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Glossary

T

TAC (targeted amortization class) tranche
A TAC tranche uses a mechanism similar to that of a sinking fund to determine a fixed principal payment schedule based on an assumed prepayment rate. The effect of prepayment variability that is removed from the TAC tranche is transferred to a companion tranche.
Tactical asset allocation 
Asset allocation that involves making short-term adjustments to asset class weights based on short-term predictions of relative performance among asset classes.
Tactical rebalancing
A variation of calendar rebalancing that specifies less frequent rebalancing when markets appear to be trending and more frequent rebalancing when they are characterized by reversals.
Tail value at risk
The VAR plus the expected loss in excess of VAR, when such excess loss occurs. Synonyms: conditional tail expectation
Takaful Insurance
is founded on the cooperative principle and on the principle of separation between the funds and operations of shareholders, thus passing the ownership of the Takaful (Insurance) fund and operations to the policyholders.  Takaful refers to the Islamic concept of contributing a sum of money to a Takaful fund in the form of participative contribution (tabarru’) and through a contract (aqad), becoming one of the participants by agreeing to mutually help each other, should any of the participants suffer any form of misfortune, either arising from death, permanent disability, loss, damage or any other such misfortunes as covered under the Takaful. The Contributions collected from the policyholders are considered donations and they constitute the Takaful fund from which all claims are reimbursed. At the end of each financial year, after deduction of expenses, any remaining cash surplus will not be retained by the company or its shareholders, but returned to the policyholders in the form of cash dividends or distributions.
Take-down
The discount from the list price allowed to a member of an underwriting account on any bonds purchased from the account.
Takeover
A merger; the term may be applied to any transaction, but it is often used in reference to hostile transactions.
Takeover premium
The amount by which the takeover price for each share of stock must exceed the current stock price in order to entice shareholders to relinquish control of the company to an acquirer.
Tangible assets
Long-term assets with physical substance that are used in company operations, such as land (property), plant, and equipment.
Tangible book value per share
Common shareholders’ equity minus intangible assets from the balance sheet divided by the number of shares outstanding.
Target balance
A minimum level of cash to be held available—estimated in advance and adjusted for known funds transfers, seasonality, or other factors.
Target capital structure
A company’s chosen proportions of debt and equity.
Target company
The company in a merger or acquisition that is being acquired.
Target covariance matrix 
A component of shrinkage estimation; allows the analyst to model factors that are believed to influence the data over periods longer than observed in the historical sample.
Target payout ratio
A strategic corporate goal representing the long-term proportion of earnings that the company intends to distribute to shareholders as dividends.
Target semi deviation
The positive square root of target semi variance.
Target semi variance
The average squared deviation below a target value.
Target value 
The value that the portfolio manager seeks to ensure; the value that the life insurance company has guaranteed the policyholder.
TARP
Troubled Asset Relief Program
Tax Anticipation Note (TAN)
TANs are issued by states or local governmental units to finance current operations in anticipation of future tax receipts. TRANS are notes that are issued in anticipation of both taxes and revenues.
Tax base
The total property and resources subject to taxation. (See “assessed valuation.”)
Taxable municipal bond
A municipal bond whose interest is not excluded from the gross income of its owners for federal income tax purposes. Certain municipal bonds are taxable because they are issued for purposes which the federal government deems not to provide a significant benefit to the public at large.
Tax-backed bond
A broad category of bonds that are secured by taxes levied by the obligor. The taxes are not necessarily unlimited as to rate or amount, so while all general obligation bonds are tax backed, not all tax-backed bonds are general obligations. Examples of tax-backed bonds include moral obligations and appropriation-backed bonds. This category is also known as tax-supported.
Tax-exempt bond
A common term for municipal bonds. The interest on the bond is excluded from the gross income of its owners for federal income tax purposes under Section 103 of the Internal Revenue Code of 1954, as amended. Municipal bonds that are also exempt from state and local as well as federal income taxes are said to have double or triple tax exemption.
Tax-exempt commercial paper
A short-term promissory note issued for periods up to 270 days, often used in lieu of fixed-rate BANs, TANs and RANs because of the greater flexibility offered in setting both maturities and determining rates. The purpose for issuing TECP or TXCP can be the same as that for BANs, TANs and RANs.
Tax-exempt/taxable yield equivalent formula
A formula which converts the lower yield of a tax-exempt security into the higher yield of a taxable security. The tax-exempt yield is divided by 100% less the investor’s marginal tax rate, and the resulting quotient is expressed as a percentage. This allows investors to compare equivalent yields on the two securities.
