Financial Terms Dictionary - A-Z Glossary

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Random Walk Index (RWI)

The Random Walk Index is a technical indicator used to determine whether a stock’s price movement is random or following a statistically significant trend.

Rate of return pricing

Rate of return pricing is a pricing strategy based on adjusting prices so as to achieve a specific return on investment (ROI).

Rate risk

Rate risk refers to the potential financial loss from fluctuations in interest rates affecting investments, particularly those in fixed-income assets.

Rating

A rating in finance typically refers to an assessment of credit quality or investment risk of a company or security issued by a rating agency.

Rational Behaviour

Rational behaviour in economics assumes individuals make decisions based on their personal benefit, optimally using available information and resources.Learn more

Rational herding

Rational herding occurs when individuals or investors follow the actions of a larger group, assuming collective actions are based on some known information.

RD (credit rating)

RD, or restricted default, credit rating is assigned to entities that have experienced a default on one or more of their financial obligations but have not entered into bankruptcy filings.Learn more

Re-investment risk

Reinvestment risk is the risk that future proceeds from investments may have to be reinvested at a potentially lower rate of return than the initial investment.

Real Estate Investment Trust

A real estate investment trust is a company that owns, operates, or finances income-generating real estate, providing investors with regular income streams, diversification, and long-term capital appreciation.

Real options analysis

Real options analysis is a financial modelling technique that values the choices available to manage investment opportunities as actual financial options.

Real-time economy

The real time economy refers to an economic environment where financial transactions and their related economic activities are conducted in real-time without delays.

Receivables turnover ratio

Receivables turnover ratio is a financial metric indicating the number of times a company's accounts receivable are collected during a specific period.

Recession

A recession warning is an alert issued by economists or financial systems indicating the potential or upcoming onset of a recession, typically observed through economic indicators like GDP growth rates and unemployment.

Record date

The record date is the cut-off date used by companies to determine which shareholders are eligible to receive a dividend or participate in corporate actions.

Red herring prospectus

A red herring prospectus is a preliminary prospectus filed by a company with details about its business and shares being offered, used for marketing the shares ahead of an IPO.

Redundant assets

Redundant assets are assets that are not essential to a company’s operation and do not contribute to its output or revenue generation.

Reference Data

In finance, reference data refers to the static information about securities that doesn’t change regularly, such as the issuer name, stock symbol, and asset class.

Refinancing risk

Refinancing risk is the risk that an entity will not be able to refinance existing debt due to adverse conditions, such as tightened credit markets or deteriorating financial performance.

Registered professional liability underwriter

A registered professional liability underwriter, or RPLU, is a professional designation given to individuals who have demonstrated expertise in the field of professional liability insurance.

Registered share

A registered share is a stock that is registered on the issuing company's books in the owner's name, conferring full legal ownership and rights to the holder.

Regressive Tax

A regressive tax is imposed in a way that the tax rate decreases as the amount subject to taxation increases. It disproportionately affects lower-income individuals.

Regulatory (Regulated, Controlled) Market

Regulated markets are markets overseen by governmental regulatory bodies that impose standards, restrictions, and tariffs. These regulations are intended to protect investors and maintain the integrity of the markets.

Reinvestment risk

Reinvestment risk is the risk that cash flows from an investment, such as coupon payments, will be reinvested at a lower rate of return than the original investment.

Relative strength index (RSI)

The relative strength index is a momentum oscillator used in technical analysis that measures the speed and change of price movements on a scale of 0 to 100. It is typically used to identify overbought or oversold conditions in a stock or other asset.

Relative value

Relative value assesses an asset's value by considering key ratios and metrics compared to similar assets or the broader market. It helps investors determine whether an asset is undervalued or overvalued relative to its peers.

Remonetisation

Remonetisation involves reintroducing a currency or form of money into an economy after it has been demonetised or replaced by another currency. It often occurs after significant economic changes or policy shifts.

Replicating portfolio

A replicating portfolio is a portfolio of assets whose combined financial characteristics mirror those of another investment or financial instrument, often used in derivatives pricing or risk management.Learn more

Replicating strategy

A replicating strategy involves constructing a portfolio or choosing financial instruments that emulate the performance of a particular index, asset, or benchmark.Learn more

Representative money

Representative money means currency that includes any type of financial instrument that has no intrinsic value but can be exchanged for a fixed quantity of a commodity, such as gold or silver.Learn more

Repurchase agreement

A repurchase agreement, also known as a repo, is a short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.

