price-earnings
Ease
A minor and/or slow decline in the prices of a market.
EBIT
Abbreviation for Earnings Before Interest and Tax, a measure of a company's total annual earnings before deduction of provisions. EBIT is one of the key measures used by investment analysts to assess corporate performance.
Econometrics
The statistical estimation of economic relationships using empirical data. These relationships are often extrapolated to provide forecasts of economic variables.
Economic Clock
A model for depicting the normal sequence of events for share and property market cycles. After interest rates fall, the share market rises, followed by commodities, inflation and then property. Interest rates then rise to curb inflation and the cycle goes into decline.
Economic Society of Australia
A professional association for economists, established in 1925. The Society aims to promote discussion of economic issues and provide information and education to members.
ED53
Abbreviation for Exposure Draft 53 <196> Accounting for Employee Entitlements, a draft accounting standard which proposes that any differences between the value of accrued benefits and actual plan assets in a company-sponsored superannuation fund should be taken into account on the employer's balance sheet. Adoption of this standard would mean that a deficit in a superannuation fund could be recognised as a liability, and a surplus as an asset, of the company concerned.
Efficient Frontier
A line plotted on a risk/return chart which shows the highest investment return that can be expected for any given level of risk.
Efficient Market Hypothesis
The assertion that 'information' cannot be used to generate superior performance since all public information on a company is immediately reflected in its share price. In such a market, an investor can attain no more, no less, than a fair return for the risks undertaken.
Efficient Portfolio
A portfolio that is fully diversified and lies on the efficient frontier. For any given return, no other portfolio has less risk, and for a given level of risk, no other portfolio provides superior returns.
Eligible Service Period (ESP)
The period of time spent in the employment of a certain employer, or in membership of a certain superannuation fund, for the purposes of calculating an Eligible Termination Payment.
Eligible Termination Payment (ETP)
A payment made to an employee upon retirement, resignation, retrenchment or disablement, and capable of being 'rolled-over' into investments such as Approved Deposit Funds in order to defer and minimise taxation liability. Examples of ETPs include superannuation lump sum payments and redundancy payments. (See also Deferred Annuity).
Emerging Markets
Financial markets in countries with developing economies, where industrialisation has commenced and the economy has linkages with the global economy. The financial markets in these countries are immature compared to those of the world's major financial centres, but are becoming increasingly sophisticated and integrated into the international markets. These markets provide potentially high returns but are subject to high risk and volatility. Current examples would include Indonesia and Mexico. (See also Tiger Economies).
Employee Share Acquisition Company (ESAC)
A company established to operate and administer an Employee Share Ownership Plan, typically on the basis of subscriptions related to employees' salary bonuses or profits of the sponsoring employer.
Employee Share Ownership Plan (ESOP)
A scheme established by an employer to provide tax-advantaged share ownership for its employees as part of their remuneration packages. Employee Share Ownership Plans sometimes extend beyond the provision of equity in the employer company alone to more general share investments, and may become a major discretionary savings vehicle for Australian workers over coming years, supplementing the compulsory superannuation system. (See also Employee Share Acquisition Company).
Employer-Sponsored Fund
A superannuation fund established by an employer for its employees.
EMS
Abbreviation for European Monetary System, an agreement between member nations of the European Union to maintain an alignment between the exchange rates of their respective currencies.
Enhanced Cash
A portfolio management technique which aims to attain returns consistently above the prevailing cash rate by taking advantage of the higher yields available from securities with lower liquidity and credit ratings than conventional liquid assets.
EPS
Abbreviation for Earnings per Share.
Equitisation
The use of futures contracts to convert cash investments into effective exposure to equity markets.
Equity
a) a synonym for a share (as distinct from fixed interest) investment; b) The interest or value which an owner has in an asset over and above the debt against it.
Equity Risk Premium
The difference between the rate of return available from risk-free assets (such as Government bonds) and that available from assuming the risk inherent in more volatile investment such as shares. Over the very long term in Australia, the equity risk premium is around 8% over cash. Shorter term it is of the order of 3% over long bonds, which are themselves some 2% over cash.
Equity Swap
See Swap.
Equity Trust
A form of unit trust in which unitholders' funds are invested in shares.
ERF
Abbreviation for Eligible Rollover Fund.
