SA6 learning portal: glossary
Glossary
| Asset share | The retrospective accumulation of past premiums, less expenses and the cost of cover, at the actual rate of return on the assets. |
| Attribution analysis | Splitting a fund manager's performance into stock selection and sector selection (and sometimes into more sub-divisions of these) |
| Basis trading (cash and carry trade) | An arbitrage position typically comprising a long cash position together with a short position in its respective futures contract, whereby the cash price plus the cost of carry of the underlying position is lower than the futures price. By convention, buying the basis is to buy cash bonds and sell futures, and selling the basis is to sell cash bonds and buy futures. |
| Bear spread (vertical spread) | An option strategy combining the purchase and sale of two puts (bear put spread) or two calls (bear call spread) with different strikes on the same underlying asset. |
| Bull spread | Where the investor takes a bullish (optimistic) view a similar option strategy is called a bull spread using two puts (bull put spread) or two calls (bull call spread) |
| Butterfly | An option strategy involving the purchase of one put (or call), the sale of two puts (or calls) at a higher exercise price, and purchasing one put (or call) at an equally higher price. |
| Calendar spread |
A calendar spread is created by selling a call option with a certain exercise price and buying a longer maturity call option with the same exercise price. Alternatively a put option can be sold while simultaneously buying a longer maturity put with the same exercise price. |
| Cash equivalent | The value of benefits accrued by a member of a pension scheme. Used for cash equivalent transfer values and pension sharing orders |
| Diagonal spread | A diagonal spread involves buying one option and selling another (both calls or both puts) where both the maturity and the exercise prices are different (cf bull, bear and calendar spreads) |
| Group of 7 (G7) | International finance ministers from seven industrialised nations who attempt to influence economic and monetary policies through co-ordinated actions. (Since 2002, the Group of 8 (G8) as Russia joined the original seven members) |
| Health and care insurance | Critical illness, income protection, long-term care, major medical and private medical insurances, plus health cash plans. |
| Pecuniary reward | Payment in the form of money |
| Prime | A classification of borrowers, rates or holdings in the lending market that are considered to be of high quality and the most creditworthy. |
| Program trade | A procedure where trades are automatically generated by a computer and transmitted to the trading floor of an exchange. |
| R&D | Research and Development. The pursuit and adoption of new technology and technological change leading to process innovation and product development. |
| Securities fund | The term applied by the FSA to an authorised unit trust fund which consists of 'transferable' securities such as equities, bonds, debentures, loan stock, government and public sector loan stock and bonds. |
| Sponsoring employer | The particular participating employer in a pension scheme in which is vested special powers or duties in relation to such matters as the appointment of trustees, payments of contributions, amendments to scheme rules and winding-up. |
| Spread trade | The purchase of one futures contract and the simultaneous sale of another in order to take advantage of relative price changes. Examples include buying one futures contract and selling another futures contract of the same underlying asset but different delivery month; buying a given delivery month of one futures contract and selling the same delivery month of a different, but related, futures contract. |
| Straddle | An option strategy involving one call and one put with the same strike price and same expiry date. |
| Strangle | An option strategy involving one call and one put with different strike levels but with the same expiry date. |
| Strap | A strap consists of a long position in two calls and one put with the same exercise price and expiry date (cf strip) |
| Strip | A combination of two puts and a call with the same exercise price. |
| Sub-prime | A type of loan which is offered at a rate above prime to individuals who do not qualify for prime-rate loans (including those who may have had a history of prior loan delinquency or default) |
| Takeover | Where one business acquires another. If this does not involve mutual agreement between the two parties, the takeover might be viewed as "hostile". |
| Technical provisions | The actuary's assessment, on scheme-specific funding assumptions determined by the trustees, of the amount required to meet the scheme's liabilities as they fall due. The amount that an insurance company would have to pay in order to transfer its obligations immediately to another insurance company. Valuation of liabilities (and assets) on market consistent principles. |
| Vertical spread | See bear spread. |
| Warrant fund | The term applied by the FSA to an authorised unit trust fund which may consist of warrants as well as trransferable securities. |