Page 23 - PRIAA Glossary

CAPITAL ASSET PRICING MODEL (CAPM)
Used to price a particular asset by associating the expected returns on assets held to its anticipated risk of ownership. To hold a particular asset, a potential investor should be compensated for the time value of money (risk-free rate) plus the value associated from taking on the additional risk of holding that asset when compared to holding the market. The additional risk can be calculated by incorporating the risk premium (expected excess return over the market of holding the asset).
CAPITAL REQUIREMENTS DIRECTIVE (CRD)
Deals with implementing Basel III rules for capital measures and standards in banks within the European Union.
CAPITALISATION ISSUE
An offer by an issuer to existing shareholders of free additional shares in proportion to their holdings. Companies may use this corporate action as an alternative to paying
a cash dividend amount and is typically represented by securities, rights or warrants. Also known as a “bonus issue”.
CARBON SEQUESTRATION
The capture and storage of carbon dioxide at the point of combustion to prevent it from reaching the atmosphere.
CARRY (NET FINANCING COST)
The difference between the cost of financing the purchase of an asset and the cash yield of the asset. Positive carry means that the yield earned is greater than the financing cost; negative carry means that the financing cost exceeds the yield earned.
CARRY TRADE
Borrowing funds at a low interest rate and then investing those funds in a higher yielding commodity/asset. The carry trade typically takes advantage of differences in interest rates in different countries. When interested in doing a carry trade, the idea is to find a currency pair with a high interest spread and one that has been appreciating.
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