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Glossary of Important Financial Terms

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Term Definition
Rights

An offering of shares to existing shareholders. It allows shareholders to subscribe to new shares in proportion to the shares they own in a company. Rights are a way for companies to raise capital from shareholders (as opposed to from borrowings or from new investors)

Sovereign Wealth Fund (SWF)

A Sovereign Wealth Fund is one that is established by governments to invest their financial reserves. Besides targeting profitable returns, a SWF may also sometimes invest in companies which are deemed as strategic to a government. Such funds are not open to the general public for investment.

Spread (Currency)

The difference between the bid and ask (or buy and sell price) of a pair of currencies. The bigger the spread, the greater the loss when one converts between currencies.

Sub-Prime

Derived from the word “prime”, it refers to less-than-favoured customers. Sub-prime loans are loans to borrowers who are at a higher risk of default.

Technical Analysis (TA)

An investment method for stcoks and currencies which attempts to predict future performance though the analysis of short-term historical price and volume trends.

Term Loan

A loan which is repaid via regular periodic repayments. For example, a term loan may be structured such that 10% per annum simple interest is charged on a principle of $10,000 over five years. The monthly repayment installment is thus $250 ($10,000 principle plus $5,000 in interest, divided by 60 months).

Trailer Fee

A trailer fee is the annual service fee that the manager of a unit trust pays to the person who sold the fund (or acted as the adviser) to the investor. The trailer fee is invisible to the investor, as it is part of a unit trust's management fee (and hence ultimately paid out of the assets of the unit trust).

Trailing Twelth Months (TTM)

TTM is used by stock analysts to measure a company's financial ratios (in particular those related to earnings and revenue) in the preceding twelve months . This enables a direct full-year comparison between companies whose financial years are out-of-phase with each other. See also entry on MRQ (Most Recent Quarter).

Treasury Bills or T-Bills

Treasury bills are similar to bonds, except they are issued by governments to support public expenditure.

Trust

(1) Refers to either a legal arrangement in which assets are managed by a trustor on behalf of a trustee (beneficiary). Often used for estate planning purposes or to defer the distribution of assets willed to young beneficiaries until they come of age. (2) Refers to a financial entity which is authorized to invest the funds pooled together by individuals, usually in fixed-income generating assets

Unit Trust (also known as Mutual Fund)

Unit trusts are investment funds which the general public can subscribe to. Each unit trust generally has a specific geographic (e.g. Europe or Asia), industry (e.g. High-Tech) or market (e.g. emerging markets) focus. A unit-trust is open-ended, meaning that new trust units can be continually be issued to new investors who bring money into the fund. The motivation behind unit trusts is that through collective investment, investors can diversify their risks and get better returns via servicees of a professional fund manager. Unit trusts usually carry an initial sales charge and an annual management fee. Occasionally, peformance-linked fees are are imposed.

Warrants

A warrant is a certificate which entitles the holder to buy (call warrant) or sell (put warrant) a fixed number of shares in a company at a pre-determined price on an expiry date. Unlike a convertible bond, a warrant however pays no interest and becomes worthless upon expiry. A warrant may be issued either by a company to raise funds or sometimes by a financial institution which may hold shares in that company. A warrant can thus be used to bet on the future price of an underlying share, but a fraction of the cost buy the underlying shares. Warrant are usually traded on a stock exchange like shares.

Wrap Fee

A wrap fee is an recurring charge for bundled investment services such as advisory, switching, administrative and brokerage fees, levied by investment advisers on their clients.

Yield

Generally refers to the annual rate of returns from fixed-income products such as government treasury bills and corporate bonds. Extensible to other stable-income generating trusts and funds.

Zero Coupon Bond

A bond that does not pay interest during its lifespan but is instead sold at a discount to its face value. At maturity, the bondholder receives the face value of the bond.

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