Tax base
The amount at which an asset or liability is valued for tax purposes. Synonyms: tax basis
Tax concerns 
Concerns related to an investor’s tax position.
Tax efficiency 
The proportion of the expected pretax total return that will be retained after taxes.
Tax expense
An aggregate of an entity’s income tax payable (or recoverable in the case of a tax benefit) and any changes in deferred tax assets and liabilities. It is essentially the income tax payable or recoverable if these had been determined based on accounting profit rather than taxable income.
Tax loss carry forward
A taxable loss in the current period that may be used to reduce future taxable income.
Tax premium 
Compensation for the effect of taxes on the after-tax return of an asset.
Tax risk
The uncertainty associated with tax laws.
Taxable income
The portion of an entity’s income that is subject to income taxes under the tax laws of its jurisdiction.
Taxable temporary differences
Temporary differences that result in a taxable amount in a future period when determining the taxable profit as the balance sheet item is recovered or settled.
Taylor rule
A rule linking a central bank’s target short-term interest rate to the rate of growth of the economy and inflation.
t-Distribution
A symmetrical distribution defined by a single parameter, degrees of freedom, that is largely used to make inferences concerning the mean of a normal distribution whose variance is unknown.
Technical indicators
Momentum indicators based on price.
Temporal method
A variation of the monetary/nonmonetary translation method that requires not only monetary assets and liabilities, but also nonmonetary assets and liabilities that are measured at their current value on the balance sheet date to be translated at the current exchange rate. Assets and liabilities are translated at rates consistent with the timing of their measurement value. This method is typically used when the functional currency is other than the local currency.
Tender offer
A public offer whereby the acquirer invites target shareholders to submit (“tender”) their shares in return for the proposed payment.
Tenor
The original time to maturity on a swap.
T-bill rate
The weekly average auction rate of the three-month Treasury bill stated as the bond equivalent yield.
Technical default
A default under the bond indenture terms, other than nonpayment of interest or principal. Examples of technical default are failure to maintain required reserves, or to maintain adequate fees and charges for service.
Term bonds
Bonds of an issue that have a single stated maturity date. Mandatory redemption provisions require the issuer to call or purchase a certain amount of the term bonds using money set aside in a sinking fund at regular intervals before the stated maturity date.
Term funding
A financing done to meet specific cash-flow needs for a specific period of time.
Term life insurance 
A type of life insurance policy that provides coverage for a specified length of time and accumulates little or no cash values.
Terminal price multiple
The price multiple for a stock assumed at a stated future time.
Terminal share price
The share price at a particular point in the future.
Terminal value of the stock
The analyst’s estimate of a stock’s value at a particular point in the future. Synonyms: continuing value of the stock
Termination date
The date of the final payment on a swap; also, the swap’s expiration date.
Test statistic
A quantity, calculated based on a sample, whose value is the basis for deciding whether or not to reject the null hypothesis.
TFIC
Task Force on Internal Governance
The Bond Buyer™
The daily newspaper of the municipal bond market. The Bond Buyer publishes news stories, new-issuer calendars, results of bond sales, notices of redemptions and other items of interest to the market. The Bond Buyer also publishes weekly indexes of bond yields that are widely followed by the market.
Tier 1 FHC
Tier 1 Financial Holding Company
Theta
The rate at which an option’s time value decays.
Tick
The smallest possible price movement of a security.
Time deposit 
A deposit requiring advance notice prior to a withdrawal.
Time horizon 
The time period associated with an investment objective.
Time series
A set of observations on a variable’s outcomes in different time periods.
Time to expiration
The time remaining in the life of a derivative, typically expressed in years.
Time value
The difference between the market price of the option and its intrinsic value, determined by the uncertainty of the underlying over the remaining life of the option. Synonyms: speculative value
Time value decay
The loss in the value of an option resulting from movement of the option price toward its payoff value as the expiration day approaches.
Time value of money
The principles governing equivalence relationships between cash flows with different dates.
Time-period bias
The possibility that when we use a time-series sample, our statistical conclusion may be sensitive to the starting and ending dates of the sample.
Time-series data
Observations of a variable over time.
Time-series estimators 
Estimators that are based on lagged values of the variable being forecast; often consist of lagged values of other selected variables.
