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Glossary of Important Financial Terms

There are 65 entries in this glossary.
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C

Term Definition
Cash Flow

The sources of inflows and outflows of cash in a company. If inflow exceeds outflow, a company's cash position rises. Cash flows are generally classified into operating, financial and investment flows.

Closed End Fund (CEF)

A closed-end fund starts as a new fund which calls for investors and is then closed for subscription once the targeted fund size is reached.

Convertible Bonds (CB)

A type of bond which pays interest and grants the holder the option (but not the obligation) of converting the bonds to shares of the company issuing the bond. A convertible bond allows the holder to benefit from potential upside from the increase in the issuer's share price. On the other hand, the issuer benefits by raising funds without immediately diluting the shareholding base of the company.

Credit Default Swaps (CDS)

A financial instrument that allows bond investors to insure against default. CDS are typically quoted in in five-year terms and denominated in basis points (bps). For example, a 500 bps five-year CDS means that it costs $5 million per year to insure $100 million of a particular debt. CDS prices of 1,000 bps and above are generally associated with distressed debts.

Current Assets

Current assets are those which can be liquidated at short notice. A company whose current liabilities well exceed its current assets would be in danger of defaulting on its debt unless new current assets are raised. Cash, fixed deposits, inventories and trade receivables are common current assets.

Current Liabilities

Current liabilities are those which are due to be repaid within one year. A company whose current liabilities well exceed its current assets would be in danger of defaulting on its debt unless new current assets are raised. Short-term loans and trade payables are common forms of current liabilities.

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