Here are simple and clear definitions of key terms used in finance: amortization, capital gain, round lot, callable bond, swap and many more.

A

Accompanying notes

The accompanying notes provide additional explanations and tables to help the reader understand the contents of the financial statements.

Accrued interest

Accrued interest is interest earned but not yet paid or payable.

For example, a bond with a value of $1,000 pays interest of $20 every 6 months. After 3 months, the accrued interest is $10. However, the interest will only be due in 3 months. 

Actual cash value

For automobile or home insurance, the value of the item on the day of the loss minus depreciation based on its use, life cycle and condition.

Actuary

An actuary is an expert in statistics and mathematics applied to finance and insurance.

Adverse selection

Adverse selection is a situation in which an insured acts to their own advantage, to the detriment of an insurer. For example, term insurance policyholders in good health tend to opt for a policy that costs less. Conversely, insureds in poor health draw on their renewal privilege.

Agent

An agent is a person who acts on behalf of a company. For example, an agent can be a person hired by a bank or an insurer to represent it to clients.

In the field of insurance, an agent sells the products of a single insurance company while a broker can offer the products of several insurers. 

All risk

All-risk insurance covers all losses except for those described in the contract exclusions.

For example, with home insurance, flooding is usually an excluded risk.  

All-or-none order

In securities trading, an all-or-none order is an order that is carried out only when the complete quantity of the chosen security can be bought or sold at a given price.

AMF

The AMF (Autorité des marchés financiers, or the Authority) is the body established by the Government of Québec to regulate the province's financial markets and protect the public. The AMF applies the laws and regulations that govern insurance, securities (for example, shares and bonds), deposit institutions (other than banks) and the distribution of financial products and services.

Amortization

Amortization has two definitions.

In accounting, amortization is the spreading of the cost of a purchase over several years. For example, if the purchase of a machine is amortized over five years, the purchase price is not considered an expense at the time it is paid. In other words, purchasing the machine does not lower the company’s profits or value. Instead, assets are divided up differently: Instead of cash, the company now owns a new machine.

In this example, the wear and tear of the machine is considered an expense year after year (for example, 20% of the purchase cost per year, over five years).

For a loan, amortization is gradual reimbursement. For example, if the amortization period of a mortgage loan is 25 years, the payments will be calculated so that the entire loan has been paid back at the end of the 25 years. 

Annual information form

The annual information form is an information document that describes the company and its activities at a given time, future outlooks, the risks to which the company is exposed and any other factors that impact the company.

Annuitant

An annuitant is a person who receives an annuity.

Annuity

An annuity is a contract that allows you, once you have paid a certain amount, to receive periodic payments over a given period of time. There are several types of annuities, including:

Annuity certain

An annuity certain is an annuity that guarantees payments for a specified period of time.

Anonymous trading

Anonymous trading is a bid or offer that is visible on an exchange or other market, but which does not reveal the identity of the dealer who is buying or selling.

The dealer can carry out transactions anonymously to avoid generating market speculation. 

Arbitrage

Arbitrage is a transaction that involves buying an asset at a favourable price and simultaneously reselling it at a higher price. When the transaction is carried out properly, the investor makes a profit immediately without incurring any major risks.

Arbitration is a means of resolving a conflict without legal proceedings.

Ask price

The ask price is the lowest price at which a seller would agree to sell securities that he holds (shares, bonds, etc.).

Assets

The assets of a person or a company are everything that belongs to them. These assets may be tangible (such as a computer or a building) or intangible (such as patents, trademarks or copyrights).

Assets are the opposite of liabilities, which represent the debts of the person or company. 

Assuris

Assuris is a non-profit organization that protects the public in the event that their life insurance company declares bankruptcy.

If the financial institution can no longer pay benefits, Assuris may pay you the difference. However, several conditions must be met. To find out more, visit the Assuris website This link will open in a new window.

Auditors

Auditors are accountants who verify whether financial statements are accurate.

Authorized capital

Authorized capital is the number of shares that a company is legally authorized to issue.

Automobile Claims Database

The Automobile Claims Database is a directory of all automobile claims (collision, fire, etc.) in Québec. It contains information about the claims made by all insureds in the last six years. It enables insurers to view their clients’ claims history so that they can set premiums accordingly.

Automobile insurance

Automobile insurance is insurance that covers civil liability related to a vehicle (for example, the damage caused by the insured’s vehicle). This insurance can also cover damage or loss related to the insured’s vehicle, for example in the event of an accident or theft.

Autorité des marchés financiers (the AMF or the Authority)

The Autorité des marchés financiers (or simply the AMF or the Authority) is the body established by the Government of Québec to regulate the province's financial markets and protect the public. The AMF applies the laws and regulations that govern insurance, securities (for example, shares and bonds), deposit institutions (other than banks) and the distribution of financial products and services.

B

Balance sheet

The balance sheet, or statement of financial position, is a document that gives a complete picture, on a given date, of the financial situation of a person, family, company, etc.

It lists assets and liabilities (debts), and the difference between the two (net worth).  

Bankruptcy

Bankruptcy is a way of cancelling the majority of your debts. To do this, you would have to surrender certain assets. Some conditions apply and bankruptcy will negatively affect your credit rating for several years.

Basis point

A basis point represents one-hundredth of a percent.

For example, if the mortgage rate posted by your financial institution rose from 4.25% to 4.30%, this would be an increase of 5 basis points. 

Beneficiary

The beneficiary is the person who will receive insurance benefits (money paid by the insurer). For example, the beneficiary of a life insurance policy is the person who will receive the money if the insured dies.

Benefit

A benefit is the amount of money the insurer pays to an insured as compensation for loss or damage.

Benefit

A benefit, or insurance benefit, is an amount of money that an insurance company pays a person further to a loss against which they were insured.

Bid

The bid is the highest price a buyer would pay for a security (such as shares or bonds).

