EAD - Exposure at Default
Relating to positions on or off the books, it is defined as the estimated future value of an exposure at the time of default of a debtor. Only banks meeting the requirements for the adoption of the Advanced IRB are legitimised to estimate EAD. The others are required to make reference to statutory estimates.

ECB (European Central Bank)
The Bank created to monitor the monetary policy of the 12 countries that have converted to the euro from their national currencies.

Economic capital
Economic capital is an internally prescribed amount of capital. It is the amount of capital a bank or insurer should have to support the risks it faces.

EDF - Expected Default Frequency
Frequency of default, normally based on a sample inside or outside the bank, which represents the average risk level associable with an opposite party.

EIB (European Investment Bank)
The financial body of the European Union which grants loans and guarantees to finance certain categories of investment projects.

Embedded value
The embedded value is an estimate of the economic value of a closed portfolio company, regardless of the value attributable to future production. Embedded value equals the company shareholders' equity adjusted to market value as of the date of valuation, plus the value of the policy portfolio as of the date of evaluation.

Environmental impact
Any environmental change, positive or negative, partly or fully deriving from the organisation's activity, products or services.
EPS (Earnings per share )
Net profit divided by the average number of outstanding shares.

Equity hedge/long-short (Funds)
Funds that predominantly invest in stocks with the possibility of creating hedging strategies by means of short sales of the same stocks or strategies in derivatives contracts involving securities or market indexes.

Equity origination
Increase of a company's risk capital achieved by floating a new issue of stock.

Ethical fund
An investment fund that acts according to SRI (Socially Responsible Investment) criteria.

Event driven (Funds)
Funds that invest in opportunities arising out of significant events regarding the company sphere, such as mergers, acquisitions, defaults and reorganisations.

EVT - Extreme Value Theory
Statistical methodologies that deal with extreme hypothetical deviations compared to the average probable distribution of specific events.

Exotics (derivatives)
Non-standard instruments unquoted on the regular markets, whose price is based on mathematical models.

External Audit
An examination of a company's accounting records and books conducted by an outside professional, in order to determine whether the company is maintaining records according to the generally accepted accounting principles (GAAP).


Facility (commission)
Commission calculated with reference to the amount of profit on a loan.

Factoring
Contract of cession of commercial credits, activated by specialised firms for purposes of management and collection, normally associated with the granting of a loan to the transferor.

Fair value
It is the consideration for which an asset could be exchanged or a liability extinguished, in a free transaction between acquainted with and independent parties.

Fair value hedge
Hedging against exposure to a variation in the fair value of a budgeted item, attributable to a particular risk.


Fairness/Legal opinion
An opinion given on request by experts of recognised professionalism and competence, as regards the congruity of the economic terms and/or lawfulness and/or technical aspects of a given transaction.

FASB (Financial Accounting Standards Board)
Independent agency which establishes U.S. GAAP.

FED (Federal Reserve System)
The organisation of the 12 Federal Reserve Banks that functions as the central bank of the U.S.A. The system controls monetary policy, regulates the cost of money and the money supply to local banks, and supervises international banking by means of its agreement with the central banks of other countries.

Financial instruments quoted in an active market
A financial instrument is considered as quoted on an active market if the quotations, reflecting normal market transactions, are promptly and regularly available through organised markets (exchanges), middlemen, brokers, intermediaries, companies operating in the sector, quotation services or authorised bodies, and such prices represent effective and regular market transactions taking place over a normal period of reference.

Float (or floating capital)
Number of shares of a company that are outstanding and available for trading by the public.

Forward Rate Agreement
See "Forwards."

Forwards
Forward contracts on interest rates, exchange rates or stock indexes, generally negotiated in over-the-counter markets and whose conditions are established at the time when the contract is entered into, but which will be fulfilled at a predetermined future date, by means of the receipt or payment of differentials calculated with reference to parameters that vary according to the purpose of the contract.

Front office
The complex of operating units designed to deal directly with the clientele.

FTSE 100 (Financial Times Stock Exchange 100 share index)
An index of the share prices of the UK's 100 largest companies (by market capitalisation).

FTSE4GOOD
Index of the socially responsible investments.

Funding
The procurement of capital, in various forms, to finance the company business or particular financial transactions.

Futures
Standardised future contracts under which the parties agree to exchange securities or physical commodities at a fixed forward price and at a future date. Such contracts are normally traded on organised markets, where their execution is guaranteed. In practice, futures on securities often do not involve the physical exchange of the underlying value.


GAAP (Generally Accepted Accounting Principles)
A widely accepted set of rules, conventions, standards, and procedures for reporting financial information.

