Undiversifiable Risk

Risk which is common to an entire class of assets or liabilities. The value of investments may decline over a given time period simply because of economic changes or other events that impact large portions of the market. Asset allocation and diversification can protect against undiversifiable risk because different portions of the market tend to underperform at different times. also called systematic risk or market risk.

Risk Margin

A value that takes into account the potential movement of a stock in relation to its option position. A more volatile investment would have a higher risk margin, since the potential for large swings in price is greater than that of a more stable investment.Premium margin and risk margin are the two components comprising the margin requirement.

Weak Dollar

Dollar that can be exchanged for only a small or decreasing amount of foreign currency. A weak dollar means that the U.S. dollar cannot buy very much of another currency. The strength of the dollar has an impact on imports and exports because goods and services from a foreign nation are usually purchased in the currency of the producing nation. A weak dollar usually leads to high exports and low imports. opposite of strong dollar.

Marginal Cost of Capital

The cost associated with raising one additional rupee of capital. The marginal cost will vary according to the type of capital used. For example, raising funds through the use of unsecured or subordinated debt, or through debt that requires higher interest rates to offset risk, will be more expensive than debt that is backed by collateral, such as a secured bond.

Basis Swap

A specific type of interest rate swap, where the interest rates exchanged are based on different money markets or currencies.

Segregated Funds

An annuity offered by an insurance company which guarantees a specific percentage return on the investment upon maturity. It is similar to a mutual fund, and is offered by a insurance company. The term "segregated" is used because the funds are kept separate from the issuing company's other investment funds. Segregated funds also contain other beneficial provisions, including the exemption from certain fees, such as the probate fee that would normally be charged when funds are passed to a beneficiary.

Book Runner

The primary underwriter in debt and equity deals. The book runner works with other firms who will also take part in the deal, allowing for the sharing of risks. For example, a large leveraged buyout might involve several companies, with one company that is responsible for "running" or handling the books.