Investment Terms

Capacity utilization rate measures the percentage of an organization's potential output that is actually being realized. The capacity utilization rate of a company or a national economy may be measured in order to provide insight into how well it is reaching its potential.
The formula for finding the rate is: (Actual Output / Potential Output ) x 100 = Capacity Utilization Rate
A number under 100% indicates that the organization is producing at less than its full potential.
Capacity utilization rate is a key metric for a business or a national economy. It indicates the slack in the organization at a given point in time.
A company that has a utilization rate of less than 100% can, at least theoretically, increase its production without incurring the additional expensive overhead costs that are associated with purchasing new equipment or property.
A national economy with a ratio of under 100% can pinpoint areas in which its production levels can be increased without significant costs or disruption. The concept of capacity utilization is best applied to the production of physical goods, which are simpler to quantify.

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A Bollinger Band is a technical analysis tool defined by a set of trendlines plotted two standard deviations (positively and negatively) away from a simple moving average of a security's price, but which can be adjusted to user preferences.
Bollinger Bands were developed and copyrighted by famous technical trader John Bollinger, designed to discover opportunities that give investors a higher probability of properly identifying when an asset is oversold or overbought.1
The first step in calculating Bollinger Bands is to compute the simple moving average of the security in question, typically using a 20-day SMA.
A 20-day moving average would average out the closing prices for the first 20 days as the first data point. The next data point would drop the earliest price, add the price on day 21 and take the average, and so on. Next, the standard deviation of the security's price will be obtained. Standard deviation is a mathematical measurement of average variance and features prominently in statistics, economics, accounting and finance.

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The term American depositary receipt refers to a negotiable certificate issued by a U.S. depositary bank representing a specified number of shares of a foreign company's stock.
The ADR trades on U.S. stock markets as any domestic shares would. ADRs offer U.S. investors a way to purchase stock in overseas companies that would not otherwise be available. Foreign firms also benefit, as ADRs enable them to attract American investors and capital without the hassle and expense of listing on U.S. stock exchanges.
American depositary receipts are denominated in U.S. dollars. The underlying security is held by a U.S. financial institution, often by an overseas branch. ADR holders do not have to transact the trade in the foreign currency or worry about exchanging currency on the forex market. These securities are priced and traded in dollars and cleared through U.S. settlement systems.
In order to begin offering ADRs, a U.S. bank must purchase shares on a foreign exchange. The bank holds the stock as inventory and issues an ADR for domestic trading. ADRs list on either the New York Stock Exchange or the Nasdaq, but they are also sold over-the-counter.
U.S. banks require that foreign companies provide them with detailed financial information. This requirement makes it easier for American investors to assess a company's financial health.

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An automated teller machine is an electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative or teller. Anyone with a credit card or debit card can access cash at most ATMs.
ATMs are convenient, allowing consumers to perform quick self-service transactions such as deposits, cash withdrawals, bill payments, and transfers between accounts. Fees are commonly charged for cash withdrawals by the bank where the account is located, by the operator of ATM, or by both. Some or all of these fees can be avoided by using an ATM operated directly by the bank that holds the account.
There are two primary types of ATMs. Basic units only allow customers to withdraw cash and receive updated account balances. The more complex machines accept deposits, facilitate line-of-credit payments and transfers, and access account information.
To access the advanced features of the complex units, a user often must be an account holder at the bank that operates the machine.
Analysts anticipate ATMs will become even more popular and forecast an increase in the number of ATM withdrawals. ATMs of the future are likely to be full-service terminals instead of or in addition to traditional bank tellers.

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The Bank Panic of 1907 was a short-lived banking and financial crisis in the U.S. that occurred at the beginning of the twentieth century.
It resulted from the collapse of highly-leveraged speculative investments propagated by easy money policies pursued by the U.S. Treasury in the preceding years. This led to runs on New York banks and trust companies that had been financing these risky investments and to shrinking stock market liquidity as smaller regional banks, in turn, drew down their deposits from the New York banks.
Without a central bank to fall back on, leading financiers (most notably J.P. Morgan) stepped in and put their own money on the line to bail out the surviving Wall Street banks and other financial institutions. This event became the impetus for the establishment of the Aldrich Commission and the infamous meeting at Jekyll Island, Georgia, where the foundations for the Federal Reserve System would be laid.