Board of directors

A board of directors is a group of individuals appointed by a corporation’s shareholders to make key management decisions.

Bond

A bond is a security issued by governments and companies through which an investor lends money to the issuer.

In general, the government or company promises to pay the investor interest at a fixed rate and at certain intervals (for example, 2% per year). Interest is normally paid twice a year. At maturity, the government or company pays back a predetermined amount that is called the face value. The face value is usually $1,000.

There are several types of bonds:

Book cost

The book cost, or book value, is the total amount paid to purchase an investment, including any fees related to the purchase.

The amount is adjusted to take into account reinvested distributions (such as interest and dividends), return of capital and reorganizations (for example if a corporate subsidiary becomes independent and you acquire shares of the new entity). 

Book value

Book value is the total amount paid for an investment, including any charges.

The amount is adjusted to take into account reinvested distributions (such as interest and dividends), return of capital and reorganizations (for example if a corporate subsidiary becomes independent and you acquire shares of the new entity). 

Borrowing to invest

Borrowing to invest, or margin buying, involves borrowing money through a brokerage account to buy shares, bonds or other investments.

Borrowing to invest magnifies the potential gains through leveraging, as well as the potential losses.

It therefore increases the risk and requires caution on the part of investors. 

Business corporation

A business corporation is a form of company.

From a legal standpoint, it is a separate entity from the people who manage it and those who own it. It is considered a legal person. The owners of a business corporation are the shareholders, meaning the people or companies who hold shares in it. Their risk is limited to the money they paid to buy shares (at most, they would lose 100% of this investment).

As such, shareholders are not exposed to the liabilities of the corporation.

Shareholders control the corporation according to the number of voting shares they hold. These shares allow the holder to vote at the general meeting of shareholders, and thereby participate in making major decisions (for example, merging two companies) and appointing members of the board of directors that oversees the corporation. 

C

Callable bond

A bond is called a callable bond, or redeemable bond, if the issuing company can buy it back from the investor prior to the maturity date.

A callable bond usually offers higher returns than a standard bond because the investor assumes the risk of having to sell it back to the issuer, even if selling it back is not to the investor’s advantage.

This type of bond should not be confused with a retractable bond, which gives the investor the right to redeem the bond prior to the maturity date. 

Canadian Life and Health Insurance Association (CLHIA)

The Canadian Life and Health Insurance Association, or CLHIA, is a non-profit organization that represents the collective interests of its members, namely companies selling life or health insurance. The CLHIA’s website can be found at www.clhia.ca This link will open in a new window.

Canadian Payments Association (CPA)

The Canadian Payments Association, or CPA, is a non-profit organization whose mandate covers national clearing and settlement systems, as well as other activities involved in making or exchanging payments.

For example, when you use an ATM, a debit card or a cheque, the transaction may involve a financial institution owing money to another one. The CPA ensures that the exchange of money between financial institutions takes place smoothly.

The ACP’s website can be found at www.cdnpay.ca This link will open in a new window.

Cancellation

The cancellation of an insurance contract involves ending a contract before its term. A contract can be cancelled by the insured or the insurer. 

Capital

Capital is the amount of money invested for the purposes of generating profit or, conversely, an amount of money borrowed on which interest will have to be paid.

Capital gain

A capital gain is the difference between the selling price and the purchase price of an investment, when the difference is positive.

For example, if you buy a share for $12 and later sell it for $20, then your capital gain is $8.

This is the opposite of a capital loss

Capital loss

A capital loss is the difference between the selling price and the purchase price of an investment, when the difference is negative.

For example, if you buy a share for $48 and later sell it for $40, then there is a capital loss of $8.

This is the opposite of a capital gain

Capital stock

In Québec, capital stock often refers to the amount that a member of a cooperative pays to the cooperative upon becoming a member.

Capitalization fund

A capitalization fund is the amount accumulated in a universal life insurance policy.

Cash flows

In accounting, cash flows are all of the liquidity inflows and outflows of a company or individual. 

Cash surrender value

Cash surrender value is the amount the insured may receive from the insurer when he voluntarily cancels a life insurance contract before maturity. Not all insurance coverage offers a cash surrender value.

Certificate of deposit

A certificate of deposit, also called a guaranteed investment certificate (GIC) or term deposit, is a security indicating that an investor has lent money to a financial institution. Certificates of deposit earn interest. 

Chambre de l’assurance de dommages (ChAD)

The Chambre de l’assurance de dommages (ChAD) is a self-regulatory organization for:

  • damage insurance brokers and agents
  • claims adjusters
Chambre de la sécurité financière (CSF)

The Chambre de la sécurité financière (CSF) is an organization whose mission is to protect consumers by maintaining discipline and overseeing the training and ethics of its members, who are representatives working in:

  • group savings plan brokerage
  • financial planning (in this sector, the CSF oversees only the ethical conduct of members)
  • insurance of persons
  • group insurance of persons
  • scholarship plan brokerage  
Civil liability insurance

Civil liability insurance is insurance that can cover the cost of certain types of damage for which the insured may be responsible. For example, if you accidentally set fire to the building where you live or if your dog bites someone.

Claim

In the field of insurance, a claim is a request that an insured submits to their insurance company to receive an insured amount further to a loss.

Clearing house

A clearing house ensures payment and delivery of securities between securities dealers.

Coinsurance

Coinsurance is the percentage of the cost of an insured's claim that is assumed by the insurer once the deductible is paid.

Let’s say that your policy provides for a $50 deductible and an 80% coinsurance. You submit an eligible claim to the insurer for $1,000. The insurer has you pay the first $50 (deductible). On the remaining $950, it will reimburse you 80%, i.e., $760. Therefore, you pay a total of $240. 

Collateral

Collateral consists of assets (bonds, shares or other property) that are pledged as security against a loan. If the borrower fails to repay their debts as scheduled, the lender can sell the collateral assets to recover the loan amount, including interest.

