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Letter D

  • Debt markets

    Debt markets are markets with credits and loans and markets with debt securities. These instruments have a limited maturity (with the exception of Bonds with infinite maturity, so-called perpetuities).

  • Derivatives

    Derivatives are the common name for fixed term contracts and optional term contracts. The market value of such a fixed or optional derivative contract is derived from the market value of the underlying asset (instrument). The asset may, for example, be a physical commodity, a security, including government bonds, and a share index or a currency.

  • Direct trading

    As a part of this manner of trading in the exchange business system, operations among members of the stock exchange are registered where the amount of securities is at least CZK 200,000. The price and amount of the handled security is determined in advance by an agreement of both contractual participants in direct trading. Thus in these operations the transaction price is not created on the basis of comparison of an anonymous offer and demand, because both participants of the transaction know each other in advance. The price for which a direct transaction is concluded is not the stock-market rate, and its variance with the valid rate is in no way restricted.

  • Diversification

    The process of diversification may be used to reduce certain risks Investors may decide to invest their funds into a large number of companies instead of one company. Also, in the case of a small volume of funds, they may invest into an investment fund or a mutual fund, which itself has a significantly diversified portfolio. A bank is another such institution, which arranges for diversification. A financial system allows for portfolios to be diversified in many ways. However, not all types of risks may be diversified. Company profits depend on the management’s ability and the overall economic and legal state of the economy. The general level of economic activity changes according to the business cycle. To a certain degree corporate profits are dependent on each other, and diversification cannot decrease this risk. This risk can be limited to a certain degree by expanding the investment scope to include foreign financial markets. But even here a certain degree of interdependency is apparent between individual countries’ business cycles. Countries with a limited number of manufacturing sectors may be strongly influenced by the collapse of a certain commodity market. In an extreme case the collapse of an important financial segment could result in the collapse of that country’s financial system (so-called systematic risk), which could have a serious impact on economic activity and international trade.

  • Dividend return

    This quantity is calculated by dividing the gross dividend (net dividend plus tax) by the company’s market capitalisation (market capitalisation is equal to the number of shares multiplied by their momentary market price). This return may be used to compare with other interest rates. The use of the dividend return is limited, as it does not take into account future changes in the dividend.

  • Duration

    Duration is the weighted average of the present values of cashflows (coupons and the principal values), where the weighing factor is the period between the present time and the date of the individual cashflows.

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