The random walk hypothesis is based on efficient market theory as a model for explaining share price movements. Put simply, the hypothesis states that the study and interpretation of past share price performance are of no use in predicting future prices.
Rights are entered in the land register according to a certain ranking. If serveral rights are entered in one section, the ranking is determined by the sequence of entries. If several rights are entered in different sections under the same date, these rights are equal ranking. A change in rank, however, can be contractually agreed. Moreover, a specific rank can be reserved through priority rights.
Abbreviation for risk-adjusted return on capital. Ratio for measuring the risk/return ratio of a banking transaction. Here the risk-adjusted return, i.e. net income minus standard risk costs, is measured against necessary or allocated risk capital. The necessary risk capital is determined on an individual basis from the credit, market and operative risks associated with the respective transaction. The RAROC concept can be used to compare the attractiveness of various business activities within a bank.
Standard assessment of the creditworthiness of countries, companies and their bonds by specialized agencies such as Standard & Poor's, Moody's or Fitch. In general, a borrower with a high credit rating will be able to obtain capital at more favourable rates (lower interest rates). By contrast, borrowers with a low credit rating must pay a higher interest rate due to the higher probability of default (credit risk).
In legal terms, real estate refers to immovable property. In banking business this includes land, buildings and similar property rights (such as heritable building rights).
A mutual fund which invests in real estate. Can be either open-ended or closed-ended. The fund assets of open-ended real estate funds are securitized in the form of certificates. The number of buyers is unlimited. Incoming funds are invested primarily in commerical property, buildings and own building projects. Closed-ended real estate funds are only available to a limited number of investors and are 'closed' to new capital once a certain capital amount has been subscribed.
Term referring to a phase in the economic cycle marked by weakened, stagnating or slightly negative economic growth. It is a milder form of economic contraction than a depression.
Repayment of a debt owed to the creditor. Repayments can be made in equal instalments (annuity), in varying instalments or in a lump sum. The term applies to bond and loan repayments. In securities trading, bonds (fixed-income securities such as bonds, Pfandbriefe or medium-term notes) are redeemed by the borrower in accordance with the terms of issue for the respective security.
This is one of the ways in which bonds are redeemed. In this case, there is no single fixed redemption date. Instead, the borrower redeems the bond in regular lots or instalments, mostly after several redemption-free years have elapsed, but still within the term. The numbers to be redeemed are determined by drawing as in a lottery. The serial letters or final digits of the bonds are usually taken to designate the lots.
Price at which mutual fund shares are redeemed by mutal fund companies. The redemption price is calculated from the net asset value of the fund assets divided by the number of fund shares outstanding. The difference between the redemption price and the issue price is the front-end load.
Corresponds to the term ‘rationing’. Only arises when there are more bidders for a security than securities available in a share issue. Share allotments are then reduced, i.e. allocated; see also Oversubscription. Allotments may also be reduced or rationed on a stock exchange if, for instance, there is a high number of buyers or sellers for shares offered or bid for. The share price quotation is then either marked 'ratG', meaning that bids at the current price and limited and unlimited bids were only partly carried out, or 'ratB', meaning that sell orders at the current price and lower limited and unlimited sell orders were only partly carried out.
Prior to the introduction of the euro, exchange rates of the DM against 17 currency were quoted in Germany each trading day in the official fixing. Since 1999 the ECB publishes daily euro reference rates against 28 currencies which are calculated in the concertation procedure between central banks within and outside the Euro System as the average of buy and sell rates. They do not necessarily reflect actual transaction rates but merely serve as a reference. The purpose of these reference rates is that they have an "official character", i.e. are used in annual financial statements or for statistical purposes. In addition, the banks of the German Savings Banks Association, together with the co-operative banking sector and some commercial banks, quote non-official fixing rates from their interbank trading at 1 p.m. each day. Reuters then publishes average buy and sell rates (EuroFX System). Again, these rates are not necessarily actual transaction rates. The big banks take a different approach by posting fixing rates (1 p.m.) or continually updated rates from interbank trading on their websites. While these may vary from bank to bank, they are derived from actual market prices.
Banks which (can) conduct all banking activities but whose branch network is restricted to certain regions. The banking statistics of the Deutsche Bundesbank classify the regional banks together with the commercial banks.
Term referring to stock exchanges in addition to a country's major stock exchange. In Germany, there are regional stock exchanges in Berlin-Bremen, Düsseldorf, Frankfurt am Main, Hamburg, Hanover, Munich and Stuttgart.
A registered share is registered in the owner's name, and this is listed in the company's share register. Thanks to this transparency on ownership, stock corporations know who their shareholders are, making it easier to carry out investor relations work. For stock corporations that are planning a direct listing (listing of the original shares) on the world's largest stock exchange, the New York Stock Exchange (NYSE), a necessary prerequisite is that their shares are issued as registered shares. Opposite: bearer shares. A special form of registered shares in Germany are registered shares with limited transferability: their ownership cannot be transferred without the consent of the company.
The Regulated Market (Geregelter Markt) is a trading segment for shares and bonds established in 1987 under the Stock Exchange Admission Regulations. The Regulated Market and the Official Market (Amtlicher Markt) together constitute the officially regulated part of the market. The admission requirements for the Regulated Market are not as strict as for the Official Market. Prices are determined by independent brokers. For investors, there are no other major differences compared to the Official Market.