Common share

A common share is a share that gives the holder the right to vote at shareholder meetings.

It also entitles the holder to receive dividends distributed by the company, but these dividends are often calculated after dividends for preferred shares.

It is therefore possible that holders of preferred shares will receive a dividend, but that holders of common shares will not.  

Concealment

In the field of insurance, concealment is the act of withholding information that could influence an insurer’s risk assessment.

This may void the contract or reduce the indemnity the insured is entitled to receive. 

Consumer price index (CPI)

The consumer price index, or CPI, is a means of evaluating the inflation rate by measuring price fluctuations of a selection of products and services.

The higher the CPI, the lower the purchasing power. The lower the CPI, the higher the purchasing power. 

Contribution room

Contribution room is the amount that a person can put in their RRSP, VRSP, TFSA or other registered plan, without paying a penalty.

Contribution room for the current year is generally added to unused contribution room from previous years to determine the total amount that a person can contribute without paying a penalty.  

Conversion privilege

A conversion privilege allows a person to convert their group life insurance into individual life insurance.

A conversion privilege is also a provision in term life insurance contracts that allows the holder to convert their term life policy into a whole life insurance policy or an endowment life insurance policy without having to provide evidence of insurability

Convertible bond

A convertible bond is a bond that the holder may convert into common shares.

Convertible security

A convertible security is a security that can be exchanged for a different security. For example, some preferred shares can be exchanged for common shares.

Counterparty risk

Counterparty risk is the risk that the party with whom you are dealing will not fulfill its obligations (delivery, payment, etc.) and that you will suffer a loss as a result.

Coupon

A coupon is the interest portion of a bond that the issuer pays to the investor.

Cover note

A cover note is a temporary document issued to an insured by an insurance company or its representative to confirm that coverage is in effect.

It is then replaced by the insurance policy, which is a permanent document. 

Coverage

Coverage is the combination of types of insurance protection covering a given risk, such as an automobile accident, fire or illness. 

In investment, hedging is a strategy that consists in offsetting possible losses. For example, let’s say that company ABC’s shares trade at $20. An investor who is concerned about a drop in the share’s value could buy an option to sell (put option) at $19. If the share price falls to $7, this strategy limits the loss to $1 per share (plus the cost of the option) rather than $13 per share. 

It is the maximum amount that an insurer would pay a beneficiary if an insured risk occurred.

Crash

A crash is a dramatic widespread decline in stock prices. For example, on October 19, 1987, the Dow Jones Industrial Average, a stock market index, lost almost a quarter of its value in a single day. 

Credit insurance

Credit insurance, or life, health and loss of employment insurance, covers the balance on a credit card, mortgage loan or other debt. Coverage differs from one insurer to another. It may offer benefits in the event of accidental dismemberment, loss of employment, diagnosis of a critical illness or disability.

Credit risk

Credit risk is the risk that a person, company or state will be unable to meet its obligations. If investors think that a company’s or state’s financial position is deteriorating, the value of the investment could decline.

Creditor

A creditor is a person or company to whom you owe money.

Critical illness insurance

Critical illness insurance is insurance that provides a lump sum when the insured is diagnosed with a life-altering illness covered by the insurance. Often, you must live for at least 30 days after being diagnosed with a covered illness to obtain the insured amount. 

Cumulative preferred share

As its name implies, a cumulative preferred share is a preferred share that has cumulative dividends. A company must distribute all dividends that have not been paid to holders of cumulative preferred shares before distributing dividends to holders of common shares.

This can be a significant advantage. Let’s say that an oil company decides to temporarily stop paying dividends due to a slump in oil prices. Holders of common shares and of non-cumulative preferred shares will forever lose the dividends they would have been paid during the period when dividend distribution was suspended. As for holders of cumulative preferred shares, they won’t receive any dividends during the period in question but will receive them in full before other shareholders can begin receiving dividends. 

Currency risk

Currency risk is the risk that the currency used to purchase your investment will fluctuate to your disadvantage.

For example, if you hold bonds in U.S. dollars and the value of the Canadian dollar increases against the U.S. dollar, then the value of your bonds, once converted into Canadian dollars, will decrease. 

Current assets

Current assets are the portion of assets that can be used or sold (converted into cash) in the current year.

D

Damage insurance

Damage insurance is insurance that covers property (home, automobile) or a liability, such as in the event of a fire or accident, for example.

Dealer (broker)

A dealer (or broker) is a professional who manages the transaction between the client and a financial institution, insurance company or stock exchange.

For example, the dealer conducts the stock exchange transaction to buy or sell on behalf of the client.

In damage insurance, a broker may offer the products of several insurers while an agent sells the products of a single insurance company. 

Debenture

A debenture is a fixed-income investment, similar to bonds, except that debentures are generally not backed by specific assets. Also called unsecured bond.

Debt

A debt is an amount of money that a person or company must pay back, generally with interest.

Debt consolidation

Debt consolidation involves borrowing money from a single lender to pay down all your debts. From then on, you pay one creditor for one debt, which makes managing your finances easier. In addition, you can get a lower interest rate than the average rate that applies to your debts. Note that the lenders to whom you apply for debt consolidation can deny your application.

Debt security

A debt security is a security representing a loan or debt.

Bonds and debentures, which are loans granted by investors to a company, are examples of debt securities. 

Deductible

The deductible is the initial amount for damages that the insurer does not pay.

For example, with a deductible of $500, if you claim a total of $20,000 in damage coverage, your insurer would pay $19,500. 

Deferred annuity

A deferred annuity is an annuity providing periodic payments that do not begin when the annuity is purchased, but at a later date.

Defined benefit pension plan

A defined benefit pension plan is a pension plan that guarantees a certain level of retirement income in advance.

Usually, the annuity received under this plan is a percentage of the employee’s salary multiplied by their number of years of service. 

Defined benefit pension plan

A defined benefit pension plan is a pension plan that guarantees a certain level of retirement income in advance.

