Investment Terms

In probability theory, the central limit theorem states that the distribution of a sample variable approximates a normal distribution as the sample size becomes larger, assuming that all samples are identical in size, and regardless of the population's actual distribution shape. CLT is a statistical premise that given a sufficiently large sample size from a population with a finite level of v...

The acid-test ratio also commonly known as the quick ratio, measures the liquidity of a company by calculating how well current assets can cover current liabilities. The quick ratio uses only the most liquid current assets that can be converted to cash within 90 days or less. The acid-test, or quick ratio, involves assessing a company's balance sheet to see whether it has enough funding on ha...

A product recall is a process of retrieving defective and/or potentially unsafe goods from consumers while providing those consumers with compensation. Recalls often occur as a result of safety concerns over a manufacturing defect in a product that may harm its user. A product recall may be voluntary or mandated by a regulatory body such as the Consumer Product Safety Commission in the U.S. Produc...

A military bank is a financial institution that offers services tailored to members of the armed forces. Military banks are popular among service people because they offer various types of specialized accounts, perks and benefits, and services and options accommodating military lifestyles. Though some banks target a broader audience, military banks primarily focus on and cater to military personne...

Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, affluence, and business success. They are often preppy in appearance and like to show off their success by their style and possessions. The term yuppie originated in the 1980s and is used to refer to young urban professionals who are successful in business and considerably aff...

Unicorn is a term used in the venture capital industry to describe a privately held startup company with a value of over $1 billion. The term was first popularized by venture capitalist Aileen Lee, founder of Cowboy Ventures, a seed-stage venture capital fund based in Palo Alto, California. Unicorns can also refer to a recruitment phenomenon within the human resources (HR) sector. HR managers may...

A yacht, it’s fair to say, is a luxury item and so particularly in need of protection. Yacht insurance is an insurance policy that provides indemnity liability coverage for a sailing vessel. It includes liability coverage for bodily injury or damage to the property of others and damage to personal property on the vessel. Depending on the insurance provider, this insurance could also include gas de...

ZCash is a cryptocurrency with a decentralized blockchain that seeks to provide anonymity for its users and their transactions. As a digital currency, ZCash is similar to Bitcoin. Like Bitcoin, ZCash also has an including its open-source code, but its major differences lie in the level of privacy and fungibility that each provides. ZCash is a cryptocurrency with a decentralized blockchain that see...

Alpha is a term used in investing to describe an investment strategy's ability to beat the market or its edge. Alpha is thus also often referred to as excess return or abnormal rate of return, which refers to the idea that markets are efficient, and so there is no way to systematically earn returns that exceed the broad market as a whole. Alpha is often used in conjunction with beta which mea...

The just-in-time inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules. Companies employ this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs. This method requires producers to forecast demand accurately. The just-in-...

Heteroskedasticity happens when the standard deviations of a predicted variable, monitored over different values of an independent variable or as related to prior time periods, are non-constant. With heteroskedasticity, the tell-tale sign upon visual inspection of the residual errors is that they will tend to fan out over time, as depicted in the image below. Heteroskedasticity often arises in two...

The term indemnity insurance refers to an insurance policy that compensates an insured party for certain unexpected damages or losses up to a certain limit—usually the amount of the loss itself. Insurance companies provide coverage in exchange for premiums paid by the insured parties. These policies are commonly designed to protect professionals and business owners when they are found to be at fau...

A stablecoin is a class of cryptocurrencies that attempt to offer price stability and are backed by a reserve asset. Stablecoins have gained traction as they attempt to offer the best of both worlds—the instant processing and security or privacy of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies. Stablecoins are cryptocurrencies that attempt to peg their...

An angel investor is a high-net-worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company. Often, angel investors are found among an entrepreneur's family and friends. The funds that angel investors provide may be a one-time investment to help the business get off the ground or an ongoing injection to support...

Government security applies to a range of investment products offered by a governmental body. For most readers, the most common types of government securities are those items issued by the U.S. Treasury in the form of Treasury bonds, bills, and notes. However, the governments of many nations will issue these debt instruments to fund necessary ongoing operations. Government securities come with a p...

Capacity utilization rate measures the percentage of an organization's potential output that is actually being realized. The capacity utilization rate of a company or a national economy may be measured in order to provide insight into how well it is reaching its potential. The formula for finding the rate is: (Actual Output / Potential Output ) x 100 = Capacity Utilization Rate A number under...

A Bollinger Band is a technical analysis tool defined by a set of trendlines plotted two standard deviations (positively and negatively) away from a simple moving average of a security's price, but which can be adjusted to user preferences. Bollinger Bands were developed and copyrighted by famous technical trader John Bollinger, designed to discover opportunities that give investors a higher...

The term American depositary receipt refers to a negotiable certificate issued by a U.S. depositary bank representing a specified number of shares of a foreign company's stock. The ADR trades on U.S. stock markets as any domestic shares would. ADRs offer U.S. investors a way to purchase stock in overseas companies that would not otherwise be available. Foreign firms also benefit, as ADRs enab...

An automated teller machine is an electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative or teller. Anyone with a credit card or debit card can access cash at most ATMs. ATMs are convenient, allowing consumers to perform quick self-service transactions such as deposits, cash withdrawals, bill payments, and transfers between account...

The Bank Panic of 1907 was a short-lived banking and financial crisis in the U.S. that occurred at the beginning of the twentieth century. It resulted from the collapse of highly-leveraged speculative investments propagated by easy money policies pursued by the U.S. Treasury in the preceding years. This led to runs on New York banks and trust companies that had been financing these risky investmen...

The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when t...

Share of wallet is the dollar amount an average customer regularly devotes to a particular brand rather than to competing brands in the same product category. Companies try to maximize an existing customer's share of wallet by introducing multiple products and services to generate as much revenue as possible from each customer. A marketing campaign, for example, may have a stated goal of incr...

Stress testing is a computer simulation technique used to test the resilience of institutions and investment portfolios against possible future financial situations. Such testing is customarily used by the financial industry to help gauge investment risk and the adequacy of assets and help evaluate internal processes and controls. In recent years, regulators have also required financial institutio...

A sunk cost refers to money that has already been spent and cannot be recovered. In business, the axiom that one has to spend money to make money is reflected in the phenomenon of the sunk cost. A sunk cost differs from future costs that a business may face, such as decisions about inventory purchase costs or product pricing. Sunk costs are excluded from future business decisions because the cost...

An inverse floater is a bond or other type of debt whose coupon rate has an inverse relationship to a benchmark rate. An inverse floater adjusts its coupon payment as the interest rate changes. An inverse floater is also known as an inverse floating rate note or a reverse floater. Governments and corporations are the typical issuers of these bonds, which they sell to investors in order to raise fu...