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Investments glossary

Operating Lease

An operating lease is a contract that allows for the use of an asset but does not convey ownership rights of the asset. Operating leases are considered a form of off-balance-sheet financing—meaning a leased asset and associated liabilities (i.e. future rent payments) are not included on a company’s balance sheet. Historically, operating leases have enabled American firms to keep billions of dollars of assets and liabilities from being recorded on their balance sheets, thereby keeping their debt-to-equity ratios low. read more

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Investments glossary

Utilities Sector

The utilities sector refers to a category of companies that provide basic amenities, such as water, sewage services, electricity, dams, and natural gas. Although utilities earn profits, they are part of the public service landscape and are therefore heavily regulated. Investors typically treat utilities as long-term holdings and use them to inject steady income in their portfolios.

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Investments glossary

Guaranteed Bond

A guaranteed bond is a debt security that offers a secondary guarantee that interest and principal payments will be made by a third party, should the issuer default due to reasons such as insolvency or bankruptcy. A guaranteed bond can be of either the municipal or corporate variety. It can be backed by a bond insurance company, a fund or group entity, a government authority, or the corporate parents of subsidiaries or joint ventures that are issuing bonds.

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Investments glossary

Working Capital Management

Working capital management is a business strategy designed to ensure that a company operates efficiently by monitoring and using its current assets and liabilities to the best effect. The primary purpose of working capital management is to enable the company to maintain sufficient cash flow to meet its short-term operating costs and short-term debt obligations.

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Investments glossary

U.S. Department of Housing and Urban Development (HUD)

The Department of Housing and Urban Development (HUD) is a U.S. government agency created in 1965 to support the housing market and homeownership. HUD does this by improving affordable homeownership opportunities, increasing safe and affordable rental options, reducing chronic homelessness, fighting housing discrimination by ensuring equal opportunity in the rental and purchase markets and supporting vulnerable populations.

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Investments glossary

Zero Cost Collar

A zero cost collar is a form of options collar strategy to protect a trader’s losses by purchasing call and put options that cancel each other out. The downside of this strategy is that profits are capped, if the underlying asset’s price increases. A zero cost collar strategy involves the outlay of money on one half of the strategy offsetting the cost incurred by the other half. It is a protective options strategy that is implemented after a long position in a stock that has experienced substantial gains. The investor buys a protective put and sells a covered call. Other names for this strategy include zero cost options, equity risk reversals, and hedge wrappers. read more

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Investments glossary

Equation of Exchange

The equation of exchange is an economic identity that shows the relationship between money supply, the velocity of money, the price level, and an index of expenditures. English classical economist John Stuart Mill derived the equation of exchange, based on earlier ideas of David Hume. It says that the total amount of money that changes hands in the economy will always equal the total money value of the goods and services that change hands in the economy.

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Investments glossary

Expected Return

The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these results. For example, if an investment has a 50% chance of gaining 20% and a 50% chance of losing 10%, the expected return is 5% (50% x 20% + 50% x -10% = 5%).

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Investments glossary

Negative Arbitrage

Negative arbitrage is the opportunity lost when municipal bond issuers assume proceeds from debt offerings and then invest that money for a period of time (ideally in a safe investment vehicle) until the money is used to fund a project, or to repay investors. The lost opportunity occurs when the money is reinvested and the debt issuer earns a rate or return that is lower than what must actually be paid back to the debt holders.

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Investments glossary

Expected Return

The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these results. For example, if an investment has a 50% chance of gaining 20% and a 50% chance of losing 10%, the expected return is 5% (50% x 20% + 50% x -10% = 5%).