Usually, the annuity received under this plan is a percentage of the employee’s salary multiplied by their number of years of service. 

Defined contribution pension plan

A defined contribution pension plan is a pension plan in which employer and employee contributions are determined in advance.

However, employees do not know the amount of retirement income they will receive, as it will depend on the returns on investments made with these contributions and the cost of annuities at the time of retirement. 

Deflation

Deflation is the widespread drop in the price of consumer goods and services. It is the opposite of inflation.

Delisting

For a company, delisting (due to privatization, for example) is the process by which the company’s shares are no long traded on an exchange.

A company can decide to be delisted to free itself of regulatory constraints or if it determines that it can finance itself more easily than through a listing. The shares are most often bought by majority shareholders or the founders.

Demutualization

Demutualization is the process of converting from a mutual association (a non-profit company, such as a mutual insurance company) to a business corporation (that will be a for-profit company). As part of demutualization, the former mutual members (the former owners) receive shares in the new business corporation, cash, or both.

Deposit

A deposit is an amount of money entrusted to a financial institution that can subsequently be withdrawn.

Deposits can go into either a chequing or savings account, or take the form of a guaranteed investment certificate (GIC), draft, certified cheque or travellers’ cheque.

Financial institutions usually pay interest on the deposits they receive. 

Deposit institution

A deposit institution is a financial institution that accepts deposits from the public and provides a variety of financial services, such as savings accounts.

Depositor

A depositor is a person who deposits money in an account.

Derivative

A derivative is a financial product whose price fluctuates based on the price of an underlying interest, such as shares, an index or another financial product. 

Director

A director is a person who is elected to a company's board of directors at the shareholders' meeting.

Members of the board of directors are responsible for putting in place corporate governance policies and making crucial decisions, such as the decision to issue new shares or sell the company. 

Disability insurance

Disability insurance is insurance that provides benefits to insureds who are unable to work following an illness or accident, generally based on their salary.

Discount broker

A discount broker is a broker who makes it possible to buy and sell securities (shares, etc.) at a lower price. In general, the broker does not offer clients any personalized advice.

A discount broker often has a website that allows clients to carry out transactions on their own, without any human contact.  

Discount rate

The discount rate is the interest rate that the Bank of Canada periodically sets for the short-term loans it extends to banks and other members of the Canadian Payments Association.

Discounting

Discounting is a method of calculating the current value of one or more amounts to be paid or received in the future.

Distribution

In the field of finance, a distribution can be a return of capital to an investor. Interest and dividends are types of distributions.

Diversification

Diversification is an investment strategy that consists of choosing different types of investments in order to reduce risk.

Dividends

Dividends are the portion of the earnings, after taxes, that a corporation distributes to shareholders in proportion to their holdings.

E

Earnings

A company’s earnings are its profits. This is its revenue minus its expenses.

Earnings per common share

A company’s earnings per common share are equivalent to its profits divided by the number of common shares.

Effective annual rate of return

The effective annual rate of return is the return generated by an investment for a particular year, taking into account the reinvestment of distributions.

For example, an investor who buys a share at $10 and then sells it one year later at $12 has a capital gain of $2, or 20%. If he received a dividend of $1, the total gain is $3. The effective annual rate of return is therefore 30%.

This calculation must be done on the basis of one year if the investor held the share for a period that is longer or shorter than a year. 

Endorsement

An endorsement is a document appended to an insurance policy to amend the scope or conditions of the policy.

In automobile insurance, endorsements have been standardized and are identical from one insurer to the other to make comparing insurers’ offers easier. 

Endowment life insurance

Endowment life insurance is insurance that pays a certain amount on the death of the insured or on the policy maturity date, whichever comes first.

Equity

A company’s equity comprises share capital and retained earnings.

Equity can be determined by subtracting a company’s liabilities from its assets. This is what belongs to the company’s owners once all liabilities have been deducted. 

Equity security

An equity security, or participating security, is a security that entitles you to an ownership interest in a company. Common shares and preferred shares are equity securities.

A person who holds 10% of a company’s equity securities owns a 10% interest in that company.

When a company ceases to operate, the proceeds from the sale of its assets are used to pay its debts and taxes, and the rest of the money is distributed to holders of equity securities (shareholders).

The company can distribute a portion of its earnings to holders of equity securities by paying them dividends.

The equity securities of companies listed on an exchange are bought and sold at the exchange.

Estoppel

An estoppel is a situation in which an insurer leads an insured to believe they are entitled to claim a benefit, even if this is not the case.

The insurer could then be required to pay the insured benefits. To avoid this situation, the insurer has the insured sign a document called a “non-waiver agreement.” The insured thereby indicates their understanding that the insurer’s processing of a claim in no way guarantees that the insured will be paid benefits.

Exchange

An exchange, such as a stock exchange, is a market where investors can buy and sell securities, including shares and options.

In order for a company to be listed on an exchange, it must meet certain criteria and regulations, relating to accounting practices and information for shareholders, for example. 

Exchange rate

An exchange rate is the price of one currency compared with another. It is affected by factors including currency supply and demand.

Exchange-traded fund (ETF)

An exchange-traded fund (ETF) is an investment fund whose securities are traded on an exchange like shares.

These funds generally track a benchmark index. Unlike a mutual fund manager, an ETF manager does not seek to maximize the fund’s return but only to follow an index; this explains the typically lower management fees for ETFs. 

Exclusion

An exclusion is a risk that is not covered by an insurance policy, such as damage caused by war.

Expected return

Expected return is the gain you anticipate earning on your investment in the form of interest income, dividends, or capital gains.

The return you actually earn may differ significantly from the expected return. Generally, the higher the expected return on an investment, the higher the risk

Extended term insurance

Extended term insurance is the use of the cash surrender value of an insurance policy to stop paying premiums. The same insurance coverage is maintained, but often for a limited period.

