Equity

The equity in a property is understood to be the difference between the value of the property mortgaged or otherwise encumbered and the amount of the obligation to secure which the property is pledged. For instance, the equity in a loan is the difference between what the securities pledged as collateral are worth and the amount borrowed on them. Securities are usually accepted as collateral by the banks at about 80% of their market value, that is, the lender will usually lend $80,000 on securities of the market value of $100,000. The difference, of course, between the market value of the securities and the amount of the loan is the equity. The term equity back of the bonds is often used by dealers in investment securities, and refers usually to the total market value of all the securities which may be junior in lien or position to the specific security which is referred to. Thus, if a property has secured on it a bond issue of $10,000,000 and the property itself has a capital stock of $40,000,000, the stock being quoted at par, then the equity above the mortgage is about $30,000,000. If the stock is quoted at 150, the equity above the mortgage would presumably be about $50,000,000.

Exchange

The word exchange in finance refers to the payment of an obligation in one place by the transfer of a credit from another place. By this operation the obligation is discharged without the direct borrowing of money. The exchange itself is an order obtained in one place for the payment of money in another place. There is really no practical difference between a bill of exchange and a draft. The term bill of exchange is usually applied to an order for money payable in a foreign country, whereas the term draft is applied to an order payable within the country of its origin.

Ex-Dividend

This term means without or not including a dividend. For instance, dividends on stocks are usually declared payable on a certain day after the transfer books of the corporation have closed. This may be five days or it may be 30 days. During this period the stock cannot be transferred from one name to another, and it therefore sells from that time on at a new price, which is usually measured by the amount of the dividend which has been declared and on which the books have closed. Thus, unless specifically arranged otherwise, no stock during this period will carry the dividend which will be mailed when the books open, as the dividend goes to the owners of stock of record on the day the books close.

Ex-Interest

This means without interest or not including interest, and applies usually to bonds. Registered bonds sell ex-interest in the same way that stocks sell ex-dividend when the books are closed. In the case of coupon bonds the term ex-coupon is used in the same sense. Of course, in the case of coupon bonds no books are closed, and the bonds sell ex-coupon from the day that the coupon is paid and cut off the bond.

Ex-Rights

A stock that is sold ex-rights does not convey to the buyer the privilege to participate in any right that may recently have been granted to the stockholders.

Fixed Charge

A fixed charge is one that becomes due regularly and at stated intervals and permanently. For instance, in the case of railroads, fixed charges include interest on bonded debt, interest on floating debt, sinking fund charges, rentals, taxes, etc. Failure to pay these charges usually constitutes a legal default and cannot be deferred except by agreement of all parties concerned.

Flat

The term flat is used in relation to bonds or other securities which are sold without interest. That is, the interest is not computed and added to the price, but is, to a more or less extent, embraced in the price itself. In other words, the accrued interest, whatever it may amount to, is included in the net figure which is named as the price. In the stock market, when stock certificates are loaned flat the lender does not have to pay interest to the borrower of the stock. Ordinarily the borrower of stock pays the lender the market value of the stock, and the lender pays interest to the borrower on this money. When a stock is lending flat it signifies that this particular stock is not in adequate supply, or at least it is not easy to obtain by borrowing. When, on the other hand, a stock is lending at a premium the borrower not only receives no interest on the money that he advances to the lender, but he also has to pay whatever amount may be agreed upon for the use of the stock. In such a case the stock is very scarce on the market or it is very difficult to obtain.