Sarbanes-Oxley Act- Sarbanes-Oxley Act was enacted in 2002 in the United States in response to a number of major corporate, governance, and accounting scandals to improve the corporate governance of U.S. public companies, businesses and other organisations.

 

Savings and Loans (S&Ls)- S&Ls, or thrifts, primarily offers loans to individuals to finance residential housing, car and other retail or consumer purchases.

 

Scenario Analysis- Scenario analysis, or what-if analysis, assesses the potential outcome of various scenarios by setting up several possible situations and analyzing the potential outcomes of each situation.

 

Seasonal Financing- A seasonal loan finances a temporary and predictable short-term demand, such as seasonal increases in inventory or farm-related financing.

 

Securitization- Securitization is a process where cash flow producing assets (ex.., mortgages, credit cards, and loans) are pooled into a portfolio, the purchase of these assets in the portfolio is financed by securities issued to investors, who then share the cash flows generated by the portfolio.

 

Security- A (financial) security is a fungible financial instrument.

 

Senior Bond- Senior debt has priority over all other more junior and subordinated debt in case of bankruptcy, default or similar event.

 

Senior Debt- Senior debt has priority in default over all other more junior and subordinated debt.

 

Settlement Risk- Settlement, or Herstatt, risk is the risk that a counterparty fails to perform as agreed and does not deliver a security, or its value after the other counterparty has already delivered on the same transaction.

 

Shareholder- A shareholder, stockholder or equity holder, is one of the owners of a corporation, has the right to elect the board of directors, may decide in corporate matters, and may receive dividends.

 

Shareholder's Equity- Shareholder's equity, the difference between assets and liabilities, is the shareholders' investment in the company, which typically equals the amount the shareholders have invested in the company and retained earnings.

 

Short Position- A short position, the opposite of long position, represents either the selling of a borrowed asset, the writing of an option, or selling a futures position; when the asset's value increases, the position declines in value and when the asset's value declines, the position increases in value.

 

Short-Term Lending- Short-term lending has a maturity less than one year and finances temporary requirements, or seasonal needs.

 

Shout Options- Shout options allow the holder of the option to "shout out" at one or more points during the option life and adjust particular aspects such as the strike price or time to maturity. In some ways, they can be considered as a form of reset options in that the strike price can be reset to a particular level at a certain date.

 

Small and Medium Enterprise (SME)- A small and medium enterprise is usually a partnership, a proprietorship, an owner-operator or other types of small business and corporation whose sales, assets, and headcount falls below a certain limit.

 

Solvency- Solvency is when assets exceed the liabilities.

 

Sovereign Borrower- A sovereign borrower is a government of an independent state or a country that issues bonds or borrows to finance large capital or infrastructure investments, such as roads or railways, or to fund government spending.

 

Sovereign Credit- Sovereign credit is direct borrowing or a borrowing guaranteed by the government of a sovereign state.

 

Sovereign Credit Risk- Sovereign credit risk is the risk that a sovereign state or government will default on or delay the repayment of the government debts.

 

Specific, Non-Systematic, Unique Risk- Specific, non-systematic, unique risk is the risk of an adverse movement in the price of one individual security or financial asset due to factors specific to that particular security or issuer.

 

Speculation- Speculation involves the buying (long position), holding, selling, and short-selling (short position) of financial assets, commodities, foreign exchange, or derivatives, in the expectation that price fluctuations will generate a profit; a position that is not hedged or when simply buying or selling the asset with the hope of earning a profit.

 

Spread Options- In another section, we considered the pricing of rainbow options, which, practically speaking is an option which has 2 or more underlying assets. A spread option can be considered as a type of rainbow option in that it's payoff depends on 2 or 3 underlying assets.

 

Stakeholder- A stakeholder is someone with an interest in the future of a business, enterprise or organization, and usually includes individual customers, borrowers, depositors, investors, employees, shareholders, regulators, and public.

 

Standard Deviation- Standard deviation is a measure of risk, and quantifies the dispersion of the data from its mean; the square root of variance.

 

Standard Deviation in Firm Value- The standard deviation in firm value is obtained using the following formula:

Variance in firm value = Variance in Equity Value (E/(D+E))2 + Variance in Debt (D/(D+E))2 + 2 (E/(D+E) (D/(D+E) (Std dev in Equity) (Std dev in debt) (Correlation between debt and equity)

Since variance in debt value is tough to obtain, we assume that it is roughly one-third the standard deviation in equity values (based upon the relative volatilities in equity and bond indices) and that the correlation between stock and bond prices is 0.3 (against based upon the correlation between equity and bond indices)

 

Standard Deviation in Prices (Equity)- The standard deviation in monthly stock prices, estimated using 5-years of data. The number is annualized.

 

Standardized Approach- The Standardized Approach to calculate the bank's credit and market risk capital is the simplest approach outlined in the Basel II Accord for these risks. For operational risk, this is an intermediate level approach.

 

Stop-Loss Order- A stop-loss order instructs the broker to buy or sell a security at the best available price once a certain, stated price is reached.

 

Strategic Risk- Strategic risk is the potential loss due to poor business decisions or their incorrect execution.

 

Stress Testing- Stress testing assesses the potential outcome of specific changes that are fundamental, material, and adverse.

 

Strike Price- The strike price is a fixed and known price at which an option can be exercised.

 

Swap- A swap, a derivative, allows two counterparties to exchange streams of future cash flows with each other.

 

Systemic Risk- Systemic risk is the risk of a system-wide breakdown in the banking or financial system.

 

Systems Risk- Systems risk is the loss resulting from the insufficient protection of information technology against disruption, damage, or loss caused by hazards such as systems failure, security breaches or data theft.

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