F

Face amount

The face amount, or insured amount, is the amount that an insurance company pays the beneficiary if the covered risk occurs. For example, if Mary has life insurance that pays $100,000 to Peter upon her death, then the face amount is $100,000.

The face amount should not be confused with the premium, which is the amount paid to be entitled to insurance. In the same example, if Mary has to pay $200 per year to keep her life insurance in effect, then the premium is $200.  

Face value

Face value, or par value, is the price indicated on a bond or debenture certificate. It usually corresponds to the amount of money the issuer agrees to pay at maturity (often $1,000).

Family income

Family income is the total of all of a family’s income (salaries, investment income, etc.), including that of minor children.

Financial institution

A financial institution is a company or organization that provides financial services (loans, etc.) to the public and to businesses. Banks, trust companies and credit unions are financial institutions.

Financial objectives

The financial objectives of a person or company are the financial results they would like to achieve by applying a strategy and an action plan.

Financial planner (F. Pl.)

A financial planner (abbreviation: F. Pl.) is a person (and not a company) who assists clients in developing their financial planning by outlining a suitable action plan adapted to their needs, taking into account their constraints and objectives.

Financial statements

Financial statements are the accounting reports that provide an accurate picture of a company’s financial position for a given period.

Firm underwriter

A firm underwriter is a person or company that buys securities (such as shares) directly from the issuer for resale to the public.

First-to-die insurance

First-to-die insurance is life insurance that covers at least two persons and pays a certain amount on the death of the first insured.

Fiscal year

The fiscal year is the 12-month period for which an organization calculates its income for its financial statements.

This 12-month period can end on any day of the year. The chosen date remains the same year after year. 

Fixed-income investment

A fixed-income investment is an investment that generates a fixed yield until maturity.

This is the case, for example, with a guaranteed investment certificate (GIC) with a five-year term that generates a 3% return each year. 

Flexible premium life insurance

Flexible premium life insurance is life insurance for which the premium amount can be adjusted by the insurer.

Flow-through share

A flow-through share is a share issued by an oil, gas or mining company.

Holders of these shares are generally entitled to tax deductions and credits. 

Foreign currency

Foreign currency is money issued by a foreign country.

Franchise

The deductible is the initial amount for damages that the insurer does not pay.

For example, with a deductible of $500, if you claim a total of $20,000 in damage coverage, your insurer would pay $19,500. 

Fund Facts

Fund Facts is an official document issued by mutual funds to provide investors with information about the fund.

Fundamental analysis

Fundamental analysis is a method for assessing the future value of a company’s shares by analyzing the company itself (financial statements, etc.) and its business context (competitors, economic conditions, etc.).

Fundamental analysis is therefore a very different approach from technical analysis, which looks at the price of the share itself over time.

Futures

Futures are contracts that are traded on an exchange. It is a standardized contract: The quantity, term, place of delivery and quality of the underlying interest are constant from one contract to another. The price is the only element that fluctuates.

A clearing house acts as an intermediary between the buyer and the seller and ensures compliance with the contract terms, so there is no counterparty risk

Futures and forward contracts

There are two types of contracts: futures and forward contracts.

In both cases, the parties involved assume a legal obligation to buy or sell a specific quantity of an asset (such as oil, wheat or financial products such as a stock market index) at a predetermined price and date.

The characteristics of futures are selected by the exchange. A clearing house   acts as an intermediary between the buyer and the seller and ensures compliance with the contract terms, so there is no counterparty risk. Conversely, the characteristics of forward contracts are selected by the parties who sign these contracts. In general, there is no clearing house involved to guarantee the credit of the parties involved. The parties involved can therefore choose the contract maturity date, its duration, the quantity of the asset delivered, the place of exchange, etc. 

G

Grace period

In insurance, a grace period is the period granted by the insurer to pay premiums that are past due. During the grace period, the client continues to be insured, even if their payment is late. The grace period does not apply to the first premium payment. Also, it is not granted for all types of insurance.

For credit cards, the grace period is the period, usually less than one month, during which you do not pay any interest on your purchases. This period applies only if you pay your balance in full by the due date indicated on the statement. The grace period does not apply to balance transfers or cash advances. For these transactions, interest starts to accumulate immediately.

Gross domestic product (GDP)

Gross domestic product, or GDP, is the total value of all goods and services produced during a given period within certain geographic boundaries (such as a country or province).

Group insurance

Group insurance is insurance that applies to all the members of a group, such as all of a company’s employees. Generally speaking, no medical exam is required.

Groupement des assureurs automobiles

The Groupement des assureurs automobiles is the organization in charge of distributing the joint report for an automobile accident, managing the Automobile Claims Database and drafting automobile insurance policies.

Guaranteed annuity

A guaranteed annuity is a life annuity that provides periodic payments while the annuitant is alive, but guarantees payment for a certain number of years.

For example, a five-year guaranteed annuity would provide payments for at least five years, even if the annuitant dies (in which case the amount is paid according to the contract terms, for example, to his heirs). 

Guaranteed income supplement

The guaranteed income supplement is a monthly benefit paid to lower-income old age security (OAS) recipients living in Canada.

The benefit is not taxable. 

Guaranteed insurability

Guaranteed insurability is an option that allows you to take out additional insurance without evidence of insurability. Some conditions apply.

Guaranteed investment certificate (GIC)

A guaranteed investment certificate (GIC), also called a certificate of deposit or term deposit, is a security indicating that an investor has lent money to a financial institution. GICs earn interest. 

H

Health insurance

Health insurance is insurance that covers all or part of the cost of medical care and drugs incurred by the insured. Sometimes referred to as sickness insurance.

Hedge fund

A hedge fund is an investment fund that is managed so that stock or bond market fluctuations have little or no impact on returns.

Hedge fund investments, such as shares of private companies, derivatives, and futures, are generally suitable only for sophisticated investors. The same holds true for the strategies used, which include short selling, leveraging, narrow-based investing, and investing in distressed companies. 