Reserve Currency

A reserve currency is a foreign currency held in significant quantities by governments and institutions as part of their foreign exchange reserves. The US dollar and the euro are primary examples of reserve currencies.

Reserve requirement

The reserve requirement is the minimum amount of reserves a bank must hold against deposits, as mandated by the central bank. It is used to control the money supply and banking stability.

Reset

In finance, reset refers to adjusting the interest rate on a floating rate loan, or resetting the terms of a financial contract based on underlying benchmarks or indices at periodic intervals.

Residential mortgage-backed security

A residential mortgage-backed security is a type of security backed by mortgages on residential property. Investors in these securities receive payments from the income generated by the underlying mortgages.

Residual income valuation

The residual income valuation model is a method for valuing a company by discounting its residual income, which is adjusted net income after subtracting the cost of capital.

Resilience

Market resilience refers to the ability of a market to absorb shocks and stresses, such as financial crises or large market orders, and to recover quickly from these events.

Retail foreign exchange trading

Retail foreign exchange trading is the speculative trading of currencies by individuals through electronic trading platforms or brokers, typically aimed at making a profit from currency fluctuations.Learn more

Retail price index

The retail price index measures the change in the cost of a basket of retail goods and services, often used as an indicator of inflation in the UK.

Retracement

In technical analysis, retracement refers to a temporary reversal in the direction of a stock's price that goes against the prevailing trend, typically seen as a short-term dip in a longer-term trend.Learn more

Return on assets (ROA)

Return on assets is a financial ratio that shows how profitable a company is relative to its total assets. It indicates how efficient management is at using its assets to generate earnings.

Return on capital employed

Return on capital employed (ROCE) is a financial ratio that measures a company's profitability and the efficiency with which its capital is employed. ROCE compares earnings with capital invested in the company.

Return on equity (ROE)

Return on equity is a measure of financial performance calculated by dividing net income by shareholders' equity. It indicates how effectively management is using a company’s assets to create profits.Learn more

Return on Investment (ROI)

ROI meaning, referring to return on investment, is a performance measure used to evaluate the efficiency or profitability of an investment. It compares the gain from an investment relative to its cost.

Return on net assets

Return on net assets measures how well a company utilises its net assets to generate profit.

Return on tangible equity

Return on tangible equity measures a company's return on the physical assets it owns, excluding intangible assets like goodwill or patents.Learn more

Returns

In finance, returns refer to the profit or loss derived from investing or saving.Learn more

Reuters 3000 Xtra

Reuters 3000 Xtra was an electronic trading platform offering significant market data, analytics, and trading capabilities, now replaced by Thomson Reuters Eikon.

Revaluation

Revaluation is the adjustment of the value of a currency or asset to a new level as determined by government or market forces, typically involving an increase in value.

Revenue

Revenue is the total amount of money earned by a company from its normal business operations, typically from the sale of goods and services to customers.Learn more

Revenue per employee definition

Revenue per employee is a financial metric that measures the average revenue generated by each employee within a company, providing insight into the efficiency and productivity of the workforce.

Reversal

The reversal effect is a phenomenon in financial markets where securities that have performed well over a certain period tend to underperform in subsequent periods, and vice versa.Learn more

Reverse auction

A reverse auction is a type of auction in which sellers compete to obtain business from a buyer and prices typically decrease as the sellers undercut each other to win the contract.

Reverse due diligence

Reverse due diligence is when a company performs a comprehensive self-assessment to understand its own strengths, weaknesses, risks, and opportunities. This internal review is in preparation for external evaluations, such as potential acquisitions, investments, or partnerships.

Reverse greenshoe

A reverse greenshoe is a provision in an IPO that gives underwriters the right to sell shares to the company at a later date, which can help stabilize the share price after the offering.

Reverse repurchase agreement

A reverse repurchase agreement is a financial transaction in which one party sells securities to another with an agreement to repurchase the securities at a higher price on a specified future date.

Rights Issue

A rights issue is a way by which a company can raise additional capital by giving existing shareholders the right to purchase additional shares at a discounted price before they are offered to the public.

Risk

Risk in financial terms refers to the potential for losing some or all of an investment. It is often quantified as the standard deviation of returns or potential financial loss in an investment.Learn more

Risk Arbitrage

Risk arbitrage, also known as merger arbitrage, involves buying and selling the stocks of two merging companies simultaneously with the expectation of making a profit from the likelihood of the merger being completed.

Risk assets

Risk assets are assets that have a significant degree of price volatility, such as equities, commodities, high-yield bonds, and other investments that carry a higher risk of loss.Learn more

Risk Diversification

Risk diversification is an investment strategy that involves spreading investments across various financial instruments, industries, and other categories to reduce exposure to any single asset or risk.

