Glossary

Pension Glossary

Glossary provided courtesy of the Shareholder Association for Research and Education (SHARE).

 

 

 

Actuary: A professional in the pension area who is responsible for calculating the liabilities of pension plans and the costs of providing pension plan benefits.  In Canada, a person must be a member of the Canadian Institute of Actuaries (CIA) to be recognized as a professional actuary.

American equities: Shares in a US-based company.

Amortization: The deduction of capital expenses over a specific period of time.

Analyst: Also known as a Financial Analyst or Security Analyst. Analysts have expertise in evaluating investments, and typically are employed by brokerage firms, investment advisors or mutual funds. They make buy, sell and  hold recommendations on securities, and many specialize in industries or sectors.

Annual Report: A corporation’s annual statement of financial operations, typically a glossy, colourful publication. Annual reports include a balance sheet, income statement, auditor’s report and description of a company’s operations.

Annuity: A contract purchased from an insurance company to provide periodic (usually monthly) payments to a person for his or her lifetime.

Anti-dumping duty: Anti-dumping duties are applied to imports of a particular good from a specified country in order to eliminate the harm being caused by the dumping to the domestic industry of the importing country.

Appreciation: The increase in value of an asset.

Arbitrage: Arbitrage is the simultaneous purchase and sale of a security in order to profit from a differential in the price, usually on different exchanges or marketplaces.

Asset: Assets are cash, accounts receivable, inventory, real estate, and securities — anything of value that a corporation owns.

Asset Allocation: The division of an investment portfolio among major asset categories, such as bonds, common stocks or cash, usually to balance risk and reward appropriate for an investor’s age.

Audit committee: A group of board directors charged with overseeing the company’s financial reporting process, internal accounting and audit matters, and the selection and monitoring of external auditors.

Auditor: A firm authorized to examine and verify an organization’s accounts

Authorized shares or stocks: The number of shares that the company is permitted to issue, as outlined by its charter.  The number of authorized shares can be changed only by a vote of the company’s shareholders.

Balance of payments: An accounting statement of the money value of international transactions between one nation and the rest of the world over a specific time period.

Balance of trade: That part of a nation’s balance of payments dealing with imports and exports, that is trade in goods and services, over a given period.

Balance sheet: A company’s financial statement that reports its assets, liabilities, and net worth at a specific time. Liabilities always equal assets, hence the name “balance sheet.”

Bank of Canada: Canada’s central bank.  It is responsible for Canadian monetary policy, issuing bank notes, regulating and supporting Canada’s principal systems for clearing and settling payments, and acting as fiscal agent federal government debt.  For more information visit the Bank of Canada web site at: www.bank-banque-canada.ca/

Banker’s acceptance: Banker’s acceptances are negotiable time drafts, or bills of exchange, that have been accepted by a bank which, by accepting, assumes the obligation to pay the holder of the draft the face amount of the instrument on the maturity date specified.  They are used primarily to finance the export, import, shipment or storage of goods.

Bank rate: The minimum lending rate of the Bank of Canada.  It is applied to advances to institutions that are members of the Canadian Payments Association, and to purchase and resale transactions with key investment dealers in the money market.  It is also the primary indicator of Bank of Canada monetary policy.  The bank rate is an important tool because it is seen as the trendsetter for other short-term interest rates.  Changes in the bank rate often lead to changes in the prime rate, which is the rate of interest that commercial banks charge their lowest-risk customers.  Other rates can be affected including those for mortgages, cars and business loans, as well as rates paid to savers on deposits and investment certificates.

Basis point: One one-hundredth of a percentage point.  If the bank rate decreased from 5.45% to 5.35%, it went down 10 basis points.

Bear: An investor who believes that a stock or the market in general will decline. A bear market is an extended period of falling prices in the overall market.

Beige Book: Eight times a year, prior to FOMC (Federal Open Market Committee US) meetings, each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key businessmen, economists, market experts and other sources. The Beige Book summarizes this information by District and sector.

Benchmark bond: Specific issue outstanding within each class of bond maturity.  It is considered by the market to be the standard against which all other bonds issued in that class are evaluated.

Block trade: A trade so large (usually 10,000 shares of stock or more) that the market cannot absorb it in a reasonable time at a reasonable price.

Blue chip stock: Stock in a well-established, financially-sound and stable company that has a very good record of paying dividends.

Board of Directors: A group of persons entrusted with the overall direction of a corporate enterprise

Bond: A bond is a promise made by the government or a corporation to repay funds loaned by investors at a specific rate by a specific date. (See also yield, principal value, coupon rate, maturity, credit rating, duration, yield curve.)