Hedging

Hedging consists of making an investment to offset possible losses on another investment.

For example, an investor who owns shares could buy a put option on the shares they hold. This way, if the shares decline in value, the investor can exercise the option to offset the decrease in the value of the shares.

Home insurance

Home insurance provides homeowners and tenants with financial protection against loss. Besides covering property, it can provide protection in case of accidental injury caused to others.

I

Identity theft

Identity theft is the use by an individual of someone else’s personal information to commit a fraud by assuming that person’s identity.

Illegal insider trading

Insider trading is illegal if it consists of buying or selling securities using information that is not available to the public. The disclosure of privileged information can also be considered part of illegal insider trading.

Income statement

An income statement, or statement of comprehensive income, is the financial report that presents a company’s revenue, expenses and net income (profit or loss) for a given period.

Incontestable clause

The incontestable clause of a life insurance policy prevents the insurer from contesting the validity of the contract if the insured has made misrepresentations or concealed important facts that would have led to rejection by the insurer. The insurance contract must have been in effect for at least two years, however. In addition, this clause does not apply in the event of fraud.

Indexation

Indexation is the adjustment of income (annuity, salary, etc.) or an expense (rent, etc.) to fully or partially offset cost of living increases.

Indexed

Income is indexed if it is regularly adjusted to fully or partially offset cost of living increases.

Indexed annuity

An indexed annuity is an annuity that provides payments that are periodically adjusted in order to fully or partially offset inflation.

Inflation

Inflation is the widespread increase in the price of consumer goods and services. It is the opposite of deflation.

For an approximation of inflation’s impact on an investment’s return, subtract the annual inflation rate from the annual rate of return. For example, if you hold a guaranteed investment certificate (GIC) earning 1.5% when inflation is 2%, your real rate of return (after inflation) is approximately -0.5%. In other words, in this example, if you take inflation into account, you’re losing money. 

Inflation risk

Inflation risk is the risk that cost of living increases (inflation) will decrease the real return of an investment. The purchasing power of the amounts invested and the gains realized are reduced by inflation.

Information circular

The information circular is a document that a company issues to shareholders. It allows shareholders to vote on certain questions that will be addressed at the general meeting of shareholders, without their having to be physically present.

Insider

An insider is a person who holds privileged information because they are the head of a company or its legal counsel, for example.

Insolvent

An individual or company is insolvent if they are unable to pay their debts.

Insurability

Insurability refers to meeting the conditions stipulated by an insurer (such as age, health status, employment, etc.) to take out insurance.

Insurable interest

In order for a person to insure an asset (their home, for example) against a risk (such as fire damage), they must have an interest in guarding against that risk (they have an interest in their home not being damaged by fire). This person therefore has an insurable risk.

Conversely, if fire at a stranger’s house does not cause a loss for you, then you cannot insure that house against fire.  

Insurance benefit

An insurance benefit, or benefit, is an amount of money that an insurance company pays a person further to a loss against which they were insured.

Insurance Bureau of Canada

The Insurance Bureau of Canada (IBC) is a national industry association that represents most damage insurers, in other words insurers that offer property insurance (home and business), as well as automobile and civil liability insurance.

Insurance contract

An insurance contract is an agreement whereby the insurer undertakes to pay money (benefits) to the beneficiary (person specified in the contract to receive the money) if a specific event occurs (such as an automobile accident).

Insurance of persons

Insurance of persons is insurance that covers a person in the event of injury, disability, illness or death.

Insurance policy

An insurance policy, or policy, is an official document that is issued by the company and summarizes the insurance contract it has signed with one of its clients. The policy outlines the coverage provided, as well as exclusions and limitations.

Insurance premium

An insurance premium, or premium, is an amount that a person or company must pay on a regular basis to keep their insurance in effect. For example, if Mary has to pay $200 per year to keep her life insurance in effect, then the premium is $200.

The insurance premium should not be confused with the face amount, or insured amount, which is the amount that the insurance company has to pay out. In the same example, if Mary has life insurance that pays $100,000 to Peter upon her death, then the face amount is $100,000. 

Insured

The insured is the person covered by the insurance. For example, with health insurance, the insured is the person covered in the event of illness. The insured is not necessarily the beneficiary, meaning the person who receives the money.

Insured amount

The insured amount, or face amount, is the amount that an insurance company pays the beneficiary if the covered risk occurs. For example, if Mary has life insurance that pays $100,000 to Peter upon her death, then the insured amount is $100,000.

The insured amount should not be confused with the premium, which is the amount paid to be entitled to insurance. In the same example, if Mary has to pay $200 per year to keep her life insurance in effect, then the premium is $200.

Interest

Interest is a percentage of an amount, paid at a given frequency (for example, 2% per year). It is paid by the borrower to compensate the investor for lending them the money.

When an investor deposits money in their account at the bank, the bank uses it for other purposes. The investor therefore lends their money to the bank, which compensates the investor by paying them interest.  

Interest rate

An interest rate is the percentage applied to an amount that is invested or borrowed; it enables you to calculate the interest earned or the cost incurred on this amount for a given period.

For example, a $1,000 investment bearing 6% interest per year will earn $60 in interest per year. 

Interest rate risk

Interest rate risk is the risk that interest rates will fluctuate to your disadvantage. Certain types of investments are sensitive to interest rate fluctuations.

This is true with bonds, for example. The value of bonds tends to move in the opposite direction of interest rates. If interest rates rise, then the market value of a bond will likely decrease.  

Intrinsic value

The intrinsic value of a call option, share right, or subscription warrant is the difference between the price of the security (its market value) and the strike price. If the difference is negative, the intrinsic value is zero.

For example, if you have a call option on shares of FGH Company with a strike price of $30 and the price of one FGH share is $33, the intrinsic value of your option is $3. If the price of the FGH share is $28, the intrinsic value of your option is zero, because it is not worth you spending $30 to buy a share that is worth $28.

