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TERMINOLOGY 1.

Option: In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfill the transaction. American Option: American option is the option that can be exercised anytime during its life. The majority of exchange-traded options are American. American options allow investors more opportunities to exercise the contract European Option: An option that can only be exercised at the end of its life, at its maturity. European options tend to sometimes trade at a discount to its comparable American option. 2. Ask Price: The price a seller is willing to accept for a security, also known as the offer price. Along with the price, the ask quote will generally also stipulate the amount of the security willing to be sold at that price.

3. Bid Price: The price a buyer is willing to pay for a security. This is one part of the bid with the other being the bid size, which details the amount of shares the investor is willing to purchase at the bid price. The opposite of the bid is the ask price, which is the price a seller is looking to get for his or her shares. 4. Call Option: Call option is an agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period. 5. Put Option: An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares. 6. Closed end investment company: Closed-end investment companies issue a fixed number of shares to the public in an initial public offering, after which time shares in the fund are bought and sold on a stock exchange, and they are not obligated to issue new shares or redeem outstanding shares as open-end funds are. The price of a share in a closedend investment company is determined entirely by market demand, so shares can either trade below their net asset value ("at a discount") or above it ("at a premium"). 7. Direct placement: Direct placement is -selling a new issue not by offering it for sale publicly, but by placing it with one of several institutional investors. Also known as a private placement. 8. Factoring: Factoring is a financial transaction whereby a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. In "advance" factoring, the factor provides financing to the seller of the accounts in the form of a cash "advance," often 70-85% of the purchase price of the accounts, with the balance of the purchase price being paid, net of the factor's discount fee (commission) and other charges, upon collection. In

"maturity" factoring, the factor makes no advance on the purchased accounts; rather, the purchase price is paid on or about the average maturity date of the accounts being purchased in the batch. 9. Financial Derivatives: The derivative is a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage. Futures contracts, forward contracts, options and swaps are the most common types of derivatives. 10. Financial Engineering: Financial Engineering is the creation of new and improved financial products through innovative design or repackaging of existing financial instruments. Financial engineers use various mathematical tools in order to create new investment strategies. The new products created by financial engineers can serve as solutions to problems or as ways to maximize returns from potential investment opportunities. 12. Forward Exchange Rate: The forward exchange rate is the rate at which a bank is willing to exchange one currency for another at some specified future date. The forward exchange rate is a type of forward price. It is the exchange rate negotiated today between a bank and a client upon entering into a forward contract agreeing to buy or sell some amount of foreign currency at a future date. The forward exchange rate is determined by the relationship among the spot exchange rate and differences in interest rates between two countries. 13. Future Market: An auction market in which participants buy and sell commodity/future contracts for delivery on a specified future date. Trading is carried on through open yelling and hand signals in a trading pit. 14. Hedging : Hedging is a risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies. Hedging employs various techniques but, basically, involves taking equal and opposite positions in two different markets (such as cash and futures markets). Hedging is used also in protecting one's capital against effects of inflation through investing in high-yield financial instruments(bonds, notes, shares), real estate, or precious metals. 15. Initial Public Offering (IPO): Initial Public Offering is the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. 16. Inter Bank Deposit: Any deposit that is held by one bank for another bank. In most cases, the bank for which the deposit is being held is referred to as the correspondent bank. The inter bank deposit arrangement requires that both banks hold a "due to account" for the other. 17. Investment Bank: Investment Bank is a financial intermediary that performs a variety of services. This includes underwriting, acting as an intermediary between an issuer of securities 2

and the investing public, facilitating mergers and other corporate reorganizations, and also acting as a broker for institutional clients. 18. Limit Order: Limit order is an order placed with a brokerage to buy or sell a set number of shares at a specified price or better. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled. 19. Circuit Breaker: Circuit Breaker refers to any of the measures used by stock exchanges during large sell-offs to avert panic selling. After an index has fallen a certain percentage, the exchange might activate trading halts or restrictions on program trading. 20. Long Position: In finance, a long position in a security, such as a stock or a bond, or equivalently to be long in a security, means the holder of the position owns the security and will profit if the price of the security goes up. The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value. 21. Market Makers: Market maker is a broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security. Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the market maker immediately sells from its own inventory or seeks an offsetting order. This process takes place in mere seconds. 22. Merchant Banking: The term merchant banking is generally understood to mean negotiated private equity investment by financial institutions in the unregistered securities of either privately or publicly held companies. A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. Both commercial banks and investment banks may engage in merchant banking activities. 23. Mutual Funds: 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 managers, 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. 24. Offshore Banking: An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. These advantages typically include: greater privacy low or no taxation (i.e. tax havens) easy access to deposits (at least in terms of regulation) protection against local political or financial instability 25. Open Ended Investment Company - OEIC: Open Ended Investment Company is a type of company or fund that is structured to invest in other companies with the ability

