DC
See defined contribution.

DCF
See discounted cash flow.

Debenture
Loan made to a company, secured against its assets.

Debt Capital Markets (DCM)
The environment in which the issuance and trading of debt securities occurs. Debt is often used as an alternative to financing through equity, and can add diversity to funding.

Debt/equity ratio
Company’s borrowings divided by its issued share capital. It is a measure of the amount of gearing (leverage) of a company and an indicator of financial strength. A company with a higher debt/equity ratio can offer greater returns to shareholders, but these will be more volatile than if the gearing were lower.

Decile
Relative ranking (in tenths) of a particular portfolio (or manager) in a league table of returns. For example, a decile ranking of 1 (or “top decile”) indicates a performance in the top 10% of portfolios surveyed, a decile ranking of 2 (or “second decile”) indicates performance in the next 10%, and so on.

DAX index
Stock market index of 30 leading German shares.

DB
See defined benefit.

Deep discount bond
Bond priced significantly below face value, typically a zero coupon bond or a distressed bond.

Default
a.Failure to pay interest or principal promptly when due.
b.Failure to make margin payments on a futures contract.
c.Failure to comply with other conditions of an obligation or agreement.

Defensive stock
Stock which is expected to be less volatile than the overall market — for example, utilities stocks. (See also cyclical stock.)

Deferred annuity
Annuity whose payments commence from a future date. Deferred annuities can be bought from an insurance company to secure a pension in the future.

Defined benefit (DB)
Pension arrangement where the benefits payable to members are clearly specified, usually as a percentage of salary at, or near, retirement. The contributions that are required to ensure that this commitment can be met will vary depending on the plan’s investment and demographic experience and the benefits to be provided. The employer bears the investment risk in such an arrangement.

Defined contribution (DC)
Pension arrangement where the rate of contribution paid by the employer and/or the employee is defined (usually a percentage of salary). The benefits paid to members will depend on the contributions paid into the plan on behalf of the member, the investment return earned on those contributions, and the terms available at retirement for converting the fund into a pension. The employee/member bears the investment risk in such an arrangement. Also known as money purchase.

Deflation
Decline in the prices of goods and services— that is, the opposite of inflation.

Delta hedging
Strategy for combining derivatives with holdings in the underlying assets in such a way that the price of the overall portfolio does not change with small instantaneous changes in the price of the underlying asset. Used by investment banks, for example, to control risks in their derivative positions.

Derivative
Financial instrument whose value is dependent on the value of an underlying index, currency, commodity or other asset. Examples include options, futures, forwards and swaps.

Deterministic modelling
Liability-matching modelling that assumes that the liability payments and the asset cash flows are known with certainty.

Devaluation
Formal reduction in the value of a currency relative to other currencies or, historically, to the price of gold. This is different from depreciation, which is the gradual reduction in the value of a currency through market movements.

Development capital
Capital investment into companies which are generally profitable but which require further equity finance to expand.

Dilution
Reduction in earnings per share and book value per share due to an increase in the number of shares issued. This can occur if convertible securities are converted, if warrants or stock options are exercised, or if a rights issue or scrip issue takes place.

Dilution levy
Charge levied on a new investor entering or leaving a pooled fund to ensure that other investors in the fund do not suffer the trading costs of the new investor.

Dirty fees
Fund management fees to which extra (often non-explicit) charges are added, for example, for custody, overseas transactions, etc.

Discount broker
Stockbroker who charges lower commission rates than a full service stockbroker but usually provides a more limited service.

Discount rate
Rate of interest used to convert a cash amount occurring in the future into a present value.

Discounted cash flow (DCF)
Process by which future cash flows (for example, dividends or interest payments) are adjusted to allow for the time value of money to arrive at a value in today’s terms. Discounted cash flow models are used to determine the fair value of securities, capital projects and corporate entities. (See also net present value.)

Discretionary mandate
Instruction given to an investment manager, giving the manager total decision-making authority to manage the assets against a specified benchmark.

Distressed debt
Corporate debt where the originator of the debt (the borrowing company) is currently in or approaching financial distress, such that default on the debt has either occurred or is imminent. (See also junk bond.)

Diversified growth fund
Actively managed fund designed to generate investment return by investing in a range of growth-seeking asset classes, such as equities, property, commodities, private equity, corporate bonds, etc.

