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Glossary of Terms

earnings before interest and tax (ebit)

a measure of a company's total annual earnings before deduction of provisions. ebit is one of the key measures used by investment analysts to assess corporate performance.

earnings per share (eps)

a company’s total earnings divided by the number of shares outstanding; a measure of a company's performance.

earnings yield

a company's earnings per share divided by its current share price.

econometrics

the application of statistical and mathematical methods to estimate economic relationships using empirical data. these relationships between economic forces such as capital, interest rates and labor are often extrapolated to provide forecasts of economic variables.

efficient market hypothesis

the theory that all market participants receive and act on public information about a company and this knowledge is immediately reflected in the company’s share price. `information' cannot be used to generate superior performance so no investment strategy would be better than a coin toss.

elliot wave theory

originally published by ralph elliot in 1939, it is a subjective, pattern recognition theory based on the influence of crowd behavior on markets. it holds that a rising market follows a pattern of five waves up and three waves down to form a complete cycle.

emerging markets

the financial markets of countries with developing economies. such markets are usually small, with a short operating history, but are becoming increasingly sophisticated and integrated into the international markets.

eurodollars

american dollars held by banks outside the united states. usually a result of payments made to overseas companies or individuals for merchandise. not to be confused with the euro, the common currency of the european union.

european-style options

an option contract that may be exercised only during a specified period of time just prior to its expiration.

ex-dividend

refers to the day when the dividend is subtracted from the price of a stock (the ex-dividend date). investors who own the stock are paid their dividend on that date. investors who are short the stock must pay the dividend on that date.

exchange rate

the rate at which a currency may be converted to another currency. a floating exchange rate means that a currency is exposed to fluctuations in market forces rather than having a fixed value set by government.

exchange traded option

an option over ordinary shares authorized by an exchange for trading, giving either the right to buy or sell a set number of shares up to a certain date.

exercise

the right granted under the terms of a listed options contract. call option holders may exercise their right to buy the underlying security. put option holders may exercise their right to sell the underlying security.

exercise price

the specified price on an option contract that the option holder has the right to buy (in the case of a call option) or sell (in the case of a put option) the underlying security. same as strike price.

expiration date

date on which an option and the right to exercise it, cease to exist.

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