Financial Language Reference - Words starting with B




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Financial Dictionary

B

Back-End Load

A load is a commission that is paid to sales representatives when they sell investment products such as mutual funds. Back-end loads are not deducted from investor assets at the time of the sale. Product companies pay commissions and recover their costs with higher fees that are paid by investors. They protect themselves with penalties for withdrawal (the back-end load). That is, investors must pay a penalty to sell an investment that was sold to them with a back-end load. For example, if an investor wanted to sell a back-end load investment in less than 12 months, the penalty could be 7% of assets. Back-end loads decline 1% per year so the longer the investor holds the investment the lower the penalty if they want to sell it. Most penalties expire after seven years.

Back Office

Back offices vary in function, but most often they are involved in business processes that make investment processes work. For example, billing fees, compliance with government regulations, portfolio administration, and accounting.

Balanced Mutual Funds

Funds that invest in stocks and bonds. Designed for investors who are more conservative and don't want 100% of their assets invested in the stock market. In rising markets they may lag the performance of all stock portfolios, but they should outperform the all stock portfolios in falling markets.

Balance of Payments

System of recording a country's economic transactions with the rest of the world. A positive balance means a country exported more than it imported. A negative balance means the country imported more than it exported.

Bank Trust Department

A bank department that provides corporate trustee services: holding assets, collecting income, paying beneficiaries, administering trusts, processing transactions, providing guardianship services, making investment decisions, and settling estates. Most larger bank trust departments invest assets on behalf of clients and may offer proprietary investment products. Bank trust departments can be named in perpetuity because they never die.

Basis Point

One basis point is .01%, or one one-hundredth of a percent. 100 basis points equal 1%.

Bear Market

A prolonged period of falling prices - usually six months or more. A bear market in stocks is usually brought on by the anticipation of declining economic activity, and a bear market in bonds is caused by rising interest rates.

Benchmark

An index or composite of indexes that can be used as a reference point. For example, the Standard & Poors 500 Stock Index is the most commonly used benchmark for comparing the performance of equity portfolios.

Best Execution

A regulatory requirement that broker-dealers and others acting on behalf of investors must execute orders at the best available price.

Beta

A coefficient that measures the volatility of a stock or portfolio in relation to the rest of the stock market. The Standard & Poor's 500 Stock Index has a beta coefficient of 1.00. Any stock or portfolio with a higher beta is more volatile than the market and any with a lower beta can be expected to rise and fall more slowly than the market.

Block Trade

The single trade of a large number of shares for stocks or a large dollar amount for bonds. In general, 10,000 or more shares of a stock or $200,000 or more worth of a bond would be described as a block trade.

Blue Chip

The common stock of a brand name company that has a long record of profitable growth and/or dividend payments, stable management, and a dominant position in its industry.

Blue Sky Laws

Laws that are passed by states to protect investors from securities fraud. These laws require sellers of new stock issues or mutual funds to register their offerings and provide financial details on each issue so that investors can base their judgments on relevant data.

Bonds

Fixed income securities that are issued by corporations and governments. Any interest-bearing or discounted government or corporate security that obligates the issuer to pay the investor a specified interest rate and principal at maturity.

Bond Discount

Amount by which the market price of a bond is lower than the face value of the bond. Current bonds with fixed interest rates go down in value (the discount) as interest rates go up (an inverse relationship).

Bond Rating

There are several bond rating services, including Standard & Poor's and Moody's, that analyze the risk of owning the bonds of particular issuers and provide ratings for those issuers. Their ratings range from AAA (high quality) to D (in default). Bonds rated BB or below are not considered investment grade.

Bond Swap

The simultaneous sale of one bond issue and the purchase of another. The reasons for bond swaps vary. For example, a maturity swap would be to sell a bond with a ten year maturity and buy a bond with a five year maturity, thereby reducing that average maturity of a bond portfolio.

Brady Bonds

Public-issue, U.S. dollar denominated bonds for developing countries.

Breakpoint Sale

Mutual funds have breakpoints based on various investment amounts that entitle the investor to reduced sales charges.

Broker

A person who acts as an intermediary between a buyer and seller in securities transactions and and is paid with a commission. Some brokers offer fixed cost trading accounts.

Bull Market

A period of six months or more in the market when general prices are rising.

Buy & Hold

The purchase of a security with the intent of not selling the security. May be part of a strategy to accumulate shares in a company over a longer time period. Capital gains taxes are avoided with this strategy or they are long-term when the investment is finally sold. A very low turnover investment strategy.