Time-weighted average price strategy
A logical participation strategy that assumes a flat volume profile and trades in proportion to time. Synonyms: TWAP strategy
Time-weighted rate of return
The compound rate of growth of one unit of currency invested in a portfolio during a stated measurement period; a measure of investment performance that is not sensitive to the timing and amount of withdrawals or additions to the portfolio.
Timing option 
With respect to certain futures contracts, the option that results from the ability of the short position to decide when in the delivery month actual delivery will take place.
Tobin’s q
The ratio of the market value of debt and equity to the replacement cost of total assets.
Top-down 
Proceeding from the macro economy, to the economic sector level, to the industry level, to the firm level.
Top-down analysis
With reference to investment selection processes, an approach that starts with macro selection (i.e., identifying attractive geographic segments and/or industry segments) and then addresses selection of the most attractive investments within those segments.
Top-down forecasting approach
A forecasting approach that involves moving from international and national macroeconomic forecasts to industry forecasts and then to individual company and asset forecasts.
Top-down investing
An approach to investing that typically begins with macroeconomic forecasts.
Total asset turnover
An activity ratio calculated as revenue divided by average total assets.
Total future liability
With respect to defined-benefit pension plans, the present value of accumulated and projected future service benefits, including the effects of projected future compensation increases.
Total invested capital
The sum of market value of common equity, book value of preferred equity, and face value of debt.
Total probability rule
A rule explaining the unconditional probability of an event in terms of probabilities of the event conditional on mutually exclusive and exhaustive scenarios.
Total probability rule for expected value
A rule explaining the expected value of a random variable in terms of expected values of the random variable conditional on mutually exclusive and exhaustive scenarios.
Total rate of return 
A measure of the increase in the investor’s wealth due to both investment income (for example, dividends and interest) and capital gains (both realized and unrealized).
Total return 
The rate of return taking into account capital appreciation/depreciation and income. Often qualified as follows: Nominal returns are unadjusted for inflation; real returns are adjusted for inflation; pretax returns are returns before taxes; post-tax returns are returns after taxes are paid on investment income and realized capital gains.
Total return analysis 
Analysis of the expected effect of a trade on the portfolio’s total return, given an interest rate forecast.
Total return swap
A swap in which one party agrees to pay the total return on a security. Often used as a credit derivative in which the underlying is a bond.
Tracking error
The standard deviation of the difference in returns between an active investment portfolio and its benchmark portfolio; also called tracking error volatility, tracking risk, and active risk.
Tracking portfolio
A portfolio having factor sensitivities that are matched to those of a benchmark or other portfolio.
Tracking risk
The standard deviation of the differences between a portfolio’s returns and its benchmark’s returns. Synonyms: active risk
Trade blotter
A device for entering and tracking trade executions and orders to trade.
Toggle tranche
Also known as "Jump Z-tranche." A Z-tranche that may start receiving principal payments before prior tranches are retired if market forces create a "triggering" event, such as a drop in Treasury yields to a defined level, or a prepayment experience that differs from assumptions by a specific margin. "Sticky" jump Z-tranches maintain their changed payment priority until they are retired. "Non sticky" jump Z-tranches maintain their priority only temporarily, for as long as the triggering event is present. Although jump Z-tranches are no longer issued, some still trade in the secondary market.
Total direct debt
The sum of the total bond debt and any unfunded debt (typically, short-term notes) of a municipality.
Total return
Investment performance measure over a stated time period which includes coupon interest, interest on interest, and any realized and unrealized gains or losses.
Tranche
The French word for "slice", tranche usually refers to part, segment or portion of an investment issue such as a specific class of bond or mortgage backed security within an offering in which each tranche offers different terms including varying degrees of risk. Tranche may also refer to the segment of the bond offering being distributed in different geographical areas.
Transcript of proceedings
Final documents relating to a municipal bond issue.
Transfer agent
The party appointed by an issuer to maintain records of bondholders, cancel and issue certificates, and address issues arising from lost, destroyed or stolen certificates.
Transfer Date
Date when OTS's power and duties are transferred to the Fed, OCC, and FDIC.
Transparency
The concept of disseminating price, volume and other information to the public about transactions in markets.
Trade credit
A spontaneous form of credit in which a purchaser of the goods or service is financing its purchase by delaying the date on which payment is made.
Trade date
The date upon which a bond is purchased or sold.
Trade receivables
Amounts customers owe the company for products that have been sold as well as amounts that may be due from suppliers, such as for returns of merchandise. Synonyms: commercial receivables accounts receivable
Trade settlement 
Completion of a trade wherein purchased financial instruments are transferred to the buyer and the buyer transfers money to the seller.
