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of equal value" in exchange for delivery.) Also called CASH ON DELIVERY, delivery against payment, delivery
against cash, or, from the sell side, RECEIVE VERSUS PAYMENT.
DELTA
1. measure of the relationship between an option price and the under-lying futures contract or stock price. For a call
option, a delta of 0.50 means a half-point rise in premium for every dollar that the stock goes up. For a put option
contract, the premium rises as stock prices fall. As options near expiration, IN-THE-MONEY contracts approach a
delta of 1.
2. on the London Stock Exchange, delta stocks were the smallest capitalization issues before the system was replaced
with today's NORMAL MARKET SIZE.
DELTA HEDGING HEDGING method used in OPTION trading and based on the change in premium (option price)
caused by a change in the price of the underlying instrument. The change in the premium for each one-point change
in the underlying security is called DELTA and the relation-ship between the two price movements is called the
hedge ratio. For example, if a call option has a hedge ratio of 40, the call should rise 40% of the change in the
security move if the stock goes down. The delta of a put option, conversely, has a negative value. The value of the
delta is usually good the first one-point move in the underlying security over a short time period. When an option has
a high hedge ratio, it is usually more profitable to buy the option than to be a WRITER because the greater
percentage movement vis-à-vis the underlying security's price and the relatively little time value erosion allow the
purchaser greater leverage. The opposite is true for options with a low hedge ratio.
DEMAND DEPOSIT account balance which, without prior notice to the bank, can be drawn on by check, cash
withdrawal from an automatic teller machine, or by transfer to other accounts using the telephone or home
computers. Demand deposits are the largest component of the U.S. MONEY SUPPLY, and the principal medium
through which the Federal Reserve implements monetary policy. See also COMPENSATING BALANCE.
DEMAND LOAN loan with no set maturity date that can be called for repayment when the lender chooses. Banks
usually bill interest on these loans at fixed intervals.
DEMAND-PULL INFLATION price increases occurring when supply is not adequate to meet demand. See also
COST-PUSH INFLATION.
DEMONETIZATION withdrawal from circulation of a specified form of currency. For example, the Jamaica
Agreement between major INTERNATIONAL MONETARY FUND countries officially demonetized gold starting
in 1978, ending its role as the major medium of international settlement.

accounts were de-regulated effective April, 1986, under a different federal law). The act authorized interest-bearing
NEGOTIABLE ORDER OF WITHDRAWAL (NOW) accounts to be offered anywhere in the country. The act also
overruled state usury laws on home mortgages over $25,000 and otherwise modernized mortgages by eliminating
dollar limits, permitting second mortgages, and ending territorial restrictions in mortgage lending. Another part of the
law permitted stock brokerages to offer checking accounts. See also DEREGULATION.

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DEPOSITORY TRUST COMPANY central securities repository where stock and bond certificates are exchanged.
Most of these exchanges now take place electronically, and few paper certificates actually change hands. The DTC is
a member of the Federal Reserve System and is owned by most of the brokerage houses on Wall Street and the New
York Stock Exchange.
DEPRECIATED COST original cost of a fixed asset less accumulated DEPRECIATION; this is the net book value
of the asset.
DEPRECIATION
Economics: consumption of capital during productionin other words, wearing out of plant and capital goods, such as
machines and equipment.
Finance: amortization of fixed assets, such as plant and equipment, so as to allocate the cost over their depreciable
life. Depreciation reduces taxable income but does not reduce cash.
Among the most commonly used methods are STRAIGHT-LINE DEPRECIATION; ACCELERATED
DEPRECIATION; the ACCELERATED COST RECOVERY SYSTEM, and the MODIFIED ACCELERATED
COST RECOVERY SYSTEM. Others include the annuity, appraisal, compound interest, production, replacement,
retirement, and sinking fund methods.
Foreign exchange: decline in the price of one currency relative to another.
DEPRESSED MARKET market characterized by more supply than demand and therefore weak (depressed) prices.
See also SYSTEMATIC RISK.
DEPRESSED PRICE price of a product, service, or security that is weak because of a DEPRESSED MARKET. Also
refers to the market price of a stock that is low relative to comparable stocks or to its own ASSET VALUE because
of perceived or actual risk. Such stocks are identified by high dividend yield, abnormally low PRICE/EARNINGS

trend is considered bearish.