Book value: Usually Book Value Per Share. Calculated by dividing the Net Worth of a Company (common stock plus retained earnings) by the number of shares outstanding. This is the accounting value of a share of stock, the value of the company’s assets a shareholder would theoretically receive if a company were liquidated.

Bridge benefit: A bridge benefit usually provides income from the date the member takes early retirement to the date when the member is entitled to receive Canada Pension Plan (CPP) or Quebec Pension Plan retirement benefits and/ or Old Age Security benefits.

Broker: An individual or company that charges a fee or commission for buying and selling securities.

Bull: An investor who thinks the market or a specific security or industry will rise. A bull market is an extended
period in which the market consistently rises.

Bureau of Labor: A research agency of the US Department of Labor; it compiles statistics on hours of work, average hourly Statistics (BLS) earnings employment and unemployment, consumer prices and many other variables.

Business cycle: The cycle of economic growth and decline. There are four stages in the business cycle: expansion, growth, contraction and recession.  Periods when real gross domestic product (GDP) is failing are called recessions; period when real GDP is rising are called recoveries.

Buy-and-hold: A long-term investing strategy in which an investor’s stock portfolio is fully invested in the market all the time.

Buyout: The purchase of a company or a controlling interest of a corporation’s shares. A leveraged buyout is accomplished with borrowed money.

Canada Pension Plan (CPP): The CPP provides an individual or his/her dependants with some financial protection if the individual becomes disabled, or when they retire or die.  The amount of CPP benefits depends on how much and for how long the individual contributes to the plan.  The CPP operates in every province and territory except Quebec, which has a similar pension program, the Quebec Pension Plan (QPP).

Canadian Securities Administrator (CSA): Security regulator that protects Canadian investors from unfair, improper, or fraudulent practices and fosters fair and efficient capital markets.

 

CANSIM (Canadian Socio-economic Information Management): Compiled by Statistics Canada and published in the Bank of Canada Review in the CANSIM system.  Information on CANSIM rates can be obtained from Statistics Canada (www.statcan.ca) or from the Bank of Canada (www.bank-banque-canada.ca)

Capacity utilization rate: The percentage of the economy’s total plant and equipment that is currently in production.  Usually a decrease in this percentage signals an economic slowdown, while an increase signals economic expansion.

Capital: Cash or goods accumulated and available for use in producing more cash or goods.

Capital appreciation: A rise in the market value of an asset.

Capital asset: All of a company’s tangible property, including securities, real estate and other property.

Capital expenditures: Funds used by a company to acquire or upgrade physical assets such as property, plant or equipment.

Capital gain: The profit made when a security is sold for greater than its original cost basis.

Capital loss: A capital loss occurs when the security is sold for less than its cost basis.

Capital market: The market in which corporate equity and longer-term debt securities (those maturing in more than one year) are issued and traded.

Capital Value: See “principal value”.

Capitalization: Also known as Invested Capital. The sum of a corporation’s stock, long-term debt and retained earnings.

Cash dividend: A dividend paid in cash to a corporation’s shareholders. The amount is normally paid from a company’s profits and is taxable as income to the shareholders.

Cash and cash equivalents: A section of a company’s balance sheet reports the value of Cash and Cash Equivalents. These are assets that are cash or can be converted into cash immediately, such as includes bank accounts, marketable securities and Treasury Bills.

Cash flow: The amount of cash a company generates during a period, calculated by adding noncash charges (such as depreciation) to net income after taxes. Cash Flow Per Share is calculated by dividing the Cash Flow by the number of outstanding shares, and is sometimes used in lieu of Earnings Per Share in analyzing a company. Cash Flow can be used as an indication of a company’s financial strength.

Central bank: The principal monetary authority of a nation, which performs several key functions, including issuing currency and regulating the supply of credit in the economy.  The Bank of Canada is the central bank of Canada. The Federal Reserve is the central bank of the United States.

Central bank intervention: The buying or selling of currency, foreign or domestic, by central banks in order to influence market conditions or exchange rate movements.

CEO: Chief Executive Officer; executive with the chief decision-making authority in an organization or business.

Certificate of deposit (CD): A form of time deposit at a bank or savings institution; a time deposit cannot be withdrawn before a specified maturity date without being subject to an interest penalty for early withdrawal.  Small-denomination CDs are often purchased by individuals.  Large CDs of $100,000 or more are often in negotiable form, meaning they can be sold or transferred among holders before maturity.

Chair: The member of a board of directors who presides over its meetings.

Charter: A document that sets out the principles, functions, and organization of a company.

Closely held shares: Shares held by individuals closely related to a company.

Commission: The fee paid to a broker to buy or sell securities. A commission increases the tax basis of the purchased security (thereby reducing the eventual capital loss or gain). Commissions vary widely from broker to broker.

