Capital Markets Glossary T to Z: Plain-English Definitions

About this page

Finance is full of terms that sound simple until you have to use them. This page is a plain-English glossary for Capital Markets, covering entries such as Take rate, Tangency portfolio, Tax leakage, Tax shield, Temporary difference, each with a short definition and a pointer to the part of the volume where it is explained.

Keep it open while you read, or use it to settle an argument about what a term really means. Every entry is written to stand on its own, with no jargon left undefined, and the part number beside it tells you where to read more. Use it as a quick reference whenever a term trips you up.

A sample of the entries (38 terms on the full page)

Take rate — The share of a payment’s value that a firm in the payment chain keeps as revenue (Part 11.8).

Tangency portfolio — The risky portfolio with the highest Sharpe ratio, where a line from the risk-free rate touches the efficient frontier; in CAPM it is the market portfolio (Part 5.3).

Tax leakage — The tax a sale or separation triggers, which reduces the value that can actually be realized from a sum-of-the-parts (Part 1.9).

Tax shield — The tax saved because interest is deductible, which makes the after-tax cost of debt Rd × (1 − t), within limits such as IRC §163(j) (Part 1.4).

Temporary difference — The gap between an asset’s or liability’s book value and its tax basis that will reverse in later years; multiplied by the tax rate it gives deferred tax (Part 6.5).

Term Loan B — An institutional, usually floating-rate senior secured loan with minimal amortization, often 1% a year, and the core debt tranche of most US buyouts (Part 2.6).

Term premium — The extra yield investors demand for holding a long-term bond instead of rolling over short-term ones; it can be positive or negative (Part 3.4).

Terminal value — The value at the end of the forecast of all later cash flows, estimated by Gordon growth or an exit multiple; usually most of a DCF’s total (Part 1.3).

Three Lines Model — The Institute of Internal Auditors’ 2020 restatement of the Three Lines of Defense, emphasizing the governing body’s role and principles over structure (Part 9.6).

Time value of money — The principle that a dollar today is worth more than a dollar later, because it can be invested now and carries no risk of failing to arrive (Part 1.2).

Tippee — A person who receives material non-public information from an insider; liable when the tipper disclosed for a personal benefit, including a gift, and the tippee knew or should have known it (Part 9.1).

Total return swaps — Contracts in which one party, usually a bank, pays the other the full return on an asset in exchange for a financing fee, giving exposure without ownership (Part 8.7).

TRACE — FINRA’s Trade Reporting and Compliance Engine, to which dealers report over-the-counter bond trades and through which corporate bond trade prices are published (Part 3.7).

Tracking error — The standard deviation of a fund’s return minus its benchmark’s return, measuring how far the fund strays from its index (Part 5.3).

Trade-off theory — The view that a firm borrows until the marginal tax benefit of debt equals the marginal expected cost of financial distress (Part 1.6).

Treynor ratio — Return above the risk-free rate divided by beta, (R − Rf) ÷ β; suited to a fund that is one sleeve of a diversified portfolio (Part 5.4).

Tri-party repo — A repo in which a clearing bank holds, values and substitutes the collateral for both the cash lender and the borrower (Part 3.8).

Tunneling — Moving value from a listed company to its controlling holder, for example by having the company overpay for an asset the controller owns; the controller’s gain is (1 − its stake) × the overpayment (Part 7.8).

Two-fund separation theorem — The result that, with a risk-free asset, every investor holds the same risky portfolio and sets risk only by the mix with cash or borrowing (Part 5.3).

Unit economics — The profit from one customer, store or unit sold over its life, after the cost of winning it (Part 1.12).

Unitranche — A single loan that replaces senior and subordinated debt with one facility at one blended rate, typical of direct lending (Part 8.6).

Universal proxy card — Since September 2022, the single US proxy card in contested elections that lists every nominee of both sides, so holders can mix and match (SEC Rule 14a-19) (Part 7.7).

Unlevered beta — Beta with the effect of debt removed, measuring business risk alone: βu = βL ÷ [1 + (1 − t) × D/E] (Part 1.5).