Category: Financial Terms

Excess Return Key takeaways Excess return is the amount an investment outperforms a chosen benchmark (or underperforms if negative). Benchmarks can be a risk-free rate (e.g., U.S. Treasury yield) or a comparable market index; the latter form of excess return is often called alpha. Risk metrics such as beta, Jensen’s alpha, and the Sharpe ratio…

Excess Reserves Key takeaways Excess reserves are funds a bank holds at its central bank above the required minimum. The U.S. effectively eliminated reserve requirements in 2020 by setting required reserve ratios to zero, removing the regulatory definition of “excess” reserves for U.S. banks. Central banks can still pay interest on voluntary reserve balances (e.g.,…

Excess of Loss Reinsurance: Definition, How It Works, and Benefits What it is Excess of loss reinsurance is a non-proportional form of reinsurance in which a reinsurer indemnifies the ceding insurer for losses that exceed a pre-agreed retention (attachment point). The reinsurer is responsible only for amounts above that limit, which protects the ceding insurer…

Excess Cash Flow Key takeaways * Excess cash flow is the portion of a company’s cash that, under a loan or bond agreement, must be remitted to lenders. * It is defined contractually and can include proceeds from financings, asset sales, windfalls, and operating surpluses. * Lenders use excess cash‑flow provisions to accelerate debt repayment…

Excess Capacity Definition Excess capacity occurs when a firm or industry can produce more goods or services than current market demand requires. In formula form: Excess capacity = potential output − actual output. The term is most commonly used in manufacturing (idle factory lines, underused equipment) but also applies to services (e.g., restaurants with chronically…

Ex Works (EXW): Definition and Key Points Ex Works (EXW) is an Incoterm used in international trade that places minimal obligations on the seller. Under EXW, the seller’s responsibility is to make the goods available at a named place (often the seller’s premises or a nearby terminal). From that point, the buyer assumes all costs,…

Ex-Post: Definition, Calculation, and Uses What is ex-post? Ex-post (Latin for “after the fact”) refers to actual, realized results observed after an event. In finance, ex-post typically describes historical returns, yields, or performance—what an investment actually earned—rather than estimates or forecasts. Key distinctions Ex-post: realized, historical outcomes (actual returns, observed prices, earned income). Ex-ante: forward-looking…

Ex Gratia Payment — Definition and Overview An ex gratia payment is a voluntary payment made by an organization, government, or insurer to compensate an individual for a loss, damage, or inconvenience without admitting legal liability. The Latin phrase “ex gratia” means “by favor”; these payments are discretionary rather than legally required. Key Takeaways Ex…

Ex-Dividend Key takeaways The ex-dividend date (ex-date) determines who is entitled to a declared dividend: buyers on or after the ex-date do not receive the next payout; sellers do. The ex-date is typically one business day before the record date because of trade settlement rules (T+1). On the ex-date a stock typically drops by roughly…

Ex-Dividend Date (Ex-Date): Definition and How It Works What is the ex-dividend date? The ex-dividend date (ex-date) is the cutoff day that determines which shareholders are eligible to receive an upcoming dividend. If you buy a stock on or after its ex-dividend date, you will not receive the next dividend. On the ex-date the stock…

Ex-Ante: Definition and Uses Ex-ante (Latin: “before the event”) refers to forward-looking analysis or forecasts about future events. In finance, ex-ante assessments estimate future returns, cash flows, earnings, or other outcomes using historical data, assumptions, and models. These forecasts set expectations that can be compared later to actual results. Key takeaways Ex-ante analysis is forward-looking…

Evergreen Loans: Definition, Examples and Best Practices What is an evergreen loan? An evergreen loan is a loan or line of credit structured so that repayment of principal is not required during the life of the loan or for a specified period. Borrowers typically make interest-only or minimum payments while maintaining ongoing access to the…

Evergreen Funding: A Smart, Gradual Financing Strategy Evergreen funding is a financing approach that provides capital to a business gradually—through periodic infusions or renewals—rather than delivering the entire amount up front. The model is designed to support steady, sustainable growth and reduce the risks associated with rapid, front-loaded financing. What it Is Evergreen funding supplies…

Evergreen Contract: Definition, Uses, Cancellation, and Examples An evergreen contract is an agreement that automatically renews at the end of its term and continues until one party gives notice to terminate. Parties agree up front that the contract will roll over for additional terms—often indefinitely—unless properly canceled. Key takeaways Evergreen contracts automatically renew after their…

Event Study: Methods and Uses in Investing What is an event study? An event study is an empirical analysis that measures how a specific, identifiable event affects the value of a security (typically a company’s stock). By comparing observed returns around the event to expected (normal) returns, event studies isolate the event’s impact on price….