Common-law partner: A person who is living in a conjugal relationship with the individual.

Common stock/shares: The units of ownership of a public corporation where owners typically are entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings.  In the event that a corporation is liquidated, the claims of creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock.

Commuted value: The amount of an immediate lump-sum payment estimated to be equal in value to a future series of payments.

Compensation: A group of board directors charged with establishing compensation schemes for the executive officers and committeeadministering the company’s incentive compensation plans.

Competitiveness: The ability to sell goods or services profitably relative to other producers of the same goods or services.  A number of factors contribute to competitiveness including technological change, a highly skilled labour force, low inflation and a sound public policy environment.  As competitiveness improves, costs are reduced and exports expand across international markets.

Concessionary: The granting of a benefit at a cost lower than that available to others.

Conflict of Interest: A situation where the personal interests and the official responsibilities of an individual in a position of trust clash or differ.

Consumer Price Index (CPI) : Measure of price changes produced by Statistics Canada on a monthly basis.  The CPI measures the retail prices of a “shopping basket” of about 300 goods and services including food, housing, transportation, clothing and recreation.  The index is “weighted,” meaning that it gives greater importance to price changes for some products than others – more to housing, for example, than to entertainment – in an effort to reflect typical spending patterns.  Increases in the CPI are also referred to as increases in the cost of living.  For more information, visit Statistic Canada’s Consumer Price Index web page: www.statcan.ca/english/Subjects/Cpi/cpi-en.htm

Consumer price index (CPI-US): A measurement of the cost of living determined by the Bureau of Labor Statistics.

Continuous service: The period during which an employee is continuously employed by the same employer.  Continuous service may be defined in the pension plan (or by law) to include certain periods of absence and/or service with an associated or former employer.

Control block: A significant number of shares owned by a shareholder, who may be able to sway or influence the outcome of a vote.

Controlling interest: Ownership of a sufficient number of shares of company stock to heavily influence company policy.

Core unemployment rate or natural rate: The lowest rate of unemployment that can occur before the scarcity of qualified workers will begin toboost the wage growth and inflation.  The core rate is often thought of as the percentage of the labour force of unemploymentthat is either frictionally or structurally unemployed.

Corner a market: To acquire enough of a particular security in order to manipulate its price.

Corporate governance: The system in which a corporation is directed and controlled by its stakeholders.

Corporate governance committee: A group of board directors charged with overseeing the company’s corporate governance issues, such as the size, composition, performance and compensation of the board.

Corporation: A form of business organization in which the company is divided into shares of stock. A corporation is ongoing and the owners face only limited liability.

Coupon rate: The rate of interest paid on the principal of a bond  (by coincidence, it is the yield).

Credit Rating: A measure of the credit worthiness of the issuer of a bond as viewed by one or more rating firms. AAA is the best rating and BBB is the lowest rating usually acceptable for pension funds.

Currency appreciation: An increase in the value of one currency relative to another currency.  Appreciation occurs when, because of a change in exchange rates, a unit of one currency buys more units of another currency.

Currency depreciation: A decrease in the value of one currency relative to another currency.  Depreciation occurs when, because of a change in exchange rates, a unit of one currency buys fewer units of another currency.

Currency devaluation: A deliberate downward adjustment in the official exchange rate established, or pegged, by a government against a specified standard, such as another currency or gold.

Currency revaluation: A deliberate upward adjustment in the official exchange rate established, or pegged, by a government against a specified standard, such as another currency or gold.

Current account: A measure of the flow of goods, services and investment income between Canada and the rest of the world, including merchandise imports and exports, international service transactions, and interest and dividend payments or receipts.  If a country receives more money from investments in and the sale of goods and services to the rest of the world than it pays out, it has a current account surplus.  A country can also have a surplus in merchandise trade, but a larger deficit in service and investment transactions, resulting in an overall current account deficit.

Current assets: Appears on a company’s balance sheet, representing cash, accounts receivable, inventory, marketable securities, prepaid expenses and other assets that can be converted to cash within one year.

Current liabilities: Appears on a company’s balance sheet, representing amounts owed for interest, accounts payable, short-term loans, expenses incurred but unpaid and other debts due within one year.

Current ratio: Indicator of company’s ability to pay short-term obligations, calculated by dividing current assets by current liabilities. Used to compare companies within a single industry: the higher the ratio, the more liquid the company.

Current yield: The average annual rate of return received from an investment, based on income received during a year divided by the security’s market price.

Custodian: A bank or other financial institution that keeps custody of stock certificates and other assets of a mutual fund,individual or corporate client.

Cyclical unemployment: Temporary downturn in the job market.  The most common form of cyclical unemployment occurs when workers are temporarily laid off.