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DESIGNATED ORDER TURNAROUND (DOT) electronic system used by the New York Stock Exchange to
expedite execution of small MARKET ORDERS by routing them directly from the member firm to the
SPECIALIST, thus bypassing the FLOOR BROKER. A related system called Super DOT routes LIMIT ORDERS.
DESK trading desk, or Securities Department, at the New York FEDERAL RESERVE BANK, which is the
operating arm of the FEDERAL OPEN MARKET COMMITTEE. The Desk executes all transactions undertaken by
the FEDERAL RESERVE SYSTEM in the money market or the government securities market, serves as the
Treasury Department's eyes and ears in these and related markets, and encompasses a foreign desk which conducts
transactions in the FOREIGN EXCHANGE market.
DEUTSCHE BORSE AG operating company for the German securities and derivatives markets. In 1998, it changed
its name to Eurex Frankfurt GmbH. It operates the FRANKFURT STOCK EXCHANGE, the country's leading stock
exchange, and seven others in Dusseldorf, Munich, Hamburg, Berlin, Stuttgart, Hanover and Bremen. Deutsche
Borse also operates DEUTSCHE TERMINBORSE, Germany's only futures exchange, and is responsible for
settlement of all securities and futures exchange transactions in Germany. The eight exchanges have different official
trading hours. General trading hours are 10:30 A.M. to 1:30 P.M., Monday through Friday. The IBIS system runs
from 8:30 A.M. to 5 P.M.
DEUTSCHE TERMINBORSE (DTB) Germany's first fully computerized exchange, and the first German exchange
for trading financial futures, opened in January 1990. In January 1994, DTB merged with DEUTSCHE BORSE AG.
DTB changed its name to Eurex Deutschland in 1998, when it joined with the SWISS OPTIONS AND FINANCIAL
FUTURES EXCHANGE (SOFFEX) to form Eurex. Eurex trades futures and options contracts formerly traded on
the two exchanges: futures and options on the DAX Index (the German stock index) and the Swiss Market Index
(SMI); futures and future options on the DAX future, BOBL national government bonds (3.3 to 5 years), BUND
national government bonds (8.5 to 10 years), Swiss government bonds (Conf), Dow Jones STOXX 50 and Dow
Jones Euro STOXX 50; futures on the one-month Euromark, three-month Euromark, Mid-Cap DAX and Jumbo
Pfandbrief; stock options on German and Swiss blue chip equities; and U.S. dollar/Deutschemark options.
DEVALUATION lowering of the value of a country's currency relative to gold and/or the currencies of other

offer investors a low-cost means of tracking the DJIA, the most widely recognized indicator of the American stock
market. DIAMONDS pay monthly DIVIDENDS (which can be reinvested into more shares of the trust) that
correspond to the dividend yields of the DJIA component stocks and pay capital gains distributions once a year.
DIAMONDS are designed to trade at about 1/100 the level of the Dow Jones Industrial Average. So if the DJIA is at
9000, DIAMONDS will trade at about $90 per unit.
For those speculating that stock market prices will fall, it is possible to SELL SHORT using DIAMONDS. Short
sellers have an additional advantage: DIAMONDS are not subject to the UPTICK RULE that

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applies to stocks, meaning they can be sold regardless of which direction the price is moving.
Unlike open-end mutual funds, DIAMONDS trade like stocks, allowing investors to buy or sell at any time during
the trading day, whereas index mutual funds are only priced once at the end of each trading day. Like open-end index
funds, DIAMONDS charge low management fees because there is little research or trading conducted by the trust's
management. There are also no LOADS to buy DIAMONDS, though normal brokerage commissions do apply to
trades. Whereas closed-end funds often trade at discounts to their NET ASSET VALUES, investors can create an
unlimited number of DIAMONDS trading units, which helps insure they will correlate closely with the performance
of the DJIA stocks in the portfolio. See also INDEX FUND; SPDR.
DIFF short for Euro-rate differential, a futures contract traded on the Chicago Mercantile Exchange that is based on
the interest rate spread between the U.S. dollar and the British pound, the German mark, or the Japanese yen.
DIFFERENTIAL small extra charge sometimes called the odd-lot-differential usually 1/8 of a pointthat dealers add
to purchases and subtract from sales in quantities less than the standard trading unit or ROUND LOT. Also, the
extent to which a dealer widens his round lot quote to compensate for lack of volume.
DIGITS DELETED designation on securities exchange tape meaning that because the tape has been delayed, some
digits have been dropped. For example, 26 1/2 . . . 26 5/8 . . . 26 1/8 becomes 6 1/2 . . . 6 5/8 . . . 6 1/8.
DILUTION effect on earnings per share and book value per share if all convertible securities were converted or all
warrants or stock options were exercised. See FULLY DILUTED EARNINGS PER (COMMON) SHARE.
DINKS acronym for dual-income, no kids, referring to a family unit in which there are two incomes and no children.
The two incomes may result from both husband and wife working, or one spouse holding down two jobs. Since the

fund is appropriate for the client. Many companies also now allow shareholders to purchase "no-load" stock directly
from the company, thereby avoiding brokers and sales commissions. See also TREASURY DIRECT.
DIRTY STOCK stock that fails to meet the requirements for GOOD DELIVERY.

