Glossary of Financial Terms starting with Alphabet ‘I’

Glossary of ‘Financial Terms’ starting with Alphabet ‘I’, i.e. ‘Meaning’ or ‘Definition’ of Common and Unusual terms relating to Accounting, Auditing, Company Law, GST, Income Tax, Investments, etc., along with the ‘Context’ in which they are used.

Implied Volatility

The value of the price or rate volatility variable that would equate current option price and fair value. Alternatively, the value of the volatility variable that buyers and sellers appear to accept when the market price of an option is determined. Implied volatility is calculated by using the market price of an option as the fair value in an option model and calculating (by iteration) the volatility level consistent with that option price.

Income Distribution

Distribution of income of a mutual fund to its unit holders, in proportion to the number of units held.

Independent directors

Independent directors are directors who apart from receiving director’s remuneration do not have any other material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in the judgement of the board may affect their independence of judgement.

Indexed asset

An indexed asset has coupon and principal payments that are adjusted upward in response to increase in price level. This adjustment is intended to compensate lenders for the decline in purchasing power of loan repayments.

Index Fund

A mutual fund which invests in a portfolio of shares that matches identically the constituents of a well known stock market index. Hence changes in the value of the fund mirror changes in the index itself.

Index futures

Futures contract based on an index, the underlying asset being the index, are known as Index Futures Contracts. For example, futures contract on NIFTY Index and BSE-30 Index. These contracts derive their value from the value of the underlying index.

Index option contracts

The options contracts, which are based on some index, are known as Index options contract. The buyer of Index Option Contracts has only the right but not the obligation to buy / sell the underlying index on expiry. Index Option Contracts are generally European Style options i.e. they can be exercised/ assigned only on the expiry date.

Index Trusts

Trust funds in which investment strategy involves mirroring particular share market or fixed interest market index.

Indian Depository Receipt

A receipt, evidencing an underlying foreign security, issued in India by a foreign company which has entered into an agreement with the issuer and depository, custodian and depository or underwriters and depository, in accordance with the terms of prospectus or letter of offer, as may be prescribed.

Initial margin

The initial amount which customers have to put in before taking up a futures contract to guarantee the transaction.

Initial Public Offering (IPO)

The first public issue by a public limited company.

Inside Quote (U.S.)

The highest bid and lowest ask prices among all the competing market makers in a security i.e. the best bid and offer prices.

Insider

Any person who, is or was connected with the company or is deemed to have been connected with the company, and who is reasonably expected to have access, connection, to unpublished price sensitive information in respect of securities of a company, or who has received or has had access to such unpublished price sensitive information.

Insider trading

Practice of corporate agents buying or selling their corporation’s securities without disclosing to the public significant information which is known to them but which has not yet affected the price.

Institutional Investors

Organizations those invest, including insurance companies, depository institutions, pension funds, investment companies, and endowment funds.

Institutionalization

The gradual domination of financial markets by institutional investors, as opposed to individual investors. This process has occurred throughout the industrialized world.

Interdelivery spread

The purchase of one delivery month of a given futures contract and simultaneous sale of another delivery month of the same contract on the same exchange. Also called intramarket spread.

In-the-Money

A call option is said be in the money when it has a strike price below the current price of the underlying commodity or security on which the option has been written. Likewise when a put option has a strike price above the current price it is said to be in-the-money.

Intangible Assets

An item of value whose true worth is hard or almost impossible to determine such as goodwill reputation, patents and so on.

Interest rate agreement

An agreement whereby one party, for an upfront premium, agrees to compensate the other at specific time periods if a designated interest rate (the reference rate) is different from a predetermined level (the strike rate).

Interest rate cap

Also called an interest rate ceiling, an interest rate agreement in which payments are made when the reference rate exceeds the strike rate.

Interest rate differential

The difference between the existing rate of interest and the rate for the term remaining, multiplied by the principal outstanding and the balance of the term.

Interest rate forward contracts

Nonstandardised, non listed agreements typically bought and sold by individuals or corporations that are often connected by ongoing business relations.

Interest rate futures

Financial futures that are considered to be primarily sensitive to interest rate movements.

Interest rate hedges

Position designed to restrict losses that would occur from specific interest rate movements.

Interest rate swap

Contract in which two parties agree to swap interest payments for a predetermined period of time-traded in the OTC market.

Interest Rate Risk

The risk that movements in the interest rates may lead to a change in expected return.

Interim Dividend

A dividend payment made during the course of a company’s financial year. Interim dividend, unlike the final dividend, does not have to be agreed in a general meeting.

Internal Rate of Return (IRR)

The rate at which future cash flows must be discounted in order to equal the cash cost of the investment.

Investment banker

Financial conglomerate which conducts a full range of investment related activities from advising clients on securities issues, acquisitions and disposal of businesses, arranging and underwriting new securities, distributing the securities etc.

Investment Company

A corporation, trust or partnership that invests pooled unit holder/shareholder money in securities appropriate to the organization’s objective. Mutual funds, close–ended funds and unit investment trusts are the three types of investment companies.

Investment Objective

The goal that an investor and mutual fund pursue together, e.g. current income, long term capital growth etc.

Investment Profit

Profit which results from the difference between the purchase and selling prices of a security. Trading profit is short term while investment profit is medium or long term.

ISIN

ISIN (International Securities Identification Number)A unique identification number allotted for each security in the depository system by SEBI.

ISO 15022

Common messaging standard adopted for electronic trades under Straight through Processing (STP) system

Issuer

An entity which is in the process of issuing its securities. Also known as the “Originator”.

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