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Baby Bond
A baby bond is a fixed income security that is issued in small-dollar denominations, with a par value of less than $1,000. The small denominations enhance the attraction of baby bonds to average retail investors.
Baby Boomer
"Baby boomer" is a term used to describe a person who was born between 1946 and 1964. The baby boomer generation makes up a substantial portion of the world's population, especially in developed nations.
Back-End Ratio
The back-end ratio, also known as the debt-to-income ratio, is a ratio that indicates what portion of a person's monthly income goes toward paying debts. Total monthly debt includes expenses, such as mortgage payments (principal, interest, taxes, and insurance), credit card payments, child support, and other loan payments.
Back Office
The back office is the portion of a company made up of administration and support personnel who are not client-facing. Back-office functions include settlements, clearances, record maintenance, regulatory compliance, accounting, and IT services.
Back Stop
A back stop is the act of providing last-resort support or security in a securities offering for the unsubscribed portion of shares.
Back-to-Back Letters of Credit
Back-to-back letters of credit consist of two letters of credit (LoCs) used together to finance a transaction. A back-to-back letter of credit is usually used in a transaction involving an intermediary between the buyer and seller, such as a broker, or when a seller must purchase the goods it will sell from a supplier as part of the sale to his buyer.
Backflush Costing
Backflush costing is a product costing system generally used in a just-in-time (JIT) inventory system. In short, it is an accounting method that records the costs associated with producing a good or service only after they are produced, completed, or sold. Backflush costing is also commonly referred to as backflush accounting.
Backlog
A backlog is a buildup of work that needs to be completed. The term "backlog" has a number of uses in accounting and finance. It may, for example, refer to a company's sales orders waiting to be filled or a stack of financial paperwork, such as loan applications, that needs to be processed.
Backorder
A backorder is an order for a good or service that cannot be filled at the current time due to a lack of available supply. The item may not be held in the company's available inventory but could still be in production, or the company may need to still manufacture more of the product.
Backtesting
Backtesting is the general method for seeing how well a strategy or model would have done ex-post. Backtesting assesses the viability of a trading strategy by discovering how it would play out using historical data. If backtesting works, traders and analysts may have the confidence to employ it going forward.
Backup Withholding
Backup withholding is a tax that is levied on investment income, at an established tax rate, as the investor withdraws it.
Backward Integration
Backward integration is a form of vertical integration in which a company expands its role to fulfill tasks formerly completed by businesses up the supply chain.
Backwardation
Backwardation is when the current price, or spot price, of an underlying asset is higher than prices trading in the futures market.
Bad Credit
Bad credit refers to a person's history of failing to pay bills on time, and the likelihood that they will fail to make timely payments in the future. It is often reflected in a low credit score. Companies can also have bad credit based on their payment history and current financial situation.
Bad Debt
Bad debt is an expense that a business incurs once the repayment of credit previously extended to a customer is estimated to be uncollectible and is thus recorded as a charge off.
Bad Debt Expense
A bad debt expense is recognized when a receivable is no longer collectible because a customer is unable to fulfill their obligation to pay an outstanding debt due to bankruptcy or other financial problems.
Bag Holder
A bag holder is an informal term used to describe an investor who holds a position in a security that decreases in value until it descends into worthlessness.
Bail Bond
A bail bond is an agreement by a criminal defendant to appear for trial or pay a sum of money set by the court. The bail bond is cosigned by a bail bondsman, who charges the defendant a fee in return for guaranteeing the payment.
Bail-In
A bail bond is an agreement by a criminal defendant to appear for trial or pay a sum of money set by the court. The bail bond is cosigned by a bail bondsman, who charges the defendant a fee in return for guaranteeing the payment.
Bailout
A bailout is when a business, an individual, or a government provides money and/or resources (also known as a capital injection) to a failing company. These actions help to prevent the consequences of that business's potential downfall which may include bankruptcy and default on its financial obligations.
Bait and Switch
Bait and switch is a morally suspect sales tactic that lures customers in with specific claims about the quality or low prices on items that turn out to be unavailable in order to upsell them on a similar, pricier item.