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DISABILITY INCOME INSURANCE insurance policy that pays benefits to a policyholder when that person
becomes incapable of performing one or more occupational duties, either temporarily or on a long-term basis, or
totally. The policy is designed to replace a portion of the income lost because of the insured's disability. Payments
begin after a specified period, called the elimination period, of several weeks or months.
Some policies remain in force until the person is able to return to work, or to return to a similar occupation, or is
eligible to receive benefits from another program such as Social Security disability. Disability insurance payments
are normally tax-free to beneficiaries as long as they paid the policy premiums. Many employers offer disability
income insurance to their employees, though people are able to buy coverage on an individual basis as well.
DISBURSEMENT paying out of money in the discharge of a debt or an expense, as distinguished from a
distribution.
DISCHARGE OF BANKRUPTCY order terminating bankruptcy proceedings, ordinarily freeing the debtor of all
legal responsibility for specified obligations.
DISCHARGE OF LIEN order removing a lien on property after the originating legal claim has been paid or
otherwise satisfied.
DISCLAIMER OF OPINION auditor's statement, sometimes called an adverse opinion, that an ACCOUNTANT'S
OPINION cannot be provided because of limitations on the examination or because some condition or situation
exists, such as pending litigation, that could impair the financial strength or profitability of the client.
DISCLOSURE release by companies of all information, positive or negative, that might bear on an investment
decision, as required by the Securities and Exchange Commission and the stock exchanges. See also FINANCIAL
PUBLIC RELATIONS; INSIDE INFORMATION; INSIDER.
DISCONTINUED OPERATIONS operations of a business that have been sold, abandoned, or otherwise disposed of.
Accounting regulations require that continuing operations be reported separately in the income statement from
discontinued operations, and that any gain or loss from the disposal of a segment (an entity whose activities represent

PAPER as collateral. This provides a floor on interest rates, since banks set their loan rates a notch above the
discount rate.
2. interest rate used in determining the PRESENT VALUE of future CASH FLOWS. See also CAPITALIZATION
RATE.
DISCOUNT WINDOW place in the Federal Reserve where banks go to borrow money at the DISCOUNT RATE.
Borrowing from the Fed is a privilege, not a right, and banks are discouraged from using the privilege except when
they are short of reserves.
DISCOUNT YIELD yield on a security sold at a discountU.S. treasury bills sold at $9750 and maturing at $10,000 in
90 days, for instance. Also called bank discount basis. To figure the annual yield, divide the discount ($250) by the
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that number by the approximate number of days in the year (360) divided by the number of days to maturity (90).
The calculation looks like this:
DISCRETIONARY ACCOUNT account empowering a broker or adviser to buy and sell without the client's prior
knowledge or consent. Some clients set broad guidelines, such as limiting investments to blue chip stocks.
DISCRETIONARY INCOME amount of a consumer's income spent after essentials like food, housing, and utilities
and prior commitments have been covered. The total amount of discretionary income can be a key economic
indicator because spending this money can spur the economy.
DISCRETIONARY ORDER order to buy a particular stock, bond, or commodity that lets the broker decide when to
execute the trade and at what price.
DISCRETIONARY TRUST
1. mutual fund or unit trust whose investments are not limited to a certain kind of security. The management decides
on the best way to use the assets.
2. personal trust that lets the trustee decide how much income or principal to provide to the beneficiary. This can be
used to prevent the beneficiary from dissipating funds.
DISHONOR to refuse to pay, as in the case of a check that is returned by a bank because of insufficient funds.
DISINFLATION slowing down of the rate at which prices increase usually during a recession, when sales drop and

