Earnings per share (EPS)
The net earnings of a corporation divided by the average number of shares of its common stock outstanding during a period. A common method of expressing a corporation's profitability.
Effective duration
The option-adjusted duration for a security with an embedded option. See also duration.
Effective range
The range of upper and lower constant prepayment speeds at which a PAC schedule will hold. The effective range can change over time depending on the prepayment experience of the securities backing the REMIC and can widen or narrow in relation to the original stated PAC band. (See PAC schedule and PAC band.)
Effective yield
The annual return on an investment, which is calculated by dividing the coupon interest rate by the amount invested expressed as a percent of par value.
Electronic Pool Notification (EPN)
A real-time electronic communications network through which buyers and sellers are able to transmit mortgage-backed securities pool information.
Electronic Trading System (ETS)
Systems that let market participants buy or sell bonds electronically.
Embedded option
A provision within a bond giving either the issuer or the bondholder an option to take some action against the other party. The most common embedded option is a call option, giving the issuer the right to call, or retire, the debt before the scheduled maturity date.
Emerging market
A financial market of a developing country, usually a small market with a short operating history.
Emerging Markets Clearing Corporation (EMCC)
Provides risk management and settlement guarantee services to global dealers, interdealer brokers and correspondent clearing firms involved in emerging markets debt instruments.
Empowerment zone
One of several urban areas in which properties are eligible for Ginnie Mae's Targeted Lending Initiative.
Equilibrium price
The market price at which the quantity supplied of a commodity equals the quantity demanded.
Escrowed munis
Proceeds from a new bond issue are held in a separate escrow account to pay off an existing bond issue when it matures.
Escrowed to maturity
Excess revenues from an issue are placed in an escrow account for the express purpose of ensuring payment of bonds at maturity. When funds in the escrow account are adequate to pay off the bond, it becomes escrowed to maturity.
Eurodollars
U.S. dollars on deposit with a bank outside of the United States and, consequently, outside the jurisdiction of the United States. The bank could be either a foreign bank or a subsidiary of a U.S. bank.
European-style call feature
The call option may be exercised on a single date at the conclusion of an initial lockout period.
A method of quoting exchange rates that measures the amount of foreign currency needed to buy one U.S. dollar; i.e., foreign currency unit per dollar. Reciprocal of European Terms, another method of quoting exchange rates, measures the U.S. dollar value of one foreign currency unit, i.e., U.S. dollars per foreign units.
A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as "against actuals" or "versus cash".
Exercise
The purchase of the underlying futures contract taken by the holder of a call option or the sale of the underlying futures contract by the holder of a put option.
The price at which the futures contract underlying a call or put option can be purchased (if a call) or sold (if a put). Also referred to as strike price.
EXMT AMT
The interest on these bonds is not considered tax preference items, and therefore is not used in calculations to determine potential liability to AMT.
Expanded trading hours
Additional trading hours of specific futures and options contracts at the Chicago Board of Trade that overlap with business hours in other time zones.
Expiration date
The date at which an option on a futures contract expires. Options on futures generally expire on a specific date during the month preceding the futures' contract delivery month. For example, an option on a March futures contract expires in February but is referred to as a March option because its exercise would result in a March futures contract position.
Extension risk
The risk that rising interest rates will slow the anticipated rate at which mortgages or other loans in a pool will be repaid, causing investors to find their principal committed longer than expected. As a result, they may miss the opportunity to earn a higher rate of interest on their money.
Extraordinary redemption
This is different from optional redemption or mandatory redemption in that it occurs under an unusual circumstance such as destruction of the facility financed.
The amount of money option buyers are willing to pay for an option in the anticipation that, over time, a change in the underlying futures price will cause the option to increase in value. In general, an option premium is the sum of time value and intrinsic value. Any amount by which an option premium exceeds the option's intrinsic value can be considered time value. Also referred to as time value.