The intrinsic value of a put option is the difference between the strike price and the market value of the security. Once again, if the difference is negative, the intrinsic value is zero. 

Investment fund

An investment fund is made up of money that is pooled by several investors and used on their behalf by a manager to buy shares, bonds or other securities in line with the fund’s objectives. There are several types of investment funds:

Investment horizon

An investment horizon is the period after which an investor will start to withdraw money from their investments. For example, a person who saves money to buy a house in 5 years has an investment horizon of 5 years.

Investment income

Investment income is the money that an investor earns through their investment. This money can be in the form of interest, a capital gain, etc.

Investment Industry Regulatory Organization of Canada (IIROC)

The Investment Industry Regulatory Organization of Canada (IIROC) is the self-regulatory organization that oversees all investment dealers and trading activity on debt and equity marketplaces in Canada.

Irrevocable beneficiary

An irrevocable beneficiary is the person designated on an insurance contract to receive the insurance benefits (money paid by the insurer). The beneficiary is “irrevocable” because their consent is required in order to designate another person as beneficiary.

Issuer

An issuer is a company that offers securities, such as shares, to the public in exchange for funds that it will use to improve its financial situation, carry out projects or develop new markets.

J

Joint insurance

Joint insurance is life insurance that covers more than one insured in case of death.

Joint report of automobile accident

The joint report of automobile accident is a report completed by the parties involved in an automobile accident where no injuries were sustained. This speeds up claims processing. A copy of the joint report can be obtained from the Groupement des assureurs automobiles.

K

Key person insurance

Key person insurance is life insurance that covers the life of a very important employee in a business.

L

Labour-sponsored fund

A labour-sponsored fund is an investment fund issued by a labour organization. A portion of these funds are invested in startup companies or small and medium-sized businesses in order to create or maintain jobs. These funds generally offer investors tax benefits.

Last survivor insurance

Last survivor insurance is life insurance that covers at least two persons and pays a certain amount on the death of the last surviving insured.

Leveraging

Leveraging refers to the magnification of potential gains and losses, for example by contracting debt or using derivatives such as call and put options.

Leverage: Borrowing money in order to invest increases the potential gains, as well as the potential losses, of any investment. Loan-based investments therefore carry more risk and require caution on the part of investors. If you are thinking of borrowing to invest, make sure you are fully aware of the potential loss this could represent should the value of your investment drop.      

Liability

A person’s or company’s liability is all of their debts.

Current liabilities refers to a debt that must be paid back in a relatively short period of time (for example, an amount charged to a credit card), whereas non-current liabilities refers to a debt that is repaid over a longer period (such as a mortgage loan on a property).

Liabilities are the opposite of assets which consist of tangible property (such as a building) and intangible property (such as copyrights). 

Life annuity

A life annuity is an annuity that provides periodic payments until the death of the annuitant.

Life Income Fund (LIF)

A Life Income Fund (LIF) is a fund whose purpose is to provide income for the rest of a participant’s lifetime.

The holder of this type of fund is required to withdraw a minimum amount of money every year, without exceeding the limit.

Funds invested in a LIF are often derived from an employer’s pension plan (Supplemental Pension Plan).

As with an RRSP:

  • Investment income earned in a LIF is not taxable as long as it remains in the fund.
  • Amounts withdrawn are taxable. 
Life insurance

Life insurance is a contract under which the insurer, in exchange for a premium, undertakes to pay the beneficiary the benefit provided for in the contract in the event of the insured's death or until a specified period during his/her lifetime. In addition to paying a benefit in the event of death, some policies pay benefits if the insured lives until a certain age, such as 100.

Life, health and loss of employment insurance

Life, health and loss of employment insurance, or credit insurance, covers the balance on a credit card, mortgage loan or other debt. Coverage differs from one insurer to another. It may offer benefits in the event of accidental dismemberment, loss of employment, diagnosis of a critical illness or disability.

Limit

In insurance, the limit is the maximum the insured will receive for an item in case of loss.

Limited partnership

A limited partnership is a specific form of partnership.

The partnership is managed by a general partner and the capital is supplied by limited partners, whose liability is limited to their investment outlay.

These partnerships usually invest in a particular sector such as real estate or the oil and gas industry.

Most limited partnerships provide tax benefits that may be transferable from the partnership to the limited partners. 

Limited partnership units

Investing in a limited partnership gives the investor units in the partnership. 

Liquid assets (minus debt)

Total assets are the assets that a person or company has (money in the bank, buildings, furniture, etc.) minus their debts. Liquid assets (minus debt) are the portion of the assets that can be quickly and easily converted into cash.

Liquid assets (minus debt) can include shares that are traded on a stock exchange (which can be sold very quickly), but not buildings (whose sale extends over a longer period). 

Liquidation value

Liquidation value, or net worth, is the amount obtained on dissolution of a company; in other words, when all its assets are sold and all its liabilities are paid.

Liquidity

The liquidity of an investment is its ability to be easily sold for cash, without incurring significant fees.

For example, shares traded on an exchange are highly liquid if investors are constantly investors making offers to buy them. Holders of such shares can sell them quickly.

A person’s or company’s liquid assets consist of cash and any investments that can be quickly transformed into cash without significant fees.  

Listed share

A listed share is a company share that is traded on an exchange. For a company to be listed, it must meet certain criteria, rules, and regulations and pay listing fees.

Locked-In Retirement Account (LIRA)

A Locked-In Retirement Account (LIRA) is generally used for investing money coming from a Supplemental Pension Plan (SPP). The income generated by the investments in a LIRA is not taxable as long as it remains in the LIRA. To move money out of a LIRA, it must either be transferred to a Life Income Fund (LIF) or used to buy a life annuity from an insurance company.

Long-term debt

Long-term debt, or non-current debt, is an amount of money that a person or company must pay back, generally with interest. However, the amount is not due within one year.