Risk exposure

Risk exposure refers to the potential of future losses or adverse effects that may occur as a result of specific actions, events, or decisions. It is a measure of the extent to which a company or individual is vulnerable to risk.

Risk financing

Risk financing involves identifying methods to pay for or offset unavoidable risks, typically through mechanisms such as insurance, hedging, or setting aside financial reserves.

Risk free asset

A risk-free asset is a theoretical investment that provides guaranteed returns with no risk of financial loss. Treasury bills issued by stable governments are often considered close to risk-free.

Risk Management

Risk management in capital markets involves assessing and controlling financial risks that arise from exposures in securities, commodities, and derivatives to enhance returns and limit losses.

Risk metric

Risk metrics are statistical measures used to assess the level of risk associated with an investment portfolio or individual securities, including metrics such as volatility, beta, value at risk (VaR), and conditional value at risk (CVaR).

Risk of ruin

Risk of ruin is the probability that an individual or organisation will exhaust all financial resources or capital necessary to continue operations or meet obligations.

Risk pool

A risk pool groups individuals or entities whose collective risks are combined to manage financial exposure more effectively. Insurance companies often use risk pooling to distribute the costs associated with the risks over all members.

Risk Tolerance

Risk tolerance is the degree of variability in investment returns that an investor is willing to withstand. It reflects the investor's capacity to accept losses in their portfolio.Learn more

Risk transformation

Risk transformation is the process of converting the nature of a risk into another form. This often occurs in the financial sector, where financial instruments transform and redistribute risk through derivatives, insurance, and other means.

Risk vs Reward Ratio

Risk vs reward is a fundamental concept in finance that measures the potential return gained from an investment relative to the amount of risk undertaken in making that investment.

Risk-adjusted return on capital

Risk adjusted return on capital, or RAROC, is a financial ratio that measures the rate of return, adjusted for the risk involved, providing a consistent view of performance across a range of risk levels.

Risk-free bond

Risk-free bonds refer to bonds issued by a sovereign government in a stable financial system, which are considered to have negligible risk of default.

Risk-free interest rate

The risk-free interest rate is the rate of return of a hypothetical investment with no risk of financial loss, typically represented by the yield on government securities such as US Treasury bills.

Risk-neutral measure

Risk neutral measure is a theoretical framework used in financial mathematics to price derivatives, assuming that all investors are indifferent to risk when evaluating the expected returns of securities.

Risk-On Risk-Off

Risk on' and 'risk off' describe market sentiments. 'Risk on' refers to periods when investors are confident and willing to invest in higher-risk assets, whereas 'risk off' describes times when investors are conservative, favouring safer investments.

Risk-weighted asset

Risk weighted assets are a bank's assets or off-balance-sheet exposures, weighted according to risk levels determined by regulatory authorities to determine the minimum amount of capital that must be held by the bank to reduce the risk of insolvency.

RiskMetrics

Risk metrics are statistical measures used to quantify and assess the level of risk associated with an investment portfolio or individual securities, helping in strategic decision-making and risk management.

RNPV (Risk-adjust net present value)

Risk-adjusted net present value, or RNPV, is a method used primarily in the pharmaceutical industry to value projects or investments by adjusting the net present value (NPV) calculations for the risk of failure.

Robber Baron

Robber baron' became used derogatorily in the US during the 19th century to describe businessmen who used exploitative practices to amass their wealth.

Robustness

In finance, robustness refers to an investment, model, or system's ability to remain effective despite changes in market conditions or data inputs.

Round lot

A round lot is a standard number of units of an asset, commonly used in securities trading. For stocks, a round lot typically consists of 100 shares.

Roy's safety-first criterion

The Roy's Safety First Criterion is an approach to investment decisions that prioritises the minimisation of the probability of returns falling below a minimum acceptable return threshold.

RTS index

The RTS Index is a major stock market index which tracks the performance of the largest publicly traded companies in Russia, as measured by market capitalisation.

Rule of Thumb

A rule of thumb is a general guideline or principle that provides practical instructions for determining a course of action or making estimations, not based on rigorous research or exact measurement.Learn more

Russell 2000

The Russell 2000 is an index measuring the performance of approximately 2,000 smallest-cap American companies in the Russell 3000 Index, which is composed of the 3,000 largest US stocks.

Russell Indexes

Russell indexes refer to a range of stock market indices published by FTSE Russell, which include the Russell 3000, Russell 2000, and Russell 1000, among others, representing various segments of the stock market.