Estate law: parceling out of assets to the beneficiaries named in a will, as carried out by the executor under the
guidance of a court.
Mutual funds and closed-end investment companies: payout of realized capital gains on securities in the portfolio of
the fund or closed-end investment company.
Securities: sale of a large block of stock in such manner that the price is not adversely affected. Technical analysts
look on a pattern of distribution as a tip-off that the stock will soon fall in price. The opposite of distribution, known
as ACCUMULATION, may signal a rise in price.
DISTRIBUTION AREA price range in which a stock trades for a long time. Sellers who want to avoid pushing the
price down will be careful not to sell below this range. ACCUMULATION of shares in the same range helps to
account for the stock's price stability. Technical analysts consider distribution areas in predicting when stocks may
break up or down from that price range. See also ACCUMULATION AREA.
DISTRIBUTION PERIOD period of time, usually a few days, between the date a company's board of directors
declares a stock dividend, known as the DECLARATION DATE, and the DATE OF RECORD, by which the
shareholder must officially own shares to be entitled to the dividend.

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DISTRIBUTION PLAN plan adopted by a mutual fund to charge certain distribution costs, such as advertising,
promotion and sales incentives, to shareholders. The plan will specify a certain percentage, usually .75% or less,
which will be deducted from fund assets annually. See also 12b-1 MUTUAL FUND.
DISTRIBUTION STOCK stock part of a block sold over a period of time in order to avoid upsetting the market
price. May be part of a primary (underwriting) distribution or a secondary distribution following SHELF
REGISTRATION.
DISTRIBUTOR wholesaler of goods to dealers that sell to consumers.
DIVERSIFICATION
1. spreading of risk by putting assets in several categories of investmentsstocks, bonds, money market instruments,
and precious metals, for instance, or several industries, or a mutual fund, with its broad range of stocks in one
portfolio.
2. at the corporate level, entering into different business areas, as a CONGLOMERATE does.

DIVIDEND PAYOUT RATIO percentage of earnings paid to shareholders in cash. In general, the higher the payout
ratio, the more mature the company. Electric and telephone utilities tend to have the highest payout ratios, whereas
fast-growing companies usually rein-vest all earnings and pay no dividends.
DIVIDEND RECORD publication of Standard & Poor's Corporation that provides information on corporate policies
and payment histories.
DIVIDEND REINVESTMENT PLAN automatic reinvestment of shareholder dividends in more shares of the
company's stock. Some companies absorb most or all of the applicable brokerage fees, and some also discount the
stock price. Dividend reinvestment plans allow shareholders to accumulate capital over the long term using
DOLLAR COST AVERAGING. For corporations, dividend reinvestment plans are a means of raising capital funds
without the FLOTATION COSTS of a NEW ISSUE.
DIVIDEND REQUIREMENT amount of annual earnings necessary to pay contracted dividends on preferred stock.
DIVIDEND ROLLOVER PLAN method of buying and selling stocks around their EX-DIVIDEND dates so as to
collect the dividend and make a small profit on the trade. This entails buying shares about two weeks before a stock
goes ex-dividend. After the ex-dividend date the price will drop by the amount of the dividend, then work its way
back up to the earlier price. By selling slightly above the purchase price, the investor can cover brokerage costs,
collect the dividend, and realize a small capital gain in three or four weeks. Also called dividend capture. See also
TRADING DIVIDENDS.
DIVIDENDS PAYABLE dollar amount of dividends that are to be paid, as reported in financial statements. These
dividends become an

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obligation once declared by the board of directors and are listed as liabilities in annual and quarterly reports.
DIVIDENDS-RECEIVED DEDUCTION tax deduction allowed to a corporation owning shares in another
corporation for the dividends it receives. In most cases, the deduction is 70%, but in some cases it may be as high as
100% depending on the level of ownership the dividend-receiving company has in the dividend-paying entity.
DIVIDEND YIELD annual percentage of return earned by an investor on a common or preferred stock. The yield is
determined by dividing the amount of the annual dividends per share by the current market price per share of the
stock. For example, a stock paying a $1 dividend per year that sells for $10 a share has a 10% dividend yield. The

