Page 150 - PRIAA Glossary

SETTLEMENT PRE-MATCHING
A process of matching payments via phone or electronic platform, such as Deriv/SERV, in which counterparties can bilaterally match payments in advance of their settlement date.
SETTLEMENT PRICE
The price at which an option contract is valued to determine whether or not the option is in-the-money.
SETTLEMENT RISK
A risk that arises when payments are not exchanged simultaneously. A simple case would be a party making a payment to its counterparty but not being recompensed until sometime later; there is a risk is that the counterparty may default before making the counter payment. Settlement risk is most pronounced in the foreign exchange markets, where payments in different currencies take place during normal business hours in their respective countries and
can therefore be made up to 18 hours apart and where
the volume of payments makes it impossible to monitor receipts except on a delayed basis. This type of risk afflicted counterparties of Germany’s Bank Herstatt in 1974, which closed its doors between receipt and payment on foreign exchange contracts. Settlement risk is thus sometimes referred as Herstatt risk.
SHARES OUTSTANDING
From a company’s perspective, shares that are owned by investors and have not been repurchased. They are available for trade by the general public.
SHARPE RATIO
A measure of a portfolio’s risk-adjusted performance, i.e.,
a measure of a portfolio’s excess return relative to the
total variability of the portfolio. The Sharpe ratio indicates whether a portfolio’s return is due to smart investment decisions or due to excess risk. It is calculated by subtracting the risk free rate from the portfolio’s return and dividing the result with the standard deviation of the portfolio. A portfolio with a higher ratio is less risky than one with a lower ratio.
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