Annex VI Glossary of Financial Terms

International Monetary Fund
Published Date:
January 1994
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Auction in which each successful bidder pays the price bid. Also known as a multiple-price auction.


Auction in which all successful bidders pay the same price, usually the price of the lowest successful bid. Sometimes called a Dutch auction.


Auction in which all bids are submitted secretly, before some deadline, with no opportunity for revision.


Security used as the basis for interest rate calculations and for pricing other securities. Also denotes the most heavily traded and liquid security of a particular class.


Financial intermediary that solicits orders from buyers and sellers and then orchestrates trades, either by passing the identity of each party to the other or by making offsetting, simultaneous trades with each party. Brokers typically maintain computer screens with anonymous bid and offer quotes from dealers.

BTANs (Bons du Trésor à taux annuel):

French fixed-rate, two- or five-year Treasury notes.

BTFs (Bons du Trésor à taux fixe):

French fixed-rate, short-term discount Treasury bills.

Bunds (Bundesanleihen):

German long-term Federal Government bonds.

Cash market:

Market for sale of a security against immediate delivery, as opposed to the futures market.


The practice of a firm selectively enforcing only those contracts with positive net present value to itself in the event of the bankruptcy of its counterparty.


Periodic interest payment on a bond. Some bonds have physical coupons that must be clipped and submitted to a bank. A coupon rate is the stated interest rate on the bond, equivalent to annual coupon payments as a percentage of the principal of the bond (par value).


A financial intermediary that buys and sells securities or other instruments, by setting bid and offer quotes. Unlike brokers, dealers take positions in the instruments.

Depository receipt:

A negotiable certificate that is issued by a U.S. bank and that is fully backed by shares that in turn, represent claims on the publich traded debt or equity securities of a company. These receipts trade freely on an exchange or an OTC market. American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) are identical from an operational point of view and the terms are used interchangeably, depending on the marketing strategy.

Dragon bonds:

Bonds that are priced, launched, and syndicated in the Asia-Pacific region outside Japan and listed in at least two of the Hong Kong. Taiwan Province of China, or Singapore markets.


A weighted average of the terms of all cash flows from a debt instrument. The present values of these cash flows are used as the weights, with the yield to maturity used to compute the present values. Duration also represents the elasticity of the value of a bond with respect to changes in its yield to maturity. Modified duration is duration divided by a factor of one plus the interest rate.

EMTN (Euro medium-term note):

Medium-term bonds issued on a tap basis on the Euromarkets.

Gilts (or gilt-edged securities):

Irish or U.K. Government medium- and long-term debt securities

Good bank/bad bank model:

Method of restoring a bank with a large amount of bad loans by placing bad loans in a separate institution (the “bad bank”) and adequately capitalizing the remaining bank (the “good bank”).


Service in the United States that distributes real time price and quote information for all U.S. Treasury securities.


Amount of cash that must be provided when borrowing to purchase a security. For example, U.S. regulations limit margin to 50 percent for equity purchases, so that a customer may only borrow half the value of a stock purchased. Margin also refers to the amount by which value of a security in a repurchase agreement exceeds cash lent.


A dealer that posts ongoing quotes in a particular instrument.

Marking to market:

Expressing assets or liabilities at current market values.

MATIF (Marché à Terme International de France):

Financial futures exchange in Paris.

Netting by novation:

A bilateral contract between two counterparties under which a new obligation to pay or receive a given currency is automatically amalgamated with all previous obligations in the same currency, thereby creating a single legally binding net position that replaces the larger number of gross obligations.

OATs (Obligations assimilables du Trésor):

French fungible, long-term Treasury bonds.


Term used in the United States for the most recently issued Treasury security of a particular maturity class, which is also the most liquid and heavily traded (see benchmark). On-the-run status begins with when-issued trading.


The principal of a bond.

Primary dealers:

Group of dealers in the United States with a formal, ongoing trading relationship with the Federal Reserve Bank of New York and with certain obligations in the primary and secondary market for Treasury securities. Term also applies to similar entities in other countries.

Primary market:

Market in which a security is first sold by issuer.

Price discovery:

A general term for the process by which financial markets attain an equilibrium price, especially in the primary market. Usually refers to the incorporation of information into the price.

Pure discount:

Zero-coupon (see below).

Repurchase agreement (repo):

An agreement to sell a security and then repurchase it at a particular time and price.

Secondary market:

Market in which a security is sold by one investor to another, as opposed to the primary market.

Settlement risk:

Risk that one party or another in a securities trade will fail to deliver, especially when the other party has already delivered.

Short squeeze:

Situation in which traders with short positions seeking to close their positions are required to pay an abnormally high price for the instrument because another trader has amassed a dominant long position in the instrument.


A pure-discount security created by the decomposition of a bond into separate securities for each coupon payment and for the final principal payment. The term strip comes from the U.S. Treasury acronym for “separate trading of registered interest and principal.”


Group of intermediaries that purchase prearranged shares of a security in the primary market and sell the security to other investors.

Tap sales:

Sales by a central bank of a new issue of government securities, usually on a gradual basis.


The market for a security before it is sold on the primary market.

Winners’ curse:

Losses incurred by successful bidders at an auction, due to those bidders’ having inaccurate, overoptimistic information on the value of the item auctioned.

Yield to maturity:

Interest rate that makes a bond’s present value equal to its market price. If the price of a bond is below par, the yield to maturity is greater than the bond’s coupon rate, and the bond is said to trade at a discount.


A bond with no coupons, only a single principal payment at maturity.

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