Evening Star Pattern: A Bearish Reversal Candlestick An evening star is a three-candle bearish reversal pattern used in technical analysis to signal the potential end of an uptrend. It typically appears at or near price peaks and suggests that bullish momentum is weakening and sellers are gaining control. The bullish counterpart is the morning star,…

Eurozone: Definition and Overview The eurozone (or euro area) is the group of European Union (EU) countries that have adopted the euro as their official currency and share a single monetary policy set by the European Central Bank (ECB). It is one of the world’s largest economic regions, with roughly 340 million inhabitants and a…

European Union (EU) The European Union (EU) is a political and economic union of 27 European countries that promotes democratic values, free trade, and regional integration. It aims to increase prosperity, maintain peace, and enhance the collective influence of its members on the global stage. Nineteen member states share a common currency, the euro, and…

European Sovereign Debt Crisis: Causes, Course, and Consequences Definition and overview The European sovereign debt crisis was a period of severe financial stress across several European countries that began in 2008 and peaked between 2010 and 2012. It involved collapsing banks, rapidly rising sovereign bond yields, downgraded credit ratings, and multiple sovereign bailouts. The most…

European Options What is a European option? A European option is a type of options contract that can be exercised only on its expiration date. It grants the holder the right, but not the obligation, to buy (call) or sell (put) the underlying asset at a predetermined price (the strike) on that single day. The…

European Monetary System (EMS) The European Monetary System (EMS) was an adjustable exchange-rate arrangement launched in 1979 to foster monetary-policy cooperation among members of the European Community. It aimed to reduce exchange-rate volatility, curb inflation, and prepare the ground for deeper economic and monetary integration—an effort that ultimately culminated in the European Economic and Monetary…

European Economic and Monetary Union (EMU) Overview The European Economic and Monetary Union (EMU) is the framework through which a group of European Union (EU) member states coordinate economic and fiscal policy, share a common monetary policy, and—among participating members—use a single currency, the euro. The EMU (often called the eurozone) aims to promote economic…

European Currency Unit (ECU) What was the ECU? The European Currency Unit (ECU) was an accounting currency used by the European Monetary System (EMS) from 1979 until it was replaced by the euro. It was not a physical currency but a unit of account used to set exchange-rate relationships, denominate financial instruments, and guide reserve…

European Community (EC) Key takeaways * The European Community (EC) was an economic and political association formed to promote integration and prevent conflict in post‑World War II Europe. * It comprised three treaty-based organizations: the European Economic Community (EEC), the European Coal and Steel Community (ECSC), and the European Atomic Energy Community (Euratom). * Six…

European Central Bank (ECB) Key takeaways The ECB is the central bank for eurozone countries and is responsible for euro-area monetary policy. Its primary mandate is price stability, targeting 2% inflation over the medium term on a symmetrical basis. Monetary policy decisions are made by the Governing Council; voting rotates among national central bank governors…

European Banking Authority (EBA) Overview The European Banking Authority (EBA) is an EU regulatory agency established in 2010 to promote financial stability and transparency across the European Union’s banking sector. It develops binding technical standards and guidelines for banks and supervises regulatory consistency across member states. Role and main objectives The EBA’s work aims to:…

What Is EMEA? EMEA stands for Europe, Middle East, and Africa. It’s a geographic grouping widely used by multinational corporations to organize regional business activity, reporting, and leadership responsibilities. The term is a practical shorthand rather than a strictly defined geopolitical region. Key takeaways EMEA groups Europe, the Middle East, and Africa for operational and…

Euromarket: Meaning, Overview, and History Key takeaways “Euromarket” has two distinct meanings: the eurocurrency financial market and the European Union single market. The eurocurrency market comprises currencies held or traded outside their country of issue (e.g., eurodollars). The EU single market removes internal barriers to the free movement of goods, services, people, and capital among…

Eurodollar Key takeaways * Eurodollars are U.S. dollar–denominated deposits held at banks outside the United States (including foreign banks and overseas branches of U.S. banks). * Because they sit outside U.S. jurisdiction, eurodollars are not subject to Federal Reserve reserve requirements or FDIC insurance. * The eurodollar market is a large, global source of short-term,…

Eurocurrency Market Key takeaways The eurocurrency market is the market for currency deposits held outside the currency’s home country (for example, U.S. dollars held outside the U.S., called eurodollars). It developed to provide a funding and lending channel outside domestic regulation, often resulting in higher deposit rates and lower loan rates than domestic markets. Major…

Eurocurrency Eurocurrency is any currency deposit held at a bank outside the country that issues that currency. For example, U.S. dollars deposited in a British bank or British pounds held in a U.S. bank are both eurocurrency. The term does not imply a European currency or location—what matters is that the deposit is outside the…

Euroclear: What it is and how it works Euroclear is a Financial Market Infrastructure (FMI) provider and one of the principal securities settlement systems serving European markets. It functions as a central securities depository (CSD) and custodian for major financial institutions, facilitating the clearing and settlement of trades executed on European exchanges. Key functions Settles…

Eurobond Definition A Eurobond is a debt security issued in one country that pays interest and principal in a currency different from the issuer’s home currency. The term refers only to issuance outside the currency’s home-country borders — it does not imply issuance in Europe or denomination in euros (for example, a U.S. dollar–denominated bond…

Euro Overnight Index Average (EONIA) Overview The Euro Overnight Index Average (EONIA) was the benchmark overnight interest rate for euro-denominated unsecured lending between European banks. It expressed the average rate for one-day interbank loans and served as a reference for short-term funding and some financial contracts. Regulatory reforms led to EONIA being replaced by the…

Euro Medium-Term Notes (EMTN) What is an EMTN? A Euro Medium-Term Note (EMTN) is a flexible debt instrument issued and traded outside the United States and Canada under a continuous issuance program. EMTNs allow an issuer to make multiple, staggered issues over time in different currencies, maturities, and interest structures rather than as a single…