Agency cost viewThe argument that specifies that the various agency costs create a complex environment in which
total agency costs are at a minimum with some, but less than 100%, debt financing.
Agency basis A means of compensating the broker of a program trade solely on the basis of commission
established through bids submitted by various brokerage firms. agency incentive arrangement. A means of
compensating the broker of a program trade using benchmark prices for issues to be traded in determining
commissions or fees.
Agency bank A form of organization commonly used by foreign banks to enter the U.S. market. An agency bank
cannot accept deposits or extend loans in its own name; it acts as agent for the parent bank.
Agencies Federal agency securities.
After-tax real rate of return Money after-tax rate of return minus the inflation rate.
After-tax profit margin The ratio of net income to net sales.
Affirmative covenant A bond covenant that specifies certain actions the firm must take.
Adverse selection A situation in which market participation is a negative signal.
Advance commitment A promise to sell an asset before the seller has lined up purchase of the asset. This seller
can offset risk by purchasing a futures contract to fix the sales price.
Administrative pricing rules IRS rules used to allocate income on export sales to a foreign sales corporation.
Adjusted present value (APV) The net present value analysis of an asset if financed solely by equity (present
value of un-levered cash flows), plus the present value of any financing decisions (levered cash flows). In other
words, the various tax shields provided by the deductibility of interest and the benefits of other investment tax
credits are calculated separately. This analysis is often used for highly leveraged transactions such as a leverage
buy-out.
Adjustable rate preferred stock (ARPS) :Publicly traded issues that may be collateralized by mortgages and
MBSs.
Additional hedge :A protection against borrower fallout risk in the mortgage pipeline.
Actuals :The physical commodity underlying a futures contract. Cash commodity, physical.
Active portfolio strategy :A strategy that uses available information and forecasting techniques to seek a better
performance than a portfolio that is simply diversified broadly. Related: passive portfolio strategy
Active :A market in which there is much trading.
Act of state doctrine :This doctrine says that a nation is sovereign within its own borders and its domestic
actions may not be questioned in the courts of another nation.
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