Balance of Payments (BOP)
The balance of payments (BOP) is a statement of all transactions made between entities in one country and the rest of the world over a defined period of time, such as a quarter or a year.
Balance of Trade (BOT)
Balance of trade (BOT) is the difference between the value of a country's exports and the value of a country's imports for a given period. Balance of trade is the largest component of a country's balance of payments (BOP). Sometimes the balance of trade between a country's goods and the balance of trade between its services are distinguished as two separate figures.
Balance Sheet
The term balance sheet refers to a financial statement that reports a company's assets, liabilities, and shareholder equity at a specific point in time. Balance sheets provide the basis for computing rates of return for investors and evaluating a company's capital structure. In short, the balance sheet is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders.
Balanced Budget
A balanced budget is a situation in financial planning or the budgeting process where total expected revenues are equal to total planned spending.
Balanced Fund
A balanced fund is a mutual fund that typically contains a component of stocks and bonds. A mutual fund is a basket of securities in which investors can purchase. Typically, balanced funds stick to a fixed asset allocation of stocks and bonds, such as 70% stocks and 30% bonds. Bonds are debt instruments that usually pay a stable, fixed rate of return.
Balanced Investment Strategy
A balanced investment strategy combines asset classes in a portfolio in an attempt to balance risk and return. Typically, balanced portfolios are divided between stocks and bonds, either equally or with a slight tilt, such as 60% in stocks and 40% in bonds. Balanced portfolios may also maintain a small cash or money market component for liquidity purposes.
Balanced Scorecard
The term balanced scorecard (BSC) refers to a strategic management performance metric used to identify and improve various internal business functions and their resulting external outcomes.
Balloon Loan
A balloon loan is a type of loan that does not fully amortize over its term. Since it is not fully amortized, a balloon payment is required at the end of the term to repay the remaining principal balance of the loan.
Balloon Payment
A balloon payment is a large payment due at the end of a balloon loan, such as a mortgage, a commercial loan, or another type of amortized loan. It is considered similar to a bullet repayment.
Ballpark Figure
A ballpark figure is a rough numerical estimate or approximation of the value of something that is otherwise unknown. Ballpark figures are commonly used by accountants, salespersons, and other professionals to estimate current or future results.
Baltic Dry Index
The Baltic Dry Index (BDI) is a shipping and trade index created by the London-based Baltic Exchange. It measures changes in the cost of transporting various raw materials, such as coal and steel.
Bancassurance
Bancassurance is an arrangement between a bank and an insurance company allowing the insurance company to sell its products to the bank's client base.
Bandwagon Effect
The bandwagon effect is a psychological phenomenon in which people do something primarily because other people are doing it, regardless of their own beliefs, which they may ignore or override. This tendency of people to align their beliefs and behaviors with those of a group is also called a herd mentality. The term "bandwagon effect" originates from politics but has wide implications commonly seen in consumer behavior and investment activities. This phenomenon can be seen during bull markets and the growth of asset bubbles.
Bank
A bank is a financial institution licensed to receive deposits and make loans. Banks may also provide financial services such as wealth management, currency exchange, and safe deposit boxes. There are several different kinds of banks including retail banks, commercial or corporate banks, and investment banks. In most countries, banks are regulated by the national government or central bank.
Bank Bill Swap Rate (BBSW)
The Bank Bill Swap Rate (BBSW), or Bank Bill Swap Reference Rate, is a short-term interest rate used as a benchmark for the pricing of Australian dollar derivatives and securities—most notably, floating rate bonds.
Bank Capital
Bank capital is the difference between a bank's assets and its liabilities, and it represents the net worth of the bank or its equity value to investors.
Bank Confirmation Letter (BCL)
A bank confirmation letter (BCL) is a letter from a bank or financial institution confirming the existence of a loan or a line of credit that has been extended to a borrower.
Bank Credit
The term bank credit refers to the amount of credit available to a business or individual from a banking institution in the form of loans.
Bank Deposits
Bank deposits consist of money placed into banking institutions for safekeeping.
