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- Ultradot
- Applies to derivative products. Firm proprietary
software that stores, edits and sends baskets of stock through S.E.A.Q. to
either the N.Y.S.E. or the curb for program trading.
Unbiased predictor - A theory that spot
prices at some future date will be equal to today's forward
rates.
Unbundling - When a multinational firm unbundles its transfer of
funds into separate flows for specific purposes. See: bundling.
Uncovered call - A short call option position
in which the writer does not own shares of underlying stock represented by his option
contracts. Also called a "naked" asset, it is much riskier
for the writer than a covered call, where the
writer owns the underlying stock. If the buyer of a call exercises the option
to call, the writer would be forced to buy the asset at
current market price.
Uncovered put - A short put option position
in which the writer does not have a corresponding short stock position or has not
deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put.
Also called "naked" puts, the writer has pledged to buy
the asset at a certain price if the buyer of the options
chooses to exercise it. The nature of uncovered call options means the writer's risk is unlimited. With uncovered put options, the risk is
limited to the value of the stock (adjusted for premium received.)
Underfunded pension plan
- A pension plan
that has a negative surplus (i.e., liabilities exceed assets).
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- Underinvestment problem
- The mirror image of the asset substitution problem, wherein stockholders refuse to invest in low-risk assets to avoid shifting wealth from themselves to the debtholders.
Underlying - The "something" that the parties agree to
exchange in a derivative contract.
Underlying asset - The asset that an option gives the option holder the right to buy or to sell.
Underlying security - For options, the security
subject to being purchased or sold upon exercise of an option contract. For
example, IBM stock is the underlying security
to IBM options. For Depository receipts,
the class, series and
number of the foreign shares represented by the
depository receipt.
Underperform - When a security
is expected to, or does appreciate at a slower rate than the overall market.
Underpricing - Issue of securities below their market
value.
Under the belt - Used in the context of general equities. Long position in a stock.
Underwrite - To guarantee, as to guarantee the issuer of securities a
specified price by entering into a purchase and
sale agreement. To bring securities to market.
Underwriter - A party that guarantees the proceeds to the firm
from a security sale, thereby in effect taking
ownership of the securities. Or, stated differently, a firm,
usually an investment bank, that buys an issue of securities from a company and resells it to investors.
Underwriting syndicate
- A group of investment
banks that work together to sell new security offerings to investors. The underwriting syndicate
is led by the lead underwriter. See also: lead underwriter.
Underwriting - Acting as the underwriter
in a purchase and sale.
Underwriting fee - The portion of the gross underwriting spread that
compensates the securities firms that underwrite a public offering for their underwriting risk.
Underwriting income - For an insurance company, the difference between
the premiums earned and the costs of settling claims.
Underwritten offering
- A purchase
and sale.
Undiversifiable risk - Related: Systematic
risk
Unemployment rate - The ratio of the number of people classified as
unemployed to the total labor force.
Unfunded debt - Debt maturing within
one year (short-term debt). See: funded debt.
Unilateral transfers - Items in the current
account of the balance of payments of a
country's accounting books that correspond to gifts from foreigners or pension payments to
foreign residents who once worked in the country whose balance of payments is being
considered.
Unique risk - Also called unsystematic
risk or idiosyncratic risk. Specific company risk that
can be eliminated through diversification. See: diversifiable risk and unsystematic risk.
Unit - Used in the context of general equities. More than
one class of securities
traded together (i.e., one common share and three subscription
warrants).
Unit benefit formula - Method used to determine a participant's benefits
in a defined benefit plan. Involves
multiplying years of service by the percentage of salary.
Unit investment trust
- Money invested in a portfolio
whose composition is fixed for the life of the fund. Shares
in a unit trust are called redeemable trust
certificates, and they are sold at a premium to net asset value.
Universal life - A whole
life insurance product whose investment component pays a competitive interest rate rather than the below-market crediting rate.
Unleveraged beta - The beta of an unleveraged required return
(i.e. no debt) on an investment when the investment is financed entirely by equity.
Unleveraged required return
- The required
return on an investment when the investment is financed entirely by equity (i.e. no debt).
Unlimited liability - Full liability
for the debt and other obligations of a legal entity. The general partners of a partnership have unlimited liability.
Unmatched book - If the average maturity of a bank's liabilities is less than that of its assets, it is said to be running an unmatched book. The term
is commonly used with the Euromarket. Term also
refers to the condition when a firm enters into O.T.C.
derivatives contracts and chooses to hedge
that risk by not making trades
in the opposite direction to another financial intermediary. In this case, the firm with
an unmatched book hedges its net market risk with futures and options,
usually. Related expressions: open book and short book.
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- Unseasoned
issue
- Issue of a security for which there is no existing market. See: seasoned
issue.
Unsecured debt - Debt that does not
identify specific assets that can be taken over by the debtholder in case of default.
Unsterilized intervention
- Foreign
exchange market intervention in which the monetary
authorities have not insulated their domestic money supplies from the foreign exchange
transactions.
Unsystematic risk - Also called the diversifiable risk or residual risk. The risk that is unique to a company such as a strike, the outcome
of unfavorable litigation, or a natural catastrophe that can be eliminated through diversification. Related: Systematic risk
Unwind a trade - Used in the context of general equities. Reverse a
securities transaction through an offsetting
transaction.
Up - Used in the context of general equities. Market indication, willingness to go both ways (buy or sell) at the mentioned volume and market. Print, up on the ticker tape, confirming that the trade has been executed.
Telephone board refers to the upper (versus the lower) board.
Upstairs market - A network of trading
desks for the major brokerage firms and institutional
investors that communicate with each other by means of electronic display systems and
telephones to facilitate block trades and program trades.
Upstairs order - Used for listed equity securities. Off-floor order.
Up tick - Used in the context of general equities. Plus tick.
Uptick trade - A term used to describe a transaction that took
place at a higher price than the preceding transaction involving the same security. Related:Tick-test
rules
U.S. Treasury bill - U.S. government debt
with a maturity of less than a year.
U.S. Treasury bond - U.S. government debt
with a maturity of more than 10 years.
U.S. Treasury note - U.S. government debt
with a maturity of one to 10 years.
Utility function - A mathematical expression that assigns a value to
all possible choices. In portfolio theory, the utility
function expresses the preferences of economic entities with respect to perceived risk and expected return.
Utility value - The welfare a given investor
assigns to an investment with a particular expected
return and risk.
Glossary created by Campbell R. Harvey, Professor of Finance, Fuqua
School of Business at Duke University. |
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