GLOSSARY

List of Financial Terms in alphabetical order:

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Hang Seng Index (HSI) An index of the leading stocks on the Hong Kong stock exchange that provides an indicator of stock performance. As of March 2001 the index consisted of 33 companies. The index is arithmetically calculated and weighted by market capitalization.

Hazard Insurance A type of insurance that protects against property damages caused by a fire or a severe storm. It is different from regular homeowners' insurance and is usually purchased by people who live in areas at risk from hurricanes or floods.

Health Maintenance Organization (HMO) An organization that provides a wide range of comprehensive health care services for a specified group at a fixed periodic payment.

Hedge Fund Hedge funds are designed for wealthy individuals and institutional investors, and are not regulated as other forms of investment funds are (e.g., mutual funds). Hedge funds are allowed to employ riskier investment strategies that other investment funds are not allowed to use, including using derivatives (such as stock options), selling short, borrowing money to leverage returns and trading in currency. As a result of these strategies, hedge funds often have higher returns than mutual funds and other investment funds, and can earn positive returns in down markets. On the other hand, hedge funds can also face enormous losses.

Hedging A method used by traders, sophisticated investors and financial institutions to reduce loss due to market fluctuations. Various instruments, such as forwards, futures and options, are used to offset the potential value fluctuations in portfolios, thereby reducing risk often at the expense of return. Hedging costs should be taken into account when looking at the total return on a portfolio. An example of hedging: Holders of a given stock buy a put option or sell a call option on the same stock. If the stock goes down, the option will rise in value, providing a "hedge"" against losses.

Herstatt Risk Term used to define the risk that one party in a currency swap will default after the other party has met their obligation. Herstattt or settlement risk arises because differences in time zones lead to different settlement times for each part of a currency exchange. This risk is named for a small, privately owned German bank that went into liquidation in 1974 and defaulted on foreign exchange contracts. At the time, Herstatt had several maturing spot and forward contracts where it received Deutschemarks and had to pay out U.S. dollars. In the six hours between the time Herstatt received the D-marks and the time when it had to pay its U.S. dollar obligations in New York, the bank went into liquidation and did not make the necessary payments under the foreign exchange contracts.

High Street Banks A term that describes U.K. banks that have retail banking operations. The reference is to the "high street" or main shopping street in a community.

High Yield Bond Fund Term used to describe taxable bond funds with at least 70% of their portfolio invested in high yield corporate bonds (a.k.a., junk bonds), which are a riskier category of bonds with non-investment grade credit ratings.

Highly Leveraged Transaction (HLT) Transaction that is financed with a large proportion of debt compared to the amount of equity capital invested. Leveraged buyouts are an example of an HLT.

HLT See Highly Leveraged Transaction

HMO See Health Maintenance Organization

Homogeneity A term used to describe the similarity of the insureds of the same rating class.

Hot Issue A newly issued stock that is in great demand. Typically, a hot issue increases in price drastically right after it is offered to the public. In some countries (including the U.S.), regulations limit the involvement of investment industry personnel in the trading of hot issues on the primary market. However, they may trade in the stock in the aftermarket.

House Maintenance Requirement Internal regulations set by individual brokerage houses regarding the handling of and activities associated with customer accounts. Brokerages enact these rules in order to better meet outside regulatory requirements. (A.k.a., house rules.)

HSI See Hang Seng Index

Hybrid capital instruments Financial instruments that have characteristics of both debt (specific rate of interest or amount of dividend paid, issuer able to deduct interest paid for tax purposes) and equity (permanent nature of issue, low priority ranking in liquidation, exchangeable for common shares). Examples are preference shares and convertible bonds.

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