purchases without U.S. gifts or loans to provide the necessary dollars. After World War II a worldwide dollar
shortage was alleviated by massive infusions of American money through the European Recovery Program (Marshall
Plan) and other grant and loan programs.
DOLLAR-WEIGHTED RETURN portfolio accounting method that measures changes in total dollar value, treating
additions and withdrawals of capital as a part of the RETURN along with income and capital gains and losses. For
example, a portfolio (or group of portfolios) worth $100 million at the beginning of a reporting period and $120
million at the end would show a return of 20%; this would be true even if the investments lost money, provided
enough new money was infused. While dollar weighting enables investors to compare absolute dollars with financial
goals, manager-to-manager comparisons are not possible unless performance is isolated from external cash flows;
this is accomplished with the TIME-WEIGHTED RETURN method.
DOMESTIC ACCEPTANCE see ACCEPTANCE.
DOMESTIC CORPORATION corporation doing business in the U.S. state in which it was incorporated. In all other
U.S. states its legal status is that of a FOREIGN CORPORATION.
DOMICILE place where a person has established permanent residence. It is important to establish a domicile for the
purpose of filing state and local income taxes, and for filing estate taxes upon death. The domicile is created based on
obtaining a driver's license, registering to vote, and having a permanent home to which one returns. Usually, one
must be a resident in a state for at least six months of the year to establish a domicile.
DONATED STOCK fully paid capital stock of a corporation contributed without CONSIDERATION to the same
issuing corporation. The gift is credited to the DONATED SURPLUS account at PAR VALUE.
DONATED SURPLUS shareholder's equity account that is credited when contributions of cash, property, or the
firm's own stock are freely given to the company. Also termed donated capital. Not to be confused with contributed
surplus or contributed capital, which is the

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balances in CAPITAL STOCK accounts plus capital contributed in excess of par or STATED VALUE accounts.
DO NOT INCREASE abbreviated DNI. Instruction on good-till-cancelled buy limit and sell stop orders that prevent
the quantity from changing in the event of a stock SPLIT or stock dividend.
DO NOT REDUCE (DNR) instruction on a LIMIT ORDER to buy, or on a STOP ORDER to sell, or on a STOP-

an asset with a total cost of $1000, a useful life of four years, and no SALVAGE VALUE.
With STRAIGHT-LINE DEPRECIATION the useful life of the asset is divided into the total cost to arrive at the
uniform annual charge of $250, or 25% a year. DDB permits twice the straight-line annual percentage rate50% in
this caseto be applied each year to the undepreciated value of the asset. Hence: 50% · $1000 = $500 the first year,
50% · $500 = $250 the second year, and so on.
YEAR STRAIGHT LINE DOUBLE DECLINING BALANCE
Expense Cumulative Expense Cumulative
1
$250 $250 $500 $500
2
250 500 $250 750
3
250 750 125 875
4
250 1000 63 938
$1000 $938
A variation of DDB, called 150 percent declining balance method, uses 150% of the straight-line annual percentage
rate.
A switch to straight-line from declining balance depreciation is permitted once in the asset's lifelogically, at the third
year in our example. When the switch is made, however, salvage value must be considered. See also MODIFIED
ACCELERATED COST RECOVERY SYSTEM; DEPRECIATION.
DOUBLE TAXATION taxation of earnings at the corporate level, then again as stockholder dividends.
DOUBLE TOP technical chart pattern showing a rise to a high price, then a drop, then another rise to the same high
price. This means the security is encountering resistance to a move higher. However, if the

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price does move through that level, the security is expected to go on to a new high. See also DOUBLE BOTTOM.
DOUBLE UP sophisticated stock buying (or selling short) strategy that reaffirms the original rationale by doubling

a third party (payee). Payee and drawer are usually the same person. In foreign transactions, a draft is usually called a
bill of exchange. When prepared without supporting papers, it is a clean draft. With papers or documents attached, it
is a documentary draft. A sight draft is payable on demand. A time draft is payable either on a definite date or at a
fixed time after sight or demand.
DRAINING RESERVES actions by the Federal Reserve System to decrease the money supply by curtailing the
funds banks have available to lend. The Fed does this in three ways: (1) by raising reserve requirements, forcing
banks to keep more funds on deposit with Federal Reserve banks; (2) by increasing the rate at which banks borrow to
maintain reserves, thereby making it unattractive to deplete reserves by making loans; and (3) by selling bonds in the
open market at such attractive rates that dealers reduce their bank balances to buy them. See also MULTIPLIER.
DRAWBACK rebate of taxes or duties paid on imported goods that have been re-exported. It is in effect a
government subsidy designed to encourage domestic manufacturers to compete overseas.
DRAWER see DRAFT.
DRESSING UP A PORTFOLIO practice of money managers to make their portfolio look good at the end of a
reporting period. For example, a mutual fund or pension fund manager may sell certain stocks that performed badly
during the quarter shortly before the end of that quarter to avoid having to report that holding to shareholders. Or
they may buy stocks that have risen during the quarter to show shareholders that they owned winning stocks.
Because these portfolio changes are largely cosmetic, they have little effect on portfolio performance except they
increase transaction costs. In the final few days of a quarter, market