Cyclical industry: An industry, such as manufacturers of durable goods, whose performance is closely tied to the business cycle of the general economy.

Date of record (or record date): A predetermined date on which investors owning voting stock may vote at a company’s upcoming shareholder meeting.

Debt/equity ratio: A measure of a company’s financial leverage, calculated by dividing long term debt by shareholders’ equity. A higher debt/equity ratio generally means that a company has been aggressive in financing its growth with debt, which can result in volatile earnings as a result of the additional interest expense.

Debt financing: A company can raise working capital by issuing bonds or notes to individuals or institutions, along with a promise to pay interest as well as to repay the principal. The other major way of raising capital is to issue shares of stock in a public offering.

Debt service: The repayment of interest and principal of an debt.

Debt-to-GDP ratio: Measurement of the federal debt as a percentage of Canada’s gross domestic product.  It is a measure of the debt in relation to the economy and of our capacity to carry and repay debt.

Declaration date: The date on which a company’s Board of Directors meet to announce the date and amount of the next dividend payment. Once the payment has been authorized, it is known as a Declared Dividend, and becomes a legal liability that must be paid.

Deferred income tax: On the balance sheet, deferred taxes are a liability that result from income already earned and recognized for accounting purposes but not for tax purposes.

Deferred pension: A specified pension determined when a member’s employment or plan terminates that is not payable until pensionable age.

Deflation: The average rate of decrease in prices

Deflator: A measure of the price level for some quantity – most often GDP or GNP.  For GDP, the deflator is calculated by the ratio of nominal DGP to real GDP.

Defined Benefit Plan (DB Plan): A pension plan that defines the pension benefit to be provided, based on years of plan membership, average earnings, etc., in accordance with the terms of the plan.

Defined Contribution Plan (DC Plan): A pension plan that defines the amount of employer and employee contributions to the pension fund, determined on an individual account basis.  Also known as a money purchase plan.  The benefit the member will receive on retirement is calculated at the date of retirement and is based on accumulated contributions and investment income.

Depreciation: An expense recorded regularly on a company’s books to reduce the value of a long-term tangible asset. Sinceit is a non-cash expense, it increases free cash flow while decreasing the amount of a company’s reported earnings.

Derivative: A security, like an option or future, whose value is derived from another underlying security.

Devaluation: A significant fall in the value of a currency, as compared to gold or another country’s currency.

DEX Universe Bond Index: The most commonly used performance index for bonds (also referred to as the “universe” or the “index”).

Dilution: Dilution is the effect on a company’s earnings per share caused by the conversion of convertible securities or the issuance of additional shares of stock. Dilution reduces earnings per share by increasing the number of shares potentially outstanding.

Discount rate: The interest rate at which eligible depository institutions may borrow funds, usually for short periods, directly from a Federal Reserve Bank.  The law requires the board of directors of each Reserve Bank to establish the discount rate every 14 days subject to the approval of the Board of Governors.

Dividend: An individual share in the distribution of profits to stockholders.

Durable merchandise: Goods that have a relatively lengthy life (television sets, radios, etc.)

Duration: A technical measure that gives the weighted average term to maturity of a bond. It is a measure of the bonds sensitivity to interest rate shifts.

Economics: The study of how societies allocate and manage their scarce resources.

Economic growth: An increase in the nation’s capacity to produce goods and services.

Economic shocks: Events that impact the economy, come from outside it, and are unexpected and unpredictable (e.g., Hurricane Andrew in 1991, the rise in oil prices by OPEC, September 11, 2001).

Emerging markets: Shares of companies based in countries that are still developing stock markets  (e.g. Latin America Africa and some Asian countries).

Employment: People are considered employed when they work in a paid job, are self-employed or are doing unpaid work in a family business.  Those absent from work on a sick leave or due to a strike are also considered as employed.

Employment rate: The percentage of the labour force that is employed.  The employment rate is one of the economic indicators that economists examine to help understand the state of the economy.  Se also unemployment rate.

Eurodollars: Deposits denominated in U.S. dollars at banks and other financial institutions outside the United States.  Although this name originated because of the large amounts of such deposits held at banks in Western
Europe, similar deposits in other parts of the world are also called Eurodollars.

Exchange rate: The price of one national currency in terms of another. The price of a currency depends on supply and demand, which are affected by many factors including interest rate differentials, relative inflation, export competitiveness, economic growth, deficits and debt.  The Canadian dollar exchange rate is often stated in terms of the US dollar price of one Canadian dollar.  Canada, as well as most developed countries, operates a “floating” exchange rate, meaning that the price of a currency fluctuates according to market conditions. In fact, it is a “managed float” in Canada, whereby the central bank intervenes to ensure that changes occur in an orderly fashion.  An exchange rate of 0.67US$/C$ means that it takes 67 cents in US currency to purchase  on Canadian dollar.  For information on the current exchange rate, visit the Bank of Canada’s Exchange Rate Converter web page.

