KASNEB CIFA Intermediate key terms

The part of the capital market where a government or company issues new securities directly to investors and receives the cash raised, as distinct from later trading between investors.

A marketplace, such as a stock exchange, where investors buy and sell securities that have already been issued, providing liquidity and price discovery while the issuing entity receives no new funds.

A short-term debt security, usually maturing within one year, issued by governments, banks or large companies to manage near-term cash needs, for example treasury bills and commercial paper.

The total annual return an investor would earn by buying a bond at its current price and holding it to maturity, assuming every coupon is reinvested at that same rate.

A financial contract whose value depends on an underlying asset, interest rate or index; common forms are forwards, futures, options and swaps, used either to hedge exposure or to speculate.

A standardised, exchange-traded agreement to buy or sell a set quantity of an asset at a fixed price on a future date, with daily settlement through margin payments.

A short-term borrowing arrangement in which one party sells securities and simultaneously agrees to buy them back at a slightly higher price on a set date, working in effect as a collateralised loan.

A firm that continuously quotes both a buying and a selling price for a security and stands ready to trade with others, earning the bid-ask spread while supplying liquidity to the market.

Current assets divided by current liabilities; it shows how many units of near-term resources a business holds to cover each unit of obligations falling due within a year.

Operating profit divided by finance costs; it indicates how many times a company's earnings could absorb its interest bill before profit is exhausted.

Total borrowings divided by shareholders' funds; it measures how much of a firm's financing comes from lenders rather than owners and signals the level of gearing risk.

Profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the period, showing the profit earned on each share held.

A share's market price divided by its earnings per share; it shows how much investors are currently willing to pay for each shilling of reported profit.

Cash generated from operations after capital expenditure and usually after interest and tax; it is the money left for dividends, debt repayment or fresh investment.

A technique that splits return on equity into profit margin, asset turnover and financial leverage, so an analyst can identify which driver is producing the result.

Spreading investments across many assets so that events affecting one holding have a smaller effect on the overall portfolio's return and volatility.

The part of total risk arising from economy-wide factors such as interest rates, inflation or recession, which cannot be removed by holding more securities.

A measure of how strongly a security's returns respond to movements in the market as a whole; a beta above one means the security magnifies market swings.

A model holding that expected return equals the risk-free rate plus beta multiplied by the market risk premium, used to price risky assets and estimate the cost of equity.

The set of portfolios offering the highest expected return for each level of risk, or the lowest risk for each expected return, given the assets available.

Excess return earned above the risk-free rate divided by the portfolio's standard deviation; it measures reward gained per unit of total volatility borne.

The gap between a portfolio's actual return and the return CAPM predicts for its beta; a positive figure suggests performance better than the risk taken would justify.

An estimate of the largest loss a portfolio is expected to suffer over a stated holding period at a chosen confidence level, for example a one-day 95% figure.

Taking an offsetting position, often in a derivative, so that losses on an existing exposure are balanced by gains elsewhere, reducing uncertainty about future values.

An agreement in which two parties exchange interest payment streams, commonly fixed for floating, calculated on a defined notional amount over a set period.

The possibility that a borrower or counterparty fails to make contractual payments or meet obligations when due, causing loss to the lender or investor.

The weighted average time until a bond's cash flows are received, also used as an approximate measure of how much the bond's price moves when yields change.

A risk method that applies severe but plausible scenarios, such as a sharp rate rise or market crash, to estimate how much a portfolio or institution could lose.

The risk that the price of a hedging instrument and the price of the exposure being hedged do not move exactly together, leaving a residual loss unhedged.

A legal and ethical obligation to act solely in the best interests of a client or beneficiary, putting their welfare ahead of the adviser's own gain.

A situation in which a professional's personal interest, or the interest of another client, could improperly influence decisions made on behalf of a client.

Buying or selling securities while holding material information about the issuer that has not yet been disclosed to the market, which is unlawful in most jurisdictions.

Freedom from relationships or financial interests that could compromise objective judgement, including close ties to an audited entity or to an issuer being analysed.

The system of rules, practices and board structures by which a company is directed and controlled, balancing the interests of shareholders, management and other stakeholders.

The conflict that arises when managers, acting as agents for shareholders, pursue their own interests such as perks or empire building rather than maximising owner value.

Information that a reasonable investor would regard as important to an investment decision and that has not been made available to the market generally.