Bank Identification Number
The term bank identification number (BIN) refers to the initial set of four to six numbers that appear on a payment card. This set of numbers identifies the institution that issues the card and is key in the process of matching transactions to the issuer of the charge card. The numbering system applies to credit cards, charge cards, prepaid cards, gift cards, debit cards, prepaid cards, and electronic benefit cards.
Bank Reserve
Bank reserves are the cash minimums that financial institutions must have on hand in order to meet central bank requirements. This is real paper money that must be kept by the bank in a vault on-site or held in its account at the central bank. Cash reserves requirements are intended to ensure that every bank can meet any large and unexpected demand for withdrawals.
Bank Statement
A bank statement is a document (also known as an account statement) that is typically sent by the bank to the account holder every month, summarizing all the transactions of an account during the month.
Bank Stress Test
A bank stress test is an analysis conducted under hypothetical scenarios designed to determine whether a bank has enough capital to withstand a negative economic shock.
Bank Draft
The term bank draft refers to a negotiable instrument that can be used as payment just like a check. Unlike a check, though, a bank draft is guaranteed by the issuing bank. The total amount of the draft is drawn from the requesting payer's account—their bank account balance decreases by the money withdrawn from the account—and is usually held in a general ledger account until the draft is cashed by the payee. Bank drafts provide the payee with a secure form of payment.
Bank-Owned Life Insurance (BOLI)
Bank-owned life insurance (BOLI) is a form of life insurance purchased by banks where the bank is the beneficiary and also usually the owner of the policy.
Banker's Acceptance
Banker's acceptance (BA) is a negotiable piece of paper that functions like a post-dated check. A bank, rather than an account holder, guarantees the payment. Banker's acceptances (also known as bills of exchange) are used by companies as a relatively safe form of payment for large transactions. BAs can also be short-term debt instruments, similar to U.S. Treasury bills, that trade at a discount to face value in the money markets.
Bank Guarantee
A bank guarantee is a type of financial backstop offered by a lending institution. The bank guarantee means that the lender will ensure that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it. A bank guarantee enables the customer, or debtor, to acquire goods, buy equipment or draw down a loan.
Bank Reconciliation
A bank reconciliation statement is a summary of banking and business activity that reconciles an entity’s bank account with its financial records. The statement outlines the deposits, withdrawals, and other activities affecting a bank account for a specific period. A bank reconciliation statement is a useful financial internal control tool used to thwart fraud.
Bank Run
A bank run occurs when a large number of customers of a bank or other financial institution withdraw their deposits simultaneously over concerns of the bank's solvency.
Bankruptcy
Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor's assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.
Banner Advertising
Banner advertising refers to the use of a rectangular graphic display that stretches across the top, bottom, or sides of a website or online media property. The horizontal type of banner advertisement is called a leaderboard, while the vertical banners are called a skyscraper and are positioned on a web page's sidebars. Banner ads are image-based rather than text-based and are a popular form of online advertising.
The purpose of banner advertising is to promote a brand and/or to get visitors from the host website to go to the advertiser's website.
Baptism by Fire
"Baptism by fire" is a phrase commonly used to describe a person or employee who is learning something the hard way through a challenge or difficulty.
Barbell
The barbell is an investment strategy applicable primarily to a fixed income portfolio. Following a barbell method, half the portfolio contains long-term bonds and the other half holds short-term bonds. The “barbell” gets its name because the investment strategy looks like a barbell with bonds heavily weighted at both ends of the maturity timeline. The graph will show a large number of short-term holdings and long-term maturities, but little or nothing in intermediate holdings.
Bar Chart
Bar charts consist of multiple price bars, with each bar illustrating how the price of an asset or security moved over a specified time period. Each bar typically shows open, high, low, and closing (OHLC) prices, although this may be adjusted to show only the high, low, and close (HLC).
Bare Trust
A bare trust is a basic trust in which the beneficiary has the absolute right to the capital and assets within the trust, as well as the income generated from these assets.