Expected rate of inflation: The public’s expectations for inflation. These expectations determine how large an effect a given policy action by the Fed will have on economic activity.

Exports: Goods and services that are produced domestically and sold to foreigners.

Face Value: See “principal value”.

Federal funds: Short-term transactions in immediately available funds between depository institutions and certain other institutions that maintain accounts with the Federal Reserve; usually not collateralized.

Federal funds rate: The interest rate at which banks borrow federal funds.

Federal Open Market Committee (FOMC): Twelve-member committee made up of the seven members of the Fed’s Board of Governors; the president of the Federal Reserve Bank of New York; and, on a rotating basis, the presidents of four other Reserve Banks.  The FOMC meets eight times a year to set Federal Reserve guidelines regarding the purchase and sale of government securities in the open market as a means of influencing the volume of bank credit and money in the economy. It also establishes policy relating to System operations in the foreign exchange markets.

Federal Reserve Bank: One of the 2 operating arms of the Federal Reserve System, located throughout the US, that together with their 25 branches carry out various System functions, including operating a national payments system, distributing the nation’s currency and coin, supervising and regulating member banks and bank holding companies and serving as banker for the U.S. treasury.

Federal Reserve District: One of the twelve geographic regions served by a Federal Reserve Bank

Federal Reserve System: The central bank of the US, created by US Congress and made up of a seven-member Board of Governors in Washington, D.C., 12 regional Federal Reserve Banks, and their 25 branches.

Fiduciary obligation: The legal responsibility of trustees to safeguard and advance the interests of the pension plan for its members.

Finders’ fees: Fees typically paid to directors for finding the company’s buyer and completing the acquisition or transaction.

Fiscal policy: The federal government’s decision about the amount of money it spends and collects in taxes to achieve a full employment and non-inflationary economy.

Fixed exchange system: Exchange rates between currencies that are set at predetermined levels and don’t move in response to rate changes in supply and demand.

Flip-in: The threshold at which the conditions of an anti-takeover provision would be activated.

Floating exchange system: The flexible exchange rate system in which the exchange rate is determined by the market forces of supply rate and demand without intervention.

Foreign currency operations: Purchase or sale of the currencies of other nations by a central bank for the purpose of influencing foreign  exchange rates or maintaining orderly foreign exchange markets.  Also called foreign-exchange market  intervention.

Foreign equities: Shares in a non-Canadian based company.

Foreign offset agreement: An agreement between a weapons manufacturer and its government to direct benefits (e.g. job or technology) to the purchasing country as a condition of sale.

Futures: Contracts that require delivery of a commodity of specified quality and quantity, at a specified price, on a specified future date.  Commodity futures are traded on a commodity exchange and are used for both
speculation and hedging.

Globalization: The integration of international markets as a result of advances in communications and transportation, the liberalisation of trade, and the emergence of new competitors in the developing world.

Gross domestic product (GDP): The total value of all goods and services produced within Canada during a given year.  It is a measure of the income generated by production within Canada.  Also referred to as annual economic output, or more simply output.  To avoid counting the same output more than once, GDP includes only final goods and services – not those that are used to make another product.  GDP would not include the wheat used to make bread, but would only include the bread itself.

Gross domestic product (GDP US): Total value of goods and services produced by labour and property located in the United States during a specific period.  In 1991, GDP became the US government’s primary measure of economic activity in the nation, replacing gross national product (GNP), which is the total value of goods and services produced by labour and property supplied by US residents (but not necessarily located within the country).

Gross federal debt: The total amount the federal government owes.  It includes both market debt in the form of outstanding securities such as Treasury bills and Canada Savings Bonds, and internal debt owed mainly to the Superannuation (pension) fund for government employees.

Guaranteed Annuity: An annuity that will be paid to a person for his or her lifetime, with a minimum number of payments guaranteed. For example, if a person who owns an annuity that has a five-year guarantee dies after three years, payment will continue to the survivor or the estate for two years.

Guaranteed Income Supplement (GIS): Where a person has not saved enough for retirement, the Government of Canada provides the GIS, which is a family income-tested benefit that goes to low-income OAS pensioners.  Spouses’ Allowance benefits are also available to low-income 60-64 year-olds who are married to GIS recipients or who have been widowed.

Imports: Goods and services bought domestically from foreigners.

Included Employment: With respect to the Pension Benefits Standards Act, included employment is employment in connection  with the operation of any work, undertaking or business that is subject to the legislative authority of the  Government of Canada, such as banking, shipping, radio, television, etc.

Indemnification: Protection against damage or loss; insurance.

