Rainbow Options- Rainbows on the horizon after a rainy day comprise of various colours of the light spectrum, and although rainbow options aren't as colourful as their atmospheric counterparts, they get their name from the fact that their underlying is two or more assets rather than one.

 

Rate Sensitive Assets (RSA)- Rate sensitive assets are bank assets, mainly bonds, loans and leases, and the value of these assets is sensitive to changes in interest rates; these assets are either repriced or revalued as interest rates change.

 

Rate Sensitive Liabilities (RSL)- Rate sensitive liabilities are bank liabilities, mainly interest-bearing deposits and other liabilities, and the value of these liabilities is sensitive to changes in interest rates; these liabilities are either repriced or revalued as interest rates change.

 

Recovery Rate (RR)- The recovery rate is that fraction of a defaulted obligation that can be recovered.

 

Regulatory Capital Requirement- Regulatory capital requirement specifies how much minimum capital a bank must hold to guard against the various -- market, credit and operational -- risks it takes.

 

Reinvestment Rate=  (Net Capital Expenditures + Change in WC) / EBIT (1-t)

For the sector, we use the cumulated values of each of these variables for the sector.

 

Repurchase Agreement (Repo)- A repurchase agreement, "repo", is a contract between two parties in which one party sells the other a security at a specified price with the obligation to buy the security back at a later date for another specified price; they are widely used by central banks to provide support to meet a bank's short-term liquidity.

 

Reputational Risk- Reputational, or headline, risk is the potential loss resulting from a decrease in standing in public opinion.

 

Reserve Requirement- The reserve requirement, in the fractional reserve banking system, is the proportion of cash a bank must keep on hand to meet regulatory requirements and limits how much money an initial deposit could potentially create.

 

Retail Bank- Retail banks primarily service individuals, or consumers, and small and medium enterprises (SMEs).

 

Retail Borrower- A retail borrower is an individual ("consumer") who borrows money to purchase homes, cars, and other goods or services.

 

Retained Earnings- Retained earnings is that part of corporate earnings not returned to the owners as dividends.

 

Retention Ratio=  1 - Dividend Payout Ratio

 

Rho- Rho is the sensitivity of the option price to changes in the risk-free rate.

 

Risk & Control Self-Assessment (RCSA)- Risk & Control Self-Assessment is the process of identifying potential risks, and then design and implement controls to manage these.

 

Risk Appetite- Risk appetite is the level of risk exposure an investor is willing to assume in exchange for the potential for a profit.

 

Risk Factor Mapping- Risk factor mapping is a process that tells us how to convert selected risk factors into combinations of other risk factors.

 

Risk Management- Risk management is a structured approach to monitoring, measuring, and managing exposures to reduce the potential impact of an uncertain event happening.

 

Risk Policy- A risk policy outlines the risk management framework an organization in relationship to its objectives, and varies across and within industries and firm based on the ability to absorb losses and the rate of return it seeks from operations.

 

Risk Transfer- Risk transfer is the assumption of specific risk for a fee, or premium.

 

Risk-Adjusted Return on Capital (RAROC)- Risk-Adjusted Return on Capital adjusts the return generated by an asset for the inherent risk assumed by the project making it easier to compare and contrast projects with different risk profiles.

 

Risk-Free Rate- Risk-free rate is rate of return from an investment, over a given period of time, that is completely free from all types of risks.

 

Risk-Weighted Assets- Risk-weighted assets equal the sum of various financial assets multiplied by their respective risk-weights and off-balance sheet items weighted for their credit risk according to the regulatory requirements outlined by banking regulators and supervisors.

 

ROC (Return on Capital) or (ROIC) Return on Invested Capital- Estimated by dividing the after-tax operating income by the book value of invested capital. We use the cumulated values for both variables, for the sector, to estimate the sector ROC.

ROC = EBIT (1-t) / (BV of Debt + BV of Equity-Cash)

 

ROE (Return on Equity)- Estimated by dividing the net income by the book value of equity. We use the cumulated values for both variables, for the sector, to estimate the sector ROE. If book value of equity is negative, this is not estimated. (For non-cash ROE, see Non-cash ROE)

 

Rogue Trader- A rogue trader typically violates trading controls or manipulates reporting systems to hide his or her trading activity.

 

R-squared- Estimated from the monthly return regression of stock returns against market returns, using the last 5 years of data. This is the percent of the variation in stock returns, that is explained by market movements.

 

Russian Options- Russian options are essentially a generalised form of the American perpetual put option initially proposed by Shepp & Shiryaev (1993). This type of option is known as a "reduced regret option" in that a minimum payout m to the buyer is guaranteed. The payout is given as the discounted maximum price that the option has ever traded at during the life of the option and can be extremely beneficial for the option holder. In a sense, this option is a perpetual American style lookback option.

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