Global custody
An integrated package of services including, in addition to the custody of securities, the performance of administrative activities relating to the settlement of securities, collections and payments, the deposit bank and management of un-invested liquidity, as well as various forms of reporting on the performance of the portfolio.

Goodwill
The value attached to intangible assets as part of the purchase price of a shareholding in a going concern.

Greca
Identifies a situation of greater or lesser sensitivity with which a derivative contract, typically an option, reacts to variations in the value of the underlying asset, or other parameters of reference (typically intrinsic volatility, interest rates, stock prices, dividends and correlations).

Hedge accounting
Rules pertaining to the accounting of hedges.

Hedge fund
Fund of a speculative nature, which is allowed to use aggressive strategies that are unavailable to mutual funds. Restricted by law to a limited number of investors per fund, most hedge funds set extremely high minimum investment amounts (¿ 500.000 in Italy). As with traditional mutual funds, investors in hedge funds pay a management fee; however, hedge funds also collect a percentage of the profits (usually 20%).

Hold
Recommendation of an analyst neither to buy or sell a stock .

Holding
Financial or limited company which owns the majority of the shares of other companies or is part of another company and controls its board of directors.

IAS/IFRS
The IAS (International Accounting Standards) are issued by the International Accounting Standards Board (IASB). The standards issued after July 2002 are called IFRS (International Financial Reporting Standards).

IDEM (Italian Derivatives Market)
Market segment of the Italian Stock Exchange (Borsa Italiana) dedicated to derivatives.

IFRS (International Financial Reporting Standards)
As from 2005, all European listed companies must report in conformity with IFRS (previously known as IAS). This means that the majority of assets and liabilities have to be valued and classified differently.

IMF (International Monetary Fund)
A specialised agency of the United Nations established in 1945 to promote international trade, stabilise exchange rates, and help countries experiencing short-term balance of payments difficulties to maintain their exchange rates.

Impairment
When referred to a financial asset, a situation of impairment is identified when the book value of the asset exceeds the estimated recoverable amount of the same.

Index linked
Policies whose performance at maturity depends on the performance of a parameter of reference, which may be a stock index, a basket of securities or some other indicator.

Indirect bank collection
Securities and the like owned by third parties on deposit, not issued by the bank at nominal value, excluding certificates of deposit and bank bonds.

Indirect environmental impact
Environmental change deriving from the activities of third party organisations directly related to the main one. In the case of a bank, for example, reference is made to the impact of customer companies performing activities financed with resources lent by the bank.

Institutional investors
Entities with large amounts to invest, such as investment companies, mutual funds, brokerages, insurance companies, pension funds, and investment banks.

Internal dealing
Transactions of purchase and sale performed by the directors and other "relevant people", that is those people who, by virtue of their position, have access to privileged information concerning shares (excluding non convertible bonds) of the same company.

Intraday
Used to refer to an investment/divestment transaction performed in the course of a single day involving the negotiation of a security. It is also used with reference to prices quoted during any one day.

Investment banking
Dealing in the sale and purchase of financial instruments and portfolio management, either jointly or separately.

Investment grade
Term used with reference to quality bonds that have received a medium/high rating (e.g., no less than BBB on Standard & Poor's index).

Investments in fixed assets
Fixed assets owned for the purpose of obtaining income and/or benefiting from an increase in their value.

Investor relations
A department in most medium and large public companies that provides investors and market intermediaries with an accurate account of the company.

IPO (Initial public offering)
A company's first sale of stock to the public.

IRS - Interest Rate Swap
A binding agreement in which two parties agree to exchange flows on some predetermined notional amount with a fixed/variable or variable/variable rate.

ISO (International Standards Organization)
World federation of organisations setting national technical standards. The main reference standards issued include the ISO 14001 (related to environmental management systems) and the ISO 9000 (related to quality systems).

Issuer
An entity that places a financial asset in the marketplace.


Joint venture
A contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking. All parties agree to share the profits and losses of the enterprise.

Junior
In a securitisation transaction it is the lowest-ranking portion of the securities issued, being the first to bear losses that may occur in the course of the recovery of the underlying assets.

Junk bond
A high-risk, non-investment-grade bond with a low credit rating, usually BB or lower; as a consequence, it usually has a high yield.

Kyoto Protocol
Protocol applying the United Nations Conference Framework Convention on Climate Change. The Protocol imposes the reduction of greenhouse gas emissions both to industrialised countries and to countries with transition economies, on the basis of "mutual but differentiated responsibilities". Such reductions are to be achieved between 2008-2012 so as to obtain a global reduction of the emissions of 3.8% compared to 1990 values.

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