Indexation: The automatic adjustment of monetary payment amounts to inflation.

Inflation: A rise, over time, in the average level of prices.

International equities: Shares in a company based in Europe, Asia or the Far East.

International Monetary Fund (IMF): An international organization with 146 members, including the US and Canada.  The main functions of the IMF are to lend funds to member nations to finance temporary balance of payments problems, to facilitate the expansion and balanced growth of international trade and to promote international monetary cooperation among nations.  The IMF also creates special drawing rights (SDRs), which provide member nations with a source of additional reserves.

Labour force: The number of people in the country 15 years of age or over who either have a job or are actively looking for one.

Labour market: The market that determines wages and the number of jobs based on the supply and demand for workers.

Labour productivity: A measure of how much output our economy produces per worker (i.e. gross domestic product per worker).  A number of factors can cause labour productivity to change.  For example, better education, training, management, equipment and technology will all tend to increase production per worker.

Life Income Fund (LIF): A personal retirement income fund offered by financial institutions.  Similar to a Registered Retirement Income Fund (RRIF).  A LIF can be purchased with pension funds when a member leaves or retires.  A federal LIF is used to provide a regular retirement income, and is subject to minimum and maximum withdrawal limits.  LIFs are governed by the Pension Benefits Standards Act, and the Income Tax Act (Canada).

Liquidity: The ease with which shares in a company may be traded.

Locked-in Registered Savings Plan:  A personal retirement savings account offered by financial institutions.  Similar to a Registered Retirement Savings Plan (RRSP), except that it is locked in.  A locked-in RRSP is used to hold money that is transferred out of a pension fund on termination of employment.  Locked-in RRSPs are governed by the Pension Benefits Standards Act and the Income Tax Act .

Locking-in: A legislative requirement whereby pension benefits cannot be used for any purpose other than to provide a
retirement pension.  Also applies to LIF’s and Locked-In RRSPs.

Market Capitalization: The total value of all shares of a company in the market (e.g. small cap, medium cap, large cap).

Management: The collective body of those who manage or direct a corporate enterprise.

Maturity: The date on which the principal on a bond is repaid.

Monetary policy: A central bank’s actions to influence the availability and cost of money and credit, as a means of helping to
promote national economic goals.  Tools of monetary policy include open market operations, discount
policy and reserve requirements.  Contractionary monetary policy – A policy to restrict the growth of money
and credit in the economy.  Expansionary monetary policy – A policy that is designed to expand the growth of
money and credit in the economy.

Money purchase pension plan: See Defined Contribution Plan

Money supply: Total quantity of money available for transactions and investment.

National Accounts: Statistic Canada’s most comprehensive report card on the performance of the economy.  They present a wide-ranging overview of economic performance, including output, income growth and inflation.  The National Accounts also show measures of government expenditures, revenues and budget balances.  The National Accounts measure deficits and surpluses differently from the Public Accounts, mainly because the National Accounts are not limited to budgetary revenues and expenditures.  The National Accounts include revenues and expenditures relating to government employee pension accounts.  For more information, visit Stats Can’s Latest Indicators web page.

Nominal interest rates: Current stated rates of interest paid or earned.

Nominating Committee: A group of board directors responsible for screening and nominating board candidates; this committee may also serve as the company’s corporate governance committee.

Old Age Security Program (OAS): The OAS basic pension is a monthly payment that is paid to people who are 65 years of age and over who meet residency requirements.  If, for whatever reason, a person is unable to save for retirement, the Government of Canada also provides the Guaranteed Income Supplement (GIS).

Organization for Economic Co-operation and Development (OECD):  A Paris-based organization with a membership of 29 industrialized countries responsible for study of and co-operation on broad range of economic, trade, scientific and educational issues.  Canada has been a member since the organization was founded in 1961.  For more information, visit the OECD website at: www.oecd.org

Option: The right to buy or sell a security or commodity at a specified price during a specified period.  The holder of an option has the right, but not the obligation, to buy (call option) or sell (put option) a security or commodity at a specified price during a specified period.  The write of an option is obligated to sell (call option) or purchase (put option) the instrument only if the holder chooses to exercise the option.

Outstanding shares: Shares owned by investors.

Overnight financing rate: The rate at which investment dealers and other financial market participants borow and lend funds for one business day.  This is the rate over which the Bank of Canada has the most control.  Through its daily operations the Bank affects the level of settlement balances in the financial system in order to influence the overnight interest rate.  For example, if a commercial bank needs funds to cover the transactions at its branches during the day, it can borrow from the Bank of Canada at the bank rate, or on the overnight financing market from a participant that has excess funds.  The rate charged for a one-day loan is the
overnight rate.

