Financial Dictionary

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Z Bond

Final tranche in a series of mortgage-backed securities that is the last one to receive payment. Used in some collateralized mortgage obligations (CMO), Z-bonds pay no coupon payments while principal is being paid on earlier bonds. Interest that would have been paid on Z-bonds is used instead to pay down principal more rapidly on the […]

Z Test

Statistical test used to determine whether two population means are different when the variances are known and the sample size is large. The test statistic is assumed to have a normal distribution and nuisance parameters such as standard deviation should be known in order for an accurate z-test to be performed.

Z Tranche

Special type of bond class in a sequential pay collateralized mortgage obligation. This class of bond does not receive any interest or principal payments until all other tranches have been completely paid off. In a Z-tranche, the interest that is not paid is accrued and added to the principal for future interest calculation purposes.

Z-Score

A statistical measure that quantifies the distance (measured in standard deviations) a data point is from the mean of a data set. In a more financial sense, Z-score is the output from a credit-strength test that gauges the likelihood of bankruptcy.

Zacks Investment Research

A company, founded in 1977, dedicated to providing professional investors with the financial data and analysis needed to make better speculative decisions for themselves and their clients. Zacks is probably known best for providing an extensive array of consensus earnings-per-share (EPS) estimates. However, the company also offers research reports, recommendation summaries on various stocks, stock […]

Zacks Lifecycle Indexes

A series of indexes developed by Zacks Investment Research, Inc., to provide a benchmark for the lifecycle of target-date funds, with a different index for each target date. The Zacks Lifecycle Index constituents include U.S. equities, international equities, and domestic bonds.

Zakat

Term used in Islamic finance to refer to the obligation that an individual has to donate a certain proportion of wealth each year to charitable causes. Zakat is a mandatory process for Muslims in order to physically and spiritually purify their yearly earnings that are over and above what is required to provide the essential […]

Zaraba method

Method of matching orders that involves using an auction-like process to trade securities. The orders are organized by both their prices and the time that they were taken. As soon as an order for a security is delivered, it is compared and matched with orders already in the order book. When a bid comes in […]

Zero Balance Account

A checking account in which a balance of zero is maintained by automatically transferring funds from a master account in an amount only large enough to cover checks presented.

Zero Capital Gains Rate

The capital gains tax rate of 0% that is charged to individuals who sell property in an “enterprise zone”. The zero capital gains rate can be applied by a given level of government in order to prompt investment in a given area.

Zero Cost Collar

Type of positive-carry collar that secures a return through the purchase of a cap and sale of a floor. Also called “zero cost options” or “equity risk reversals.”

Zero Cost Strategy

Trading or business decision that does not entail any expense upon execution. Zero-cost trading strategies can be used with a variety of investment types, including equities, commodities and options. A zero-cost business strategy might be to improve sales prospects for a home by decluttering all the rooms, packing excess belongings into boxes and moving the […]

Zero Coupon Convertible

A zero coupon bond issued by the corporation, which can be converted in a common stock of that corporation. Zero coupon convertible also refers to a zero-coupon bond that is issued by the municipality and that can be converted into an interest-bearing bond.

Zero Coupon Inflation Swap

Exchange of cash flows that allows investors to reduce or increase their exposure to the risk of a decline in the purchasing power of money. In a zero coupon inflation swap, which is a basic type of inflation derivative, an income stream that is tied to the rate of inflation is exchanged for an income […]

Zero Layoff Policy

Type of company policy that dictates that no employees would be terminated as a result of business based purposes dictated by th economy. This policy does not exempt termination as a result of poor performance or other violations of the employment contract.

Zero Minus Tick

A securities trade executed on an exchange at the same price as the preceding trade, but at a lower price than the last trade of a different price. For example, if a succession of trades occur in the following order – $30.25, $30.00, and $30.00 – the last trade would be considered a zero minus […]

Zero Plus Tick

Security trade that is executed at the same price as the preceding trade but at a higher price than the last trade of a different price. For more than 70 years there was an “uptick rule” as established by the U.S. Securities and Exchange Commission (SEC); the rule stated that stocks could be shorted only […]

Zero Uptick

A transaction executed at the same price as the trade immediately preceding it, but at a price higher than the transaction before that. For example, if shares are bought and sold at $37, followed by $38 and $38, the last trade at $38 is considered to be a zero uptick. This distinction can be important […]

Zero Volatility Spread

A static spread that measures the spread that the investor would realize over the entire Treasury spot rate curve if the bonds were held to maturity. Zero-volatility spread is far more used than nominal spread because it does not assume term structure of interest rate is constant. Zero-volatility spread is also called static spread.

Zero-Coupon Bond

A type of bond that does not pay any interests, but only generates profit at maturity when it is redeemed. Zero-Coupon Bond is sold at heavy discount, and because of their late payment price of these bonds fluctuates a lot. Zero-Coupon Bonds are also known as “split coupon bonds”, “accrual bonds” or “non-interest-bearing note.”

Zero-Coupon Mortgage

A form of commercial financing in which regular interest and principal payments are deferred until maturity, rather than paid over the course of the loan. While the coupon rate on such a mortgage is technically zero because there are no regular coupon or interest payments, interest accrues and is rolled into the principal amount at […]

ZEW Economic Expectations

A leading indicator of economic health based on surveyed institutional investors and analysts. The survey asks respondents to rate the 6-month economic outlook for the nation. A reading above 0.0 indicates optimism while a reading below 0.0 implies pessimism. Importance The indicator incorporates current economic conditions in constructing a 6-month outlook. Since investors and analysts […]

Zombie

A company that continues to operate even if it is insolvent or near bankruptcy and unable to meet its financial obligations. Many research and development companies are potential zombies, because of high costs involved in research operations. For example, if a company tends to create a blockbuster product and its development fails, it could go […]

Zombie Bank

A bank or financial institution with negative net worth. Although zombie banks typically have a net worth below zero, they continue to operate as a result of government backings or bailouts that allow these banks to meet debt obligations and avoid bankruptcy. Zombie banks often have a large amount of nonperforming assets on their balance […]