Trading activity 
In fixed-income attribution analysis, the effect of sales and purchases of bonds over a given period; the total portfolio return minus the other components determining the management effect in an attribution analysis.
Trading securities
Securities held by a company with the intent to trade them. Synonyms: held-for-trading securities
Trailing dividend yield
Current market price divided by the most recent quarterly per-share dividend multiplied by four.
Trailing P/E
A stock’s current market price divided by the most recent four quarters of earnings per share. Synonyms: current P/E
Transaction exposure
The risk of a change in value between the transaction date and the settlement date of an asset or liability denominated in a foreign currency.
Transactions motive
In the context of inventory management, the need for inventory as part of the routine production–sales cycle.
Transcription errors 
Errors in gathering and recording data.
Transition phase
The stage of growth between the growth phase and the mature phase of a company in which earnings growth typically slows.
Translation exposure
The risk associated with the conversion of foreign financial statements into domestic currency.
Transparency
Availability of timely and accurate market and trade information.
Treasury shares
Shares that were issued and subsequently repurchased by the company.
Treasury spot curve 
The term structure of Treasury zero coupon bonds.
Treasury stock method
A method of accounting for the effect of options (and warrants) on earnings per share (EPS) that specifies what EPS would have been if the options and warrants had been exercised and the company had used the proceeds to repurchase common stock.
Tree diagram
A diagram with branches emanating from nodes representing either mutually exclusive chance events or mutually exclusive decisions.
Trend
A long-term pattern of movement in a particular direction.
Treynor ratio 
A measure of risk-adjusted performance that relates an account’s excess returns to the systematic risk assumed by the account. Synonyms: reward-to-volatility
Treasury Securities
U.S. Treasury securities are debt obligations of the U.S. government. These include bills, notes, bonds, TIPS, and Savings Bonds. When you buy a Treasury security, you are lending money to the federal government for a specified period of time. Treasury bills are short-term instruments with maturities of no more than one year. Treasury notes are intermediate- to long-term investments, typically issued in maturities of two, three, five, seven and ten years. Treasury bonds cover terms of more than ten years and are currently issued in 30-year maturities. Interest is paid semi-annually. For more information on buying Treasury securities see the government's website www.treasurydirect.gov.
Trigger
The market interest rate at which the terms of a security might change. Triggers are common on index amortization notes and range securities.
Trimmed mean
A mean computed after excluding a stated small percentage of the lowest and highest observations.
Trust receipt arrangement
The use of inventory as collateral for a loan. The inventory is segregated and held in trust, and the proceeds of any sale must be remitted to the lender immediately.
t-Test
A hypothesis test using a statistic (t-statistic) that follows a t-distribution.
Turnover
A measure of the rate of trading activity in a portfolio.
Twist
With respect to the yield curve, a movement in contrary directions of interest rates at two maturities; a nonparallel movement in the yield curve.
Two-sided hypothesis test
A test in which the null hypothesis is rejected in favor of the alternative hypothesis if the evidence indicates that the population parameter is either smaller or larger than a hypothesized value. Synonyms: two-tailed hypothesis test
Type I error
The error of rejecting a true null hypothesis.
Type II error
The error of not rejecting a false null hypothesis.
Triple-A claims-paying rating
Designation for insurers offering superior security on both an absolute and a relative basis. Such insurers have been judged to possess the highest safety and have the capacity to meet policyholder obligations.
True interest cost
A method of calculating bids for new issues of municipal securities that takes into consideration the time value of money (see “net interest cost”).
True sale
An actual sale, as distinct from a secured borrowing, which means that assets transferred to an SPV are not expected to be consolidated with those of the sponsor in the event of the sponsor’s bankruptcy. Rating agencies usually require what is called a true-sale opinion from a law firm before the securities can receive a rating higher than that of the sponsor.
True yield
The rate of return to the investor taking into account the payment of capital gains at maturity on a bond bought at a discount.
Trust agreement
Agreement between the issuer and the trustee (1) authorizing and securing the bonds; (2) containing the issuer’s covenants and obligations with respect to the project and payment of debt service; (3) specifying the events of default; and (4) outlining the trustee’s fiduciary responsibilities and bondholders' rights. Generally does not include an assignment to the trustee of collateral to secure the payment of debt service.
Trustee
An institution, usually a bank, designated by the issuer as the custodian of funds and official representative of bondholders. Trustees are appointed to ensure compliance with the trust indenture and represent bondholders to enforce their contract with the issuers.
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