ERISA
Abbreviation for Employee Retirement Income Security Act, landmark 1974 legislation governing the United States pension market. The 'ERISA market' thus refers to United States Pension funds.
ESAC
Abbreviation for Employee Share Acquisition Company.
ESOP
Abbreviation for Employee Share Ownership Plan.
ESP
Abbreviation for Eligible Service Period.
Establishment costs
The cost involved in setting up a facility.
Establishment Fee
Also called Application Fee. Fee which covers basic costs in setting up loan from initial interview to loan drawdown. Some lenders choose to absorb this fee.
Ethical Investment
An investment approach which which takes into account considerations other than solely the financial return potential of particular investments. An ethical investment policy might include, for instance, a decision to avoid investing in certain sectors (eg. alcohol and tobacco), or to positively favour investments in others (eg. companies which manufacture environmentally-friendly products).
ETP
Abbreviation for Eligible Termination Payment.
Eurodollars
US dollar deposits placed with banks outside the United States. Holders may include individuals, companies, banks and central banks.
Euromarkets
The international markets for the investment of currencies outside their country of origin and free from government interference.
European Option
An option which may only be exercised for settlement on the expiration date. (See also American Option).
Excessive Component
A component of an individual's Eligible Termination Payment which exceeds his or her Reasonable Benefit Limit. Excessive components of ETPs are taxed at the maximum marginal tax rate.
Excess Return
The return achieved by a security over andabove that obtained from a risk-free asset (such as a short-term government bond) held over the same period.
Exchange Controls
Government regulations restricting the free exchange of the domestic currency to and from foreign currencies.
Exchange Rate
The price of the currency in terms of another currency. (See also Direct Quotation, Indirect Quotation).
Exchange Risk
The risk that the value of an investment may be diminished by movements in the exchange rate on a foreign currency.
Exchange Settlement Funds
Funds held in the Reserve Bank, and used by banks to settle transactions with each other, eg. cheques after they have been cleared.
Exchange Traded Option
An option over ordinary shares created and traded on the Stock Exchange. (See also Over-the-Counter Option).
Excluded Fund
A superannuation fund or approved deposit fund which is exempt from operation of the SIS Legislation, ie. because it has fewer than five members in the case of a superannuation fund, or has only one beneficiary or meets other prescribed conditions in the case of an Approved Deposit Fund.
Ex-Distribution
Referring to a unit in a unit trust, which is trading such that the seller rather than the buyer is entitled to receive the next distribution of income from the trust. Opposite of Cum-distribution.
Ex-Dividend
A term meaning 'without dividend': denotes a share price which is quoted on the basis that the seller, not the buyer, is entitled to the current dividend on the share. (Opposite of Cum Dividend).
Execute an Order
To fulfil an order to buy or sell. When an execution is referred to as 'good', it generally means that both the broker and the customer are satisfied that the price obtained is fair.
Exercise
The act of converting an option into its underlying commodity or security.
Exercise Price
The price at which an option holder has the right to buy (in the case of a call option) or sell (in the case of a put option) the underlying commodity, currency or investment instrument. The term is used interchangeably with the term Strike Price.
Exit Fee
A fee charged in relation to some pooled investments for redemptions of units (withdrawals) by unitholders. (See also Redemption Fee).
Expected Rate of Return
The weighted arithmetic average of all possible returns on an asset or portfolio, where the weights represent the probabilities that each outcome will occur. It is the expected value or mean of a probability distribution.
Expected Value
A statistical term denoting a predicted value of a future variable.
Expiration Date
The date on which the right to buy or sell a security under an option expires.
Ex Post
A statistical term denoting backward-looking, or historical, variables.
Exposure Risk
The risk associated with investments in a particular industry sector, country, company, etc. Assessments of exposure risk are routinely conducted by responsible investors, as some risk element is inherent in all forms of investment other than cash.
External Audit
Examination of an organisation's financial records and operations by an independent, external party. (See also Audit, Internal Audit).
External Manager
An organisation (eg. an investment management company) engaged to manage and invest funds on behalf of a client (eg. a Government authority or trustees of superannuation
Extrinsic Value
The price of an option less its intrinsic value. The entire premium of an out-of-the-money option consists of extrinsic value. It is therefore the option's time value.
A, B,
C, D, E, F,
G, H, I,
J, K, L,
M, N, O,
P, Q, R,
S, T, U,
V, W, X,
Y, Z.
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