GLOSSARY

List of Financial Terms in alphabetical order:

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Magnetic Ink Character Recognition (MICR) A standard used to encode checks so they can be read electronically and processed by check sorting machines.

Maintenance Margin Minimum margin that a customer must keep on deposit with a member at all times. Also minimum equity that a futures exchange requires in a customer's account for each futures contract subsequent to the deposit of the initial margin. If equity (funds or securities) drops below the maintenance level, then funds in the form of cash or other securities must be added to the account to bring the equity up to the initial level.

MAP See Market Assistance Plan

Margin In banking, the margin compares the yield on assets to the cost of funding those assets (calculated by net interest income divided by average earning assets). In the securities industry, margin is the money and/or securities that an investor must deposit (or the equity in the account) with a broker as a security bond to ensure performance on a contract.

Margin Call Occurs when a securities broker or futures clearing house demands that an investor provide additional funds to offset declines in market value in their account as a result of their position being marked to market on a daily basis. This action is taken to restore the account balance to the initial margin level.

Marginal Cost Distribution Actions in the insurance industry aimed at reducing or eliminating distribution costs as a percentage of premium sales. This could be accomplished by selling life insurance products through banks or securities brokers, bypassing the company's own sales offices.

Mark-to-Market Daily process in which financial institutions revalue specific financial assets (futures contracts and securities) at the currently available market price.

Market Assistance Plan (MAP) Groups of insurance companies that take a portion of the high-risk business in a given market on a rotating basis.

Market Capitalization The value of a company's outstanding shares. The figure is calculated by multiplying the number of issued and outstanding shares by the current market price. In the stock markets, companies are categorized on the basis of the size of their market capitalization and referred to as micro, small, mid and large caps.

Market Maker A market participant that is willing to quote two-way (bid and offer) prices to customers and is ready to commit the firm's capital to complete either buy or sell side transactions in over-the-counter securities at the publicly quoted prices. The market maker helps to maintain liquidity (fills buy and sell orders using its own capital) in the securities industry.

Market Order Order to buy or sell a security to be executed at the best possible price as soon as possible.

Market Risk The risk that an asset will decline in price due to changes in market conditions (can include interest rates or market prices), resulting in a financial loss when the asset is sold. Also known as price risk, this is the risk that the price of a financial asset will be volatile.

Matched Book Used to describe the situation in which a bank maintains no open positions in foreign currency and does not have any tenor or rate mismatches in its asset/liability structure. A matched book in the securities industry means that the firm's borrowing costs are equal to the interest earned on loans to customers and other brokers.

Mathematical Reserves Reserves required to be held by insurance companies based on formulas developed by regulators (statutory reserves or technical reserves in some countries).

Maturity Date Date on which the principal balance of a loan or any financial instrument is due and payable to either the lender or the holder of the obligation.

Maturity Gap Difference between the maturity structure of a bank's assets and liabilities. Banks attempt to manage the gap by matching pools of funds with loans or investments on a maturity basis and by securitizing assets, which effectively transfers the maturity mismatch off the balance sheet.

MBS See Mortgage Backed Securities

Member Bank A depository financial institution that is a member of the Federal Reserve System in the U.S. All nationally chartered banks in the United States are required to be members of the Federal Reserve. Member banks must meet certain criteria established by the Federal Reserve Bank and must adhere to federal banking regulations. Only member banks can borrow funds from the Federal Reserve discount window.

Merchant Banking A bank that primarily serves corporate clients and offers a range of services including investment banking, international trading and other fee-based services. Merchant banks rarely accept credit risk and usually provide fee-based services.

Merchant Discount Rate Fee a credit card issuer charges a merchant for processing credit card sales drafts and authorizing charges. The fee is traditionally based on a percentage of the net sales on the card.

Merger A term that describes the uniting of two previously separate companies to form one new company. The companies exchange their assets for those of the new company and the company assumes the liabilities of the partner company.