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analysts frequently comment that certain stocks rose or fell because of end-of-quarter WINDOW DRESSING.
DRILLING PROGRAM see BALANCED DRILLING PROGRAM; COMPLETION PROGRAM;
DEVELOPMENTAL DRILLING PROGRAM; EXPLORATORY DRILLING PROGRAM; OIL AND GAS
LIMITED PARTNERSHIP.
DRIP see DIVIDEND REINVESTMENT PLAN.
DRIP FEED supplying capital to a new company as its growth requires it, rather than in a lump sum at the beginning.
See also EVERGREEN FUNDING.
DROP-DEAD DAY day on which a deadline, such as the expiration of the national debt limit, becomes absolutely

typically is a perfunctory affair, most companies, recognizing the importance of due diligence, hold informational
meetings, often in different regions of the country, at which top management representatives are available to answer
questions of securities analysts and institutional investors.
DUE-ON-SALE CLAUSE clause in a mortgage contract requiring the borrower to pay off the full remaining
principal outstanding on a mortgage when the mortgaged property is sold, transferred, or in any way encumbered.
Due-on-sale clauses prevent the buyer of the property from assuming the mortgage loan.
DUMPING
International finance: selling goods abroad below cost in order to eliminate a surplus or to gain an edge on foreign
competition. The U.S. Antidumping Act of 1974 was designed to prevent the sale of imported goods below cost in
the United States.
Securities: offering large amounts of stock with little or no concern for price or market effect.
DUN & BRADSTREET (D & B) company that combines credit information obtained directly from commercial
firms with data solicited from their creditors, then makes this available to subscribers in reports and a ratings
directory. D & B also offers an accounts receivable collection service and publishes financial composite ratios and
other financial information. A subsidiary, MOODY'S INVESTOR'S SERVICE, rates bonds and commercial paper.
DUN'S NUMBER short for Dun's Market Identifier. It is published as part of a list of firms giving information such
as an identification number, address code, number of employees, corporate affiliations, and trade styles. Full name:
Data Universal Numbering System.
DURABLE POWER OFATTORNEY legal document by which a person with assets (the principal) appoints another
person (the agent) to act on the principal's behalf, even if the principal becomes incompetent. If the power of attorney
is not ''durable," the agent's authority to act ends if the principal becomes incompetent. The agent's power to act for
the principal may be broadly stated, allowing the agent to buy and sell securities, or narrowly stated to limit activity
to selling a car.
DURATION concept first developed by Frederick Macaulay in 1938 that measures bond price VOLATILITY by
measuring the "length" of a bond. It is a weighted-average term-to-maturity of the bond's cash

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flows, the weights being the present value of each cash flow as a percentage of the bond's full price. A Salomon

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known as auction rate preferred stock, Money Market Preferred Stock (Lehman Brothers Inc.), and by such
proprietary acronyms as DARTS (Salomon Smith Barney Inc.). See also AMPS; APS.
DUTY tax imposed on the importation, exportation, or consumption of goods. See also TARIFF.
DWARFS pools of mortgage-backed securities, with original maturity of 15 years, issued by the Federal National
Mortgage Association (FANNIE MAE).

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E
EACH WAY commission made by a broker involved on both the purchase and the sale side of a trade. See also
CROSSED TRADE.
EAFE acronym for the Europe and Australasia, Far East Equity index, calculated by the Morgan Stanley Capital
International (MSCI) group. EAFE is composed of stocks screened for liquidity, cross-ownership, and industry
representation. Stocks are selected by MSCI's analysts in Geneva. The index acts as a benchmark for managers of
international stock portfolios. There are financial futures and options contracts based on EAFE.
EARLY WITHDRAWAL PENALTY charge assessed against holders of fixed-term investments if they withdraw
their money before maturity. Such a penalty would be assessed, for instance, if someone who has a six-month
certificate of deposit withdrew the money after four months.
EARNED INCOME income (especially wages and salaries) generated by providing goods or services. Also, pension
or annuity income.
EARNED INCOME CREDIT TAX CREDIT for qualifying taxpayers with at least one child in residence for more
than half the year and incomes below a specified dollar level.
EARNED SURPLUS see RETAINED EARNINGS.
EARNEST MONEY good faith deposit given by a buyer to a seller prior to consummation of a transaction. Earnest
money is usually forfeited in the event the buyer is unwilling or unable to complete the sale. In real estate, earnest
money is the down payment, which is usually put in an escrow account until the closing.