employees gain the advantage of receiving an asset that will
benefit their own retirementplanning purposes (perhaps with the prospect
of receiving bonus shares), whereas employers benefit from possibly
fostering better longterm loyalty from the employee.
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