SHOP

The study of the entire economy in terms of total goods and services produced, total income earned, the level of employment and the general behavior of prices.

A measurement of the price sensitivity of a fixed income security to changes in interest rates. Macaulay duration is measured in years and is the weighted average of the security’s cash flows.

A party is said to be long an instrument when he or she owns the instrument.

Reserves which are intended to absorb anticipated, or expected, losses. Provision for loan losses is an expense item in the income statement.

An acronym for London Interbank Offered Rate. This interest rate used to be the standard rate for quoting interbank lendings of Eurocurrency deposits. It is no longer used.

A bond portfolio construction strategy in which equal amounts are invested in every maturity within a given range.

See Barrier Option.

See Barrier Option.

See High Yield Bond.

A measure of risk-adjusted performance that is the average return on a portfolio over and above that predicted by CAPM, given the portfolio’s beta and the average market return. Also known as Jensen’s alpha, measures the excess return above the market return based on the portfolio’s beta.

A formal written plan, which communicates the long-term investment objectives, constraints and guidelines to be followed for achieving investors’ objectives. It lays down the possible courses of action that have to be followed to achieve the investment objectives.

The time period over which an investor wishes to keep his money invested. Investment horizon varies from one investor to another depending on their investment objectives in terms of risk, return, market conditions and most importantly their liability profiles.