Barrel Of Oil Equivalent (BOE)
A barrel of oil equivalent (BOE) is a term used to summarize the amount of energy that is equivalent to the amount of energy found in a barrel of crude oil. By encompassing different types of energy resources into one figure, analysts, investors, and management can assess the total amount of energy the firm can access. This is also known as crude oil equivalent (COE).
Barrels Of Oil Equivalent Per Day (BOE/D)
Barrels of oil equivalent per day (BOE/D) is a term that is used often in conjunction with the production or distribution of crude oil and natural gas.
Barrier Option
A barrier option is a type of derivative where the payoff depends on whether or not the underlying asset has reached or exceeded a predetermined price.
Barriers to Entry
Barriers to entry is an economics and business term describing factors that can prevent or impede newcomers into a market or industry sector, and so limit competition. These can include high start-up costs, regulatory hurdles, or other obstacles that prevent new competitors from easily entering a business sector. Barriers to entry benefit existing firms because they protect their market share and ability to generate revenues and profits.
Barter
Barter is an act of trading goods or services between two or more parties without the use of money —or a monetary medium, such as a credit card. In essence, bartering involves the provision of one good or service by one party in return for another good or service from another party.
Base Effect
The base effect is the effect that choosing a different reference point for a comparison between two data points can have on the result of the comparison.
Base Pay
Base pay is the initial salary paid to an employee, not including any benefits, bonuses, or raises. It is the rate of compensation an employee receives in exchange for services. An employee's base pay can be expressed as an hourly rate, or as a weekly, monthly, or annual salary.
Base Year
A base year is the first of a series of years in an economic or financial index. It is typically set to an arbitrary level of 100.
Basel I
Basel I is a set of international banking regulations put forth by the Basel Committee on Bank Supervision (BCBS) that sets out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. Banks that operate internationally are required to maintain a minimum amount (8%) of capital based on a percent of risk-weighted assets. Basel I is the first of three sets of regulations known individually as Basel I, II, and III, and together as the Basel Accords.
Basel II
Basel II is a set of international banking regulations put forth by the Basel Committee on Bank Supervision, which leveled the international regulation field with uniform rules and guidelines. Basel II expanded rules for minimum capital requirements established under Basel I, the first international regulatory accord, and provided the framework for regulatory review, as well as set disclosure requirements for assessment of capital adequacy of banks. The main difference between Basel II and Basel I is that Basel II incorporates credit risk of assets held by financial institutions to determine regulatory capital ratios.
Basel Accord
The Basel Accords are a series of three sequential banking regulation agreements (Basel I, II, and III) set by the Basel Committee on Bank Supervision (BCBS).
Basel III
Basel III is a 2009 international regulatory accord that introduced a set of reforms designed to mitigate risk within the international banking sector, by requiring banks to maintain proper leverage ratios and keep certain levels of reserve capital on hand.
Baseline
A baseline is a fixed point of reference that is used for comparison purposes. In business, the success of a project or product is often measured against a baseline number for costs, sales, or any number of other variables. A project may exceed a baseline number or fail to meet it.
Basic Earnings Per Share (EPS)
Basic earnings per share (EPS) tells investors how much of a firm's net income was allotted to each share of common stock.
Basic Materials
The basic materials sector is an industry category made up of businesses engaged in the discovery, development, and processing of raw materials. The sector includes companies engaged in mining and metal refining, chemical products, and forestry products.
Basis
Although the term "basis" holds various meanings in finance, it most frequently refers to the difference between the prices and the expenses involved in transactions when calculating taxes.
Basis Point (BPS)
Basis points (BPS) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.
Basis Risk
Basis risk is the financial risk that offsetting investments in a hedging strategy will not experience price changes in entirely opposite directions from each other.
Basket of Goods
A basket of goods refers to a fixed set of consumer products and services whose price is evaluated on a regular basis, often monthly or annually. This basket is used to track inflation in a specific market or country, so that if the price of the basket of goods increases by 2% in a year, inflation can thus be said to be 2%. The goods in the basket are meant to be representative of the broader economy and are adjusted periodically to account for changes in consumer habits.