Mezzanine Financing Mezzanine debt is subordinated to the senior debt, but superior to preferred equity in the corporation's capital structure. Since mezzanine is superior to equity, the investor bears less risk than with straight equity. Based upon its place in the hierarchy, mezzanine financing is intermediate in risk and should also provide an intermediate return to mezzanine investors.

MICR Acronym for magnetic ink character recognition. MICR numbers are printed on checks, deposit slips and other forms and can be read by special processing equipment. This equipment provides high-speed processing and sorting of MICR-encoded items.

Middle Office In the financial services industry, the term is used to describe the departments in a bank or brokerage house where positions are monitored and managed, such as the Risk Management and Compliance areas.

Mixed Companies Insurance companies that offer life and general (property and casualty) insurance products. In the U.K., this type of insurance company is called a composite.

ModCo See Modified Coinsurance.

Model Laws Insurance regulations adopted by the National Association of Insurance Commissioners (NAIC) and forwarded for their adoption to the different states in the U.S.

Modified Coinsurance (ModCo) A type of life reinsurance where the reserves are returned to the ceding company while the risk remains with the reinsurer. The ceding company credits the reinsurer with a share of the investment income derived from a proportional share of the reserve.

Monetary Policy Methods used by central banks and governments to control the level of economic activity in a national economy. Rates of economic growth can be controlled through the supply of credit to the banking system, changes in interest rates, or by altering the reserve requirement for the banks. Economic activity is typically measured by looking at industrial production, employment and consumer spending statistics.

Money Center Bank A term that describes the largest U.S. banks located in major financial centers that participate in national and international money markets. Money Center Banks are the U.S. equivalent of City Banks in Japan and Clearing Banks in the U.K.

Money Market The market for the purchase and sale of short-term financial instruments.

Money Market Instruments Debt instruments with a maturity of one year or less. A type of highly liquid investment that can include T-bills, bankers' acceptances and negotiable bank certificates of deposit.

Money Supply The total of a county's currency in circulation and other liquid instruments in the economy. The money supply is divided into three categories: M1, M2 and M3, based on the type and size of the instrument.

Mono-line Insurance Company Insurance company focused on a single product line, such as marine or property insurance.

Moody's Investors Services A highly regarded bond-rating company. The company also rates commercial paper and equities.

Morbidity The relative incidence of disability because of disease or physical impairment.

Morningstar Rating System A system for rating the risk of open- and closed-end mutual funds as well as annuities developed by Morningstar Inc. of Chicago. The system rates funds on a scale of 1-5 (5 is best). Fund performance is assessed based on the three month U.S. Treasury bill rate. If the return on the fund outperforms the T-bill rate, then the fund's rating will be high.

Mortgage Backed Securities (MBS) An investment instrument that provides an investor with part ownership in the cash flow from a pool of mortgages. These securities provide banks with additional funding and reduce their capital adequacy requirements by removing the assets from the balance sheet.

Moving Average A technique that technical analysts use to gain insight into the direction of a stock and to look for evidence of a buy or sell recommendation. Analysts look at 5, 50 and 200-day moving averages. The 50-day measure is an indicator of the price trend for a security. The 200-day moving average is a longer-term measure used in comparison with the shorter averages to assess the stock's overall direction.

Multilines (or Multiline Insurers) Insurers offering both property and liability lines of insurance.

Multiperil Any combination of insurance coverage, excluding life insurance.

Municipal Bond A debt security issued by a state or local government in the U.S. to raise money to finance capital expenditures. The expenditures can include funding a school, hospital, or other large building project.

Mutual Fund Managed investment fund whose shares are sold to investors. Investors are shareholders in the fund and participate in the fund's gains or losses. Shares can be redeemed when needed in an open-end fund and at specific times in a close-ended fund. Mutual fund companies offer a variety of different funds (as stated in their prospectus) in order to attract investors with different financial goals, i.e. income, growth or tax benefits.

Mutual Insurance Company An insurance company that is owned by its policyholders who elect directors to manage the company. A portion of surplus earnings may be returned to the policyholders in the form of dividends. A member relinquishes ownership in the company when their insurance contract ends due to death, maturity or surrender of the policy.

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