Par value: The full face value of a security

Participation rate: The percentage of the population 15 years of age and older that is in the labour force.

Pension adjustment (PA): The value of a person’s pension benefits accruing in a particular year as defined by the Canada Customs and Revenue Agency.  For defined benefit plans, the PA is determined by a formula.   For defined contribution plans, the PA is the total of all employer and employee contributions for the year.  A person’s RRSP contribution room is reduced by the value of the previous year’s PA.

Pension Benefits Standards Act, 1985 (PBSA): The law regulating private pension plans of employees employed in areas of included employment in Canada.  It sets out minimum standards for benefits, administration, information to members, and investments.

Pension Benefits Standards Regulations 1985 (Regulations): Regulations that support the PBSA and provide additional specifications.

Permitted bid: A bid that meets certain conditions, and consequently, does not require board approval and will not activate a poison pill.

Phillips Curve: The relation, usually thought to be a short term trade-off, between inflation and unemployment.

Plan termination: See Wind-up.

Poison Pill: A popular term to describe an anti-takeover defence or, more specifically, a shareholder rights plan. A company with a poison pill may issue rights or warrants to shareholders (excluding the acquirer), allowing  them to purchase stock, at a discount, should the company become the target of a hostile takeover. The  poison pill is triggered once the acquirer buys more than a certain amount of stock without the consent of  the target company’s board of directors.

Portability Options: Options available on termination, death, marriage breakdown, or when a plan winds up.  An individual may  transfer the commuted value of accumulated pension benefits to a locked-in RRSP or a LIF, or to another  pension plan, if agreed to by the new plan. The commuted value may also be used to purchase an immediate  or deferred annuity.  A member may choose to forego these options and instead receive a deferred pension from the plan at retirement.

Preferred stock: A class of capital stock that pays dividends at a specified rate; this class of stock usually does not have voting  rights and takes precedence over common stock in the payment of dividends and liquidation of assets.

Price to book: Price of a share divided by the book value.

Price-to-Earnings: The price of the share divided by the earnings per share. Earnings can be reported earnings for the last year or (P/E) ratioan analysts estimate of earnings for next year.

Principal value:  The amount that will be repaid at maturity (also refered to as capital value or face value).

Private/employment plan: An employer – and/or union-sponsored plan that provides a regular income for a retired member’s lifetime  pension and that of his or her survivor.  This term includes plans covering both public – and private-sector employees,  but does not include the Canada Pension Plan or other public programs.

Private placement: The sale of a new issue of shares to one or a small group of institutional investors.

Produce price index (PPI): A measure of the prices that firms pay for goods and services

Productivity: The amount of physical output for each unit of productive input.

Proprietary: Exclusively owned; private.

Pro-rata: Number of new shares that is proportionate to the shareholder’s existing ownership interest.

Proxy: The written power of attorney given by shareholders of a corporation, authorizing a specific vote on their behalf at corporate meetings.

Proxy circular (or proxy statement): A document that provides information on the agenda and issues to be voted at a company’s shareholder meeting.

Purchasing power parity theory: The exchange rate between any two currencies adjusts to reflect changes in the price levels within the two parity countries.

Quorum: The number of shares required to be present, in person or by proxy, so that business can be carried out at a meeting.

Real GDP: GDP (Gross Domestic Product) adjusted for inflation.  Real GDP provides the value of GDP in constant dollars, which is used as an indicator of the volume of the nation’s output.

Real interest rates: Interest rates adjusted for the expected erosion of purchasing power resulting from inflation.  Technically defined as nominal interest rates minus the expected rate of inflation.

Recession: A significant decline in general economic activity extending over a period of time.

Record date (or date of record): A predetermined date on which investors owning voting stock may vote at a company’s upcoming shareholder meeting.

Registered Retirement Income Fund (RRIF): A personal retirement income fund offered by financial institutions.  A RRIF is used to provide an ongoing minimum flow of income.  The Income Tax Act determines the minimum withdrawal amounts, and governs RRIFs.  Transfers to RRIFs from federally registered pension plans are not permitted.

Registered Retirement Savings Plan (RRSP): A personal retirement savings account offered by financial institutions, to a specified amount.  RRSP contributions can be deducted from an individual’s taxable income.  The Income Tax Act governs RRSPs.

Resolution: A formal statement of opinion or intent.

Return on equity: A measure of the income earned on a company’s common shares for a period.

RRSP: See Registered Retirement Savings Plan

RRIF: See Registered Retirement Income Fund

Securities and Exchange Commission (SEC): An independent, non-partisan, quasi-judicial regulatory agency with responsibility for administering the federal securities laws (US).  The purpose of these laws is to protect investors and to ensure that investors have access to disclosure of all material information concerning publicly traded securities.  The Commission also regulates firms engaged in the purchase or sale of securities, people who provide investment advice, and investment companies.