to adjust constantly its investment criteria and fund size. There are no bid and ask quotes on the OEIC shares; buyers and sellers receive the same price. 26. OTC market: A decentralized market of securities not listed on an exchange where market participants trade over the telephone, facsimile or electronic network instead of a physical trading floor. There is no central exchange or meeting place for this market. In the OTC market, trading occurs via a network of middlemen, called dealers, who carry inventories of securities to facilitate the buy and sell orders of investors, rather than providing the order matchmaking service seen in specialist exchanges. 27. Private Placement: Private Placement is the sale of securities to a relatively small number of selected investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. Private placement is the opposite of a public issue, in which securities are made available for sale on the open market. 28. Public Issues: Public Issue is offering a new issue of stock for sale to the public. 29. Repurchase Agreement: Repurchase Agreement Repo' is a form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day. For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement. 30. Securitization: Securitization is the process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors. The process can encompass any type of financial asset and promotes liquidity in the marketplace. 31. Short Position: Short Position is the sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value. 32. Stock Index: A stock market index is a method of measuring a section of the stock market. Many indices are cited by news or financial services firms and are used as benchmarks, to measure the performance of portfolios such as mutual funds. Alternatively, an index may also be considered as an instrument (after all it can be traded) which derives its value from other instruments or indices. The index may be weighted to reflect the market capitalization of its components, or may be a simple index which merely represents the net change in the prices of the underlying instruments. 33. Swaps: Swap is the exchange of one security for another to change the maturity (bonds), quality of issues (stocks or bonds), or because investment objectives have changed. Recently, swaps have grown to include currency swaps and interest rate swaps. 34. SWIFT: The Society for Worldwide Interbank Financial Telecommunication 4

("SWIFT") operates a worldwide financial messaging network which exchanges messages between banks and other financial institutions. The majority of international interbank messages use the SWIFT network. SWIFT does not facilitate funds transfer, rather, it sends payment orders, which must be settled via correspondent accounts that the institutions have with each other. Each financial institution, to exchange banking transactions, must have a banking relationship by either being a bank or affiliating itself with one (or more) so as to enjoy those particular business features. 35. Third Market: Trading by non exchange-member brokers/dealers and institutional investors of exchange-listed stocks. In other words, the third market involves exchange-listed securities that are being traded over-the-counter between brokers/dealers and large institutional investors. 36. Fourth Market: Fourth Market is the trading of exchange-listed securities between institutions on a private over-the-counter computer network, rather than over a recognized exchange. Trades between institutions will often be made in large blocks and without a broker, allowing the institutions to avoid brokerage fees. 37. Venture Capital: Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns. 38. Leveraged Buy Out(LBO) : Leveraged Buy Out(LBO) is the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital. 39. Junk Bond: A Junk bond (high-yield bond, non-investment-grade bond or speculativegrade bond) is a bond that is rated below investment grade. These bonds have a higher risk of default or other adverse credit events, but typically pay higher yields than better quality bonds in order to make them attractive to investors. 40. Replacement Risk: Replacement Risk is the risk that a contract holder will know that the counterparty will be unable to meet the terms of a contract, creating the need for a replacement contract. 41. Operational Risk: operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. This is a risk arising from execution of a company's business functions. It is a very broad concept which focuses on the risks arising from the people, systems and processes through which a company operates. It also includes other categories such as fraud risks, legal risks, physical or environmental risks. 42. Carry: The carry of an asset is the return obtained from holding it (if positive), or the cost of holding it (if negative).

43. Euro Bonds: A Eurobond is an international bond that is denominated in a currency not native to the country where it is issued. Also called external bond; 44. Euro Market: Euro Market is the market that includes all of the European Union member countries - many of which use the same currency, the euro. All tariffs between Euro market member countries have been abolished, and import duties from all non-member countries have been fixed for all of the member countries. The Euro market also has one central bank for all of the member countries, the European Central Bank (ECB). 45. Underwriting: Underwriting is the process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 46. Centralized Market: A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset. 47. Secondary Market: A market where investors purchase securities or assets from other investors, rather than from issuing companies themselves. In this financial market previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. In any secondary market trade, the cash proceeds go to an investor rather than to the underlying company/entity directly. 48. Bankers Acceptance: A banker's acceptance, or BA, is a promised future payment, or time draft, which is accepted and guaranteed by a bank and drawn on a deposit at the bank. The banker's acceptance specifies the amount of money, the date, and the person to which the payment is due. After acceptance, the draft becomes an unconditional liability of the bank. But the holder of the draft can sell (exchange) it for cash at a discount to a buyer who is willing to wait until the maturity date for the funds in the deposit. 49. Mortgage market: The market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction. Mortgage brokers, mortgage bankers, credit unions and banks are all part of the primary mortgage market. After being originated in the primary mortgage market, most mortgages are sold into the secondary mortgage market. Unknown to many borrowers is that their mortgages usually end up as part of a package of mortgages that comprise a mortgage-backed security (MBS), assetbacked security (ABS) or collateralized debt obligation (CDO). 50. Certificate of Deposit: A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty.

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