Diversification
Risk management technique which involves spreading investments across a range of different investment opportunities, thus helping to reduce overall risk. The risk reduction arises from the different investments not being perfectly correlated. Diversification can apply at various levels, that is, diversification between countries, asset classes, sectors and individual securities. Diversification reduces both the upside and downside potential and allows for more consistent performance under a wide range of economic conditions.

Dividend
Discretionary payment out of profits by a company to its shareholders.

Dividend cover
Company’s post-tax earnings divided by the total amount it has paid in dividends for a particular period. This is an indication of a company’s ability to maintain its dividend rate.

Dividend discount model
Model used to estimate a security’s value by performing a discounted cash flow analysis of future expected dividends.

Dividend yield
Return to investors represented by a company’s dividend per share divided by its current share price.

DJIA
See Dow Jones index.

Double tax agreements
Agreements between countries to offset tax liabilities in one country against those in another, so that the same or similar taxes will not be paid twice.

Dow Jones index (DJIA)
The Dow Jones Industrial Average index. It is the most frequently quoted measure of the performance of industrial stocks on the New York Stock Exchange. It covers a relatively small number of leading shares, but nonetheless its movements can influence other stock markets.

Downgrade
When a bond’s credit rating is lowered. Usually caused by an event such as a negative trading statement by the issuer, which in turn increases the risk that it might be unable to meet its future payment obligations.

Draw down (private equity)
Call on part or all of an investor’s outstanding commitment to a private equity fund.

Due diligence
Investigation and verification of material facts regarding a proposed transaction. For example, the potential purchaser of a company would undertake due diligence before completing the deal, requesting access from the target company to information that is not publicly available.

Duration
Average term (in years) of the payments from a bond, taking into account the present value of each payment. The longer the duration, the more sensitive the price of the stock to changes in interest rates. (See also modified duration, convexity.)

Dynamic asset allocation (DAA)
Any portfolio investment strategy where the proportion of the portfolio invested in a given asset class is varied over time.

Dynamic portfolio insurance (DPI)
Form of portfolio insurance in which the amount invested in the risky asset is variable. Most DPI approaches involve selling assets where returns have been weak in order to ensure that the targeted level of return is achieved. (See portfolio insurance.)

Daily Trading Limit
The maximum price range set by the exchange each day for a contract.

Day Traders
Speculators who take positions in futures or options contracts and liquidate them prior to the close of the same trading day.

Deferred (Delivery) Month
The more distant month(s) in which trading is taking place, as distinguished from the nearby (delivery) month.

Deliverable Grades
The standard grades of commodities or instruments listed in the rules of the exchanges that must be met when delivering cash commodities against futures contracts. Grades are often accompanied by a schedule of discounts and premiums allowable for delivery of commodities of lesser or greater quality than the standard called for by the exchange. Also referred to as contract grades.

Delivery
The transfer of the cash commodity from the seller of a futures contract to the buyer of a futures contract. Each futures exchange has specific procedures for delivery of a cash commodity. Some futures contracts, such as stock index contracts, are cash settled.

Delivery Day
The exchange designated day in the delivery process at the relevant exchange, when the buyer’s clearing firm presents the delivery notice with a certified check for the amount due at the office of the seller’s clearing firm.

Delivery Month
A specific month in which delivery may take place under the terms of a contract. Also referred to as contract month.

Delivery Points
The locations and facilities designated by an exchange where stocks of a commodity may be delivered in fulfillment of a contract, under procedures established by the exchange.

Delta
A measure of how much an option premium changes, given a unit change in the underlying asset’s price. Delta often is interpreted as the probability that the option will be in-the-money by expiration.

Demand, Law
The relationship between product demand and price.

Differentials
Price differences between classes, grades, and delivery locations of various stocks of the same commodity.

Discount
When a derivative is trading below the current market price it is said to be trading “at a discount.” A futures market that is trading below the level of the spot market is said to be trading at a discount.

Discount Method
A method of paying interest by issuing a security at less than par and repaying par value at maturity. The difference between the higher par value and the lower purchase price is the interest.

Discount Rate
The interest rate charged on loans by the Federal Reserve to member banks.

Discretionary Account
An arrangement by which the holder of the account gives written power of attorney to person, often his broker, to make trading decisions. Also known as a controlled or managed account.

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