1. Glossary of Financial Terms
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H Haircut
The margin or difference
between the actual market value
of a security and the value
assessed by the lending side of a
transaction (ie. a repo).
Handle
The whole-dollar price of a bid
or offer is referred to as the
handle (i.e. if a security is
quoted at 101.10 bid and 101.11
offered, 101 is the handle).
Traders are assumed to know the
handle.
Hard capital rationing
Capital rationing that under no
circumstances can be violated.
Hard currency
A freely convertible currency
that is not expected to depreciate
in value in the foreseeable
future.
Harmless warrant

2. Warrant that allows the user to
purchase a bond only by
surrendering an existing bond
with similar terms.
Head & shoulders
In technical analysis, a chart
formation in which a stock price
reaches a peak and declines,
rises above its former peak and
again declines and rises again
but not to the second peak and
then again declines. The first
and third peaks are shoulders,
while the second peak is the
formation's head. Technical
analysts generally consider a
head and shoulders formation to
be a very bearish indication.
Hedge
A transaction that reduces the
risk of an investment.
Hedge fund
A fund that may employ a
variety of techniques to enhance
returns, such as both buying and
shorting stocks based on a
valuation model.
Hedge ratio (delta)

3. The ratio of volatility of the
portfolio to be hedged and the
return of the volatility of the
hedging instrument.
Hedged portfolio
A portfolio consisting of the
long position in the stock and
the short position in the call
option, so as to be riskless and
produce a return that equals the
risk-free interest rate.
Hedgie
Slang for a hedge fund.
Hedging
A strategy designed to reduce
investment risk using call
options, put options, short
selling, or futures contracts. A
hedge can help lock in existing
profits. Its purpose is to reduce
the volatility of a portfolio, by
reducing the risk of loss.
Hedging demands
Demands for securities to hedge
particular sources of
consumption risk, beyond the
usual mean-variance
diversification motivation.

4. Hell-or-high-water contract
A contract that obligates a
purchaser of a project's output to
make cash payments to the
project in all events, even if no
product is offered for sale.
Herstatt risk
The risk of loss in foreign
exchange trading that one party
will deliver foreign exchange
but the counterparty financial
institution will fail to deliver its
end of the contract. It is also
referred to as settlement risk.
High-coupon bond refunding
Refunding of a high-coupon
bond with a new, lower coupon
bond.
High price
The highest (intraday) price of a
stock over the past 52 weeks,
adjusted for any stock splits.
High-yield bond
See:junk bond.
Highly leveraged transaction
(HLT)
Bank loan to a highly leveraged
firm.

5. Historical exchange rate
An accounting term that refers
to the exchange rate in effect
when an asset or liability was
acquired.
Hit
A dealer who agrees to sell at
the bid price quoted by another
dealer is said to "hit" that bid.
Holder-of-record date
The date on which holders of
record in a firm's stock ledger
are designated as the recipients
of either dividends or stock
rights. Also called date of
record.
Holding company
A corporation that owns enough
voting stock in another firm to
control management and
operations by influencing or
electing its board of directors.
Holding period
Length of time that an individual
holds a security.
Holding period return
The rate of return over a given
period.

6. Homemade dividend
Sale of some shares of stock to
get cash that would be similar to
receiving a cash dividend.
Homemade leverage
Idea that as long as individuals
borrow (or lend) on the same
terms as the firm, they can
duplicate the affects of corporate
leverage on their own. Thus, if
levered firms are priced too
high, rational investors will
simply borrow on personal
accounts to buy shares in
unlevered firms.
Homogeneity
The degree to which items are
similar.
Homogeneous
Exhibiting a high degree of
homogeneity.
Homogenous expectations
assumption
An assumption of Markowitz
portfolio construction that
investors have the same
expectations with respect to the
inputs that are used to derive

7. efficient portfolios: asset
returns, variances, and
covariances.
Horizon analysis
An analysis of returns using
total return to assess
performance over some
investment horizon.
Horizon return
Total return over a given
horizon.
Horizontal acquisition
Merger between two companies
producing similar goods or
services.
Horizontal analysis
The process of dividing each
expense item of a given year by
the same expense item in the
base year. This allows for the
exploration of changes in the
relative importance of expense
items over time and the behavior
of expense items as sales
change.
Horizontal merger
A merger involving two or more
firms in the same industry that

8. are both at the same stage in the
production cycle; that is two or
more competitors.
Horizontal spread
The simultaneous purchase and
sale of two options that differ
only in their exercise date.
Host security
The security to which a warrant
is attached.
Hot money
Money that moves across
country borders in response to
interest rate differences and that
moves away when the interest
rate differential disappears.
Hubris
An arrogance due to excessive
pride and an insolence toward
others.
Human capital
The unique capabilities and
expertise of individuals.
Hurdle rate
The required return in capital
budgeting.
Hybrid
A package containing two or

9. more different kinds of risk
management instruments that
are usually interactive.
Hybrid security
A convertible security whose
optioned common stock is
trading in a middle range,
causing the convertible security
to trade with the characteristics
of both a fixed-income security
and a common stock instrument.
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