For dividend-paying funds, discounts are granted on reinvested dividend amounts. In many cases, investors pay no, or only a discounted, front-end load. The size of the reinvestment discount is published together with the dividend announcement.
Abbreviation for Real Estate Investment Trusts. REITs are joint stock companies which serve the primary business purpose of buying, selling, renting or leasing real estate. They must pay a high portion of earnings (at least 80%) to their shareholders. REITs are the preferred investment vehicle for real estate in the U.S. REITs are also on the rise in Europe.
Indicator that measures the price behaviour of a particular share relative to the market as a whole. It indicates whether a share is outperforming or underperforming the market index.
Along with the deed of release, the release of mortgage is the second possibility to relinquish real property liens. As a result, the assignee releases the collateral and can no longer use it as the basis to satisfy claims. The release of mortgage is a deed in which the deletion of the mortgage or land charge from the land register is approved and which can be used to release the owner from the real property lien.
The last section on the coupon sheet exchangeable for new interest and dividend coupons. Once all dividend or interest coupons have been redeemed, the holder of a security receives a new coupon sheet upon presentation of the renewal coupon. If the securities are held in safe custody, this is done automatically by the bank of the holder of the securities.
Agreement on the purchase and repurchase of a - in general fixed-income - security. The buyer of the security (lender) provides the seller (borrower) with liquidity for a specific period. For the liquidity received the seller of the security pays interest, the repo rate. Repurchase agreements are money market instruments that allow institutional investors, above all banks, to obtain funds in interbank trading and at central banks in open market transactions.
Agreement in which the borrower (repo seller) transfers assets, such as securities, in exchange for an amount of money to a lender (repo buyer). At the same time, it is agreed that the borrower will repurchase the securities at a specific or indeterminate time in exchange for the payment of the repurchase price. The repurchase price is comprised of the purchase price plus the repo rate, which is arranged at the closing of the repurchase agreement. The commercial purpose is to regularly provide liquidity or cash financing to the borrower. Synonym: repo agreement
Reserves are part of equity but reported separately from the company's share capital. Reserves serve as a source of self-financing for the company and strengthen its equity base. The purpose of reserves is, for instance, to cover losses or fund future investments. German Stock Corporation Law requires that 5 percent of net profit (net income) be annually allocated to statutory reserves until statutory reserves and capital reserves combined amount to 10 percent of share capital. Open reserves are reported in the balance sheet under the position "Shareholders' equity". Retained earnings are undistributed (retained) earnings, whereas capital reserves arise when shares are issued above their nominal value. Hidden reserves are not reported but are substantive.
Actually the accumulation of assets. Term referring to the reinvestment of interest, dividends and similar income from securities that is not distributed, but rather reinvested immediately in new securities of the same class. Generally speaking, the term refers to the retention or non-distribution of profits and their allocation to a company's reserves.
Also: net return. A measure of the profitability of an investment used to compare different forms of investment. It is generally expressed in percent per year and refers to the actual annual return of the capital employed. Income from the investment (e.g. interest, dividends, realized capital gains) and any share price changes are measured relative to the capital employed.
Bond yields (net yield) are calculated according to the following formula:
[Nominal interest rate x 100]: purchase price + [redemption price - purchase price]: residual maturity.
A bond where redemption is linked to the way a share price develops. Either the bond is repaid at 100% at maturity or the investor receives the number of shares specified in the sales prospectus. As a "premium" for accepting the risk of having to accept shares, the investor is paid an attractive rate of interest compared with that on a normal bond.
Index expressing the daily trend on the market for German government bonds. It is calculated once daily by Deutsche Börse on the basis of 30 representative fixed-income bonds and treasury notes. It is determined daily on the basis of the cash prices on the Frankfurt Stock Exchange. The REXP®, by contrast, as a performance index captures price changes and interest income and thus measures investment performance. It corresponds to the international standard total return indices.
A shareholder has a right to information from the management of the joint stock corporation in which he/she is a shareholder. The place at which this information must be given is at the annual general meeting. According to the German Stock Corporation Act, the management board of the joint stock corporation is required to give information on business, financial or personal matters, provided the information is needed for an objective assessment of the agenda of the annual general meeting.
Systematic management of risks. This may involve general business risks or specific financial risks. Banks distinguish between operational risks (e.g. due to IT failure), borrower risks (i.e. due to borrower defaults), counterparty risks (i.e. due to the default of securities trading partners), liquidity risks (liquid assets are insufficient to make due payments) and market risks. Market risks include currency risks, exchange rate risks and interest rate risks.
Risk-based margining covers the entire process of measuring, calculating and settling margins payable on all open futures and options positions on Eurex Frankfurt to cover any risks arising from market trades. Margins are intended to ensure that all open positions can be settled within a short period. The daily margin amount is determined by the overall risk of the account to be settled.
Medium to long-term credits whose interest rate is adjusted to market developments - usually every six-months. This type of financing is used mainly on the Euromarket. Borrowers are large companies and governments. Larger loans are granted by a consortium/syndicate of several banks. For refinancing, six-month deposits are generally raised on international money markets. Accordingly, the bank providing the loan sets the interest rate at regular intervals; the applicable money-market rate in London or Frankfurt is generally used as a basis. To this is added a fixed surcharge which, among other things, is determined by the borrower's creditworthiness.