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The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment.
The Phillips curve states that inflation and unemployment have an inverse relationship. Higher inflation is associated with lower unemployment and vice versa.
The Phillips curve was a concept used to guide macroeconomic policy in the 20th century but was called into question by the stagflation of the 1970s.
Understanding the Phillips curve in light of consumer and worker expectations shows that the relationship between inflation and unemployment may not hold in the long run, or even potentially in the short run.

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Share of wallet is the dollar amount an average customer regularly devotes to a particular brand rather than to competing brands in the same product category. Companies try to maximize an existing customer's share of wallet by introducing multiple products and services to generate as much revenue as possible from each customer. A marketing campaign, for example, may have a stated goal of increasing the brand's wallet share for specific customers at the expense of its competitors.
Share of wallet is the amount an existing customer spends regularly on a particular brand rather than buying from competing brands.
Companies grow wallet share by introducing multiple products and services to generate as much revenue as possible from each customer.
A marketing campaign might focus on boosting spending by existing customers rather than increasing the product's overall market share.
Benefits from increasing a client's share of wallet include added revenue, improved client retention, customer satisfaction, and brand loyalty.

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Stress testing is a computer simulation technique used to test the resilience of institutions and investment portfolios against possible future financial situations. Such testing is customarily used by the financial industry to help gauge investment risk and the adequacy of assets and help evaluate internal processes and controls. In recent years, regulators have also required financial institutions to carry out stress tests to ensure their capital holdings and other assets are adequate.
Stress testing is a computer-simulated technique to analyze how banks and investment portfolios fare in drastic economic scenarios.
Stress testing helps gauge investment risk and the adequacy of assets, as well as to help evaluate internal processes and controls.
Stress tests can use historical, hypothetical, or simulated scenarios.
Regulations require banks to carry out various stress-test scenarios and report on their internal procedures for managing capital and risk.
The Federal Reserve requires banks with $100 billion in assets or more to perform a stress test.
Companies that manage assets and investments commonly use stress testing to determine portfolio risk, then set in place any hedging strategies necessary to mitigate against possible losses. Specifically, their portfolio managers use internal proprietary stress-testing programs to evaluate how well the assets they manage might weather certain market occurrences and external events.

Asset and liability matching stress tests are widely used, too, by companies that want to ensure they have the proper internal controls and procedures in place. Retirement and insurance portfolios are also frequently stress-tested to ensure that cash flow, payout levels, and other measures are well aligned.

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A sunk cost refers to money that has already been spent and cannot be recovered. In business, the axiom that one has to spend money to make money is reflected in the phenomenon of the sunk cost. A sunk cost differs from future costs that a business may face, such as decisions about inventory purchase costs or product pricing.
Sunk costs are excluded from future business decisions because the cost will remain the same regardless of the outcome of a decision.
When making business decisions, organizations should only consider relevant costs, which include the future costs that still needed to be incurred. The relevant costs are contrasted with the potential revenue of one choice compared to another.
A business only considers the costs and revenue that will change as a result of the decision at hand. Because sunk costs do not change, they should not be considered.

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An inverse floater is a bond or other type of debt whose coupon rate has an inverse relationship to a benchmark rate. An inverse floater adjusts its coupon payment as the interest rate changes. An inverse floater is also known as an inverse floating rate note or a reverse floater.
Governments and corporations are the typical issuers of these bonds, which they sell to investors in order to raise funds. Governments might use these funds to build roads and bridges, while corporations might use the funds from a bond sale to build a new factory or buy equipment.
Investors of an inverse floater will receive cash payments in the form of periodic interest payments, which will adjust in the opposite direction of the prevailing interest rate.
An inverse floater is a bond or other type of debt instrument that has a coupon rate that varies inversely with a benchmark interest rate.
Investors who purchase inverse floaters will receive interest payments that are adjusted according to changes in the current interest rates.
For an inverse floater, the interest rates the investor receives will adjust in the opposite direction of the prevailing rates; thus, when interest rates fall, the rate of the bond's payments increases.
Investors of inverse floaters face interest rate risk, which is the potential for investment losses due to changes in interest rates.

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