Shareholder: One that owns a share of corporate stock.

Shareholder resolution (or proposal): A proposal submitted to the company to be voted at a shareholder meeting.

Short-term interest rates: Interest rates on loan contracts – or debt instruments such as Treasury bills, bank certificates of deposit or  commercial paper – having maturities of less than one year.  Often called money market rates.

Spouse: The spouse is a person married to the member or former member or who is party to a void marriage.

Structural unemployment: Where workers are unable to fill available jobs because they lack the necessary skills, do not live where jobs unemployment are available or are unwilling to work at the wage rate offered in the market.

Swap: An arrangement between the central banks of two countries for standby credit to facilitate the exchange of  each other’s currencies.

Swap arrangements: Short-term reciprocal lines of credit between the Federal Reserve and 14 foreign central banks as well as the Bank for International Settlements.  Through a swap transaction, the Federal Reserve can, in effect, borrow  foreign currency in order to purchase dollars in the foreign exchange market.  In doing so, the demand for  dollars and the dollar’s foreign exchange value are increase.  Similarly, the Federal Reserve can temporarily  provide dollars to foreign central banks through swap arrangements.

Takeover: The act of assuming control and possession of a corporation.

Tariff: A tax levied on imports

Tender: To accept an offer, such as a takeover bid.

Tenure: Holding a position for a long period of time, in some instances without the right of dismissal.

Trade deficit: The amount by which merchandise imports exceed merchandise exports.

Trade-weighted value of the dollar: The value of the dollar pegged to, or expressed relative to, a market basket of selected foreign currencies.  The Federal Reserve calculates a trade-weighted value of the dollar based on the weighted-average exchange  value of the dollar against the currencies of 10 industrial countries.

Treasury bill (T-bill): Short-term US Treasury security having a maturity of up to one year and issued in denominations of $10,000  to $1 million.  T-bills are sold at a discount: Investors purchase a bill at a price lower than the face value (for  example, the investor might buy a $10,000 bill for $9,700); the return is the difference between the price paid and the amount received when the bill is sold or it matures (if held to maturity, the return on the T-bill  example would be $300).  T-bills are the type of security most frequently used in Federal Reserve open market operations.

Treasury bond: Long-term security having a maturity of 10 years or longer issued in denominations of $1,000 or more.  A 30-year bond is sometimes referred to as a long bond.  Bonds pay interest semi-annually, and the principal is  payable at maturity.

Treasury note: Intermediate-term security having a maturity of one to 10 years and issued in denominations of $1,000 or  more.  Notes pay interest semi-annually, and the principal is payable at maturity.

Unemployment rate: The number of people unemployed as a percentage of the labour force.  Because the rate depends on the size  of the labour force, even if new jobs are created it is possible for the rate to remain unchanged or even  increase if the labour force grows.

Unit labour cost or cost performance: A measure of competitiveness that compares total wages to total output.  Unit labour costs show us how much output our economy gets relative to wages.  If wages rise but productivity rises faster, unit labour costs  fall.  Unit labour costs show the combined effect of changes in productivity and wages on the cost of  production.  Higher relative unit labour costs make it harder to be competitive.  To measure the unit labour  costs of the Canadian economy, one would divide Canada’s total labour income by its real gross domestic  product.

Vesting: Financial Markets: The earning of ownership rights over a given time period. Pensions:  Vested benefits are benefits to which an employee is entitled under a pension plan by satisfying age  and/or service requirements.  Usually involves locking in of  accumulated benefits.

Wind-up: Discontinuation of all or part of a pension plan by the employer.  Often results from bankruptcy of the  employer or from corporate restructuring or downsizing.

World Trade Organization: Established on January 1, 1995 to replace the Secretariat of the General Agreement on Tariffs and  (WTO) Trade, the WTO provides the principal contractual obligation determining how governments frame and  implement trade legislation and regulations.  It is also the multilateral platform on which trade relations  among countries evolve through collective debate, negotiation and adjudication.

Year-over-year change: The change from one period to the same period a year later.  Year-over-year changes are often reported when month-to-month or quarter-to-quarter changes have regular seasonal fluctuations (such as retail sales rising  just before Christmas), which can mask underlying trends.

Yield: The return on a loan or investment, such as a percentage of price.

Yield Curve: A graph of the yields of bonds with different terms to maturity usually plotted for the same class of bonds  from short to long term.

 

Sources:

About, the Human internet
Department of Finance Canada
Federal Reserve Bank of Minneapolis
Office of the Superintendent of Financial Institutions, Government of Canada
The Financial Center’s Publication Etc. (www.tfc.com/stockresearch)

 

 

 

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