Loss

In the field of insurance, a loss is damage sustained following an unfavourable event, such as death, illness, fire, accident, etc.

Lot

With respect to trading securities, a lot is a group of shares that is bought or sold together.

M

Managed account

A managed account is an account (such as an RRSP or brokerage account) for which the account owner has given another person formal written authorization to carry out transactions.

Management expense ratio (MER)

The management expense ratio, or MER, corresponds to the management and operating expenses as a percentage of the total value of the fund.

These expenses are deducted directly from the fund’s earnings, decreasing its returns. 

Management fees and operating expenses

Management fees and operating expenses are the total fees paid by an investment fund.

Management fees are used to pay the fund manager, and expenses relating to administration, portfolio management, marketing and commissions for the representatives who sell you the funds.

A fund’s operating expenses include auditors’ fees, legal fees, bank fees, the cost of preparing and distributing the prospectus, etc.  

Management’s Discussion and Analysis (MD&A)

Management’s Discussion and Analysis (MD&A) is a document that explains management’s point of view on the company’s financial statements, financial condition and future prospects. This report complements the financial statements, but does not form a part of them.

Mandatary

A mandatary is the person who carries out a mandate. For example, if an investor gives a lawyer a mandate to carry out a transaction on their behalf, then the lawyer is the mandatary and the investor is the mandator.

Mandate

A mandate is a set of instructions given by one person to another to take a course of action on their behalf. For example, an investor can give their lawyer a mandate to carry out a transaction.

In this example, the lawyer is the mandatary and the investor is the mandator

Mandator

A mandator is the person who gives a mandate. For example, if an investor gives a lawyer a mandate to carry out a transaction on their behalf, then the lawyer is the mandatary and the investor is the mandator.

Margin account

A margin account is an account opened with a dealer (broker) in which the account holder can make transactions by borrowing money from the dealer.

Margin buying

Margin buying, or borrowing to invest, involves borrowing money through a brokerage account to buy shares, bonds or other investments.

Margin buying magnifies the potential gains through leveraging, as well as the potential losses.

It therefore increases the risk and requires caution on the part of investors.

Marginal tax rate

The marginal tax rate is a percentage of tax to be paid; it is not calculated on total income (unlike the tax rate), but only on the last dollar earned.

It answers the question: “If I had earned $1 more, how much additional tax would I have paid?”  

Market capitalization

Market capitalization is the value of a company determined by multiplying the number of outstanding common shares of a company by the share’s market price.

Market maker

With respect to trading securities, a market maker is a trader who maintains the liquidity of a security by buying and selling it.

Market price

The market price is the most recent price at which a security (e.g., shares, bonds, etc.) was bought or sold.

Market value

Market value is the value of an investment security on the markets at a given date. This is the amount the investor will get if he sells his investment on this date.

Medical history

A medical history is a past or current health problem experienced by a person or family member.

Money market

The money market is the market where investors buy and sell Treasury bills, short-term bonds (less than one year), guaranteed investment certificates and other short-term securities (current assets).

Mortgage

A mortgage is a right granted on property to guarantee payment of a debt.

When a bank grants a mortgage loan for the purchase of a house, it receives a mortgage in exchange: The person who takes out the loan continues to be the owner of the house, but if they do not repay the loan according to the terms of their contract, the bank can sell the house to satisfy the debt.

Although the terms “mortgage” and “mortgage loan” are often used as synonyms (for example, “I’ve finished paying off my mortgage”), they are two separate notions for lawyers and notaries.  

Mortgage-backed security

A mortgage-backed security is a type of security tied to a mortgage.

A mortgage loan (a loan secured by a mortgage) is a mortgage-backed security.  

Mutual benefit association

A mutual benefit association is a private organization that provides benefits to its members and their families in the event of a loss. Benefits may be available in the event of death, illness or accident.

Mutual fund

A mutual fund is made up of money that is pooled by several investors and used on their behalf by a manager to buy shares, bonds or other securities in line with the fund’s objectives. 

Mutual fund

A mutual fund is made up of money that is pooled by several investors and used on their behalf by a manager to buy shares, bonds or other securities in line with the fund’s objectives. 

Mutual fund units

Investing in a mutual fund gives the investor units in the mutual fund. 

N

Named perils

In the field of insurance, named perils are risks that are specifically mentioned in an insurance contract. A named perils policy provides coverage for the perils specifically named in the contract.

Net worth

Net worth, or liquidation value, is the amount obtained on dissolution of a company; in other words, when all its assets are sold and all its liabilities are paid.

Nominal rate of return

The nominal rate of return is the rate of return earned by an investment each period.

For example, if your $1,000 investment pays you interest of $20 after six months, your nominal rate of return will be 2% for six months. 

Non-current debt

Non-current debt, or long-term debt, is an amount of money that a person or company must pay back, generally with interest. However, the amount is not due within one year.

Non-redeemable investment fund

A non-redeemable investment fund is an investment company that issues a fixed number of units to investors through a public issue. In rare instances, additional units may be issued.

The fund pools investors’ money to buy shares, bonds or other securities in line with the fund’s objectives. In exchange, investors receive units of the portfolio held by the fund.

Non-redeemable investment fund units are usually registered and traded on an exchange.  

Non-waiver agreement

A non-waiver agreement is a document that the insurance company has the insured sign after a claim has been filed. This document states that the insurer is investigating the circumstances of the loss. Depending on the results of this investigation, the insurer can deny payment of the insured amount.

Notice of assessment

The notice of assessment is a document issued by the government following a summary audit of a person or company’s tax return. It indicates the amount to be paid to the government or to be reimbursed by the government.

Notice of meeting

A notice of meeting is a document that a company sends to its shareholders announcing the date, time and location of the shareholders’ meeting. It is generally accompanied by the information circular.

O

Odd lot

With respect to trading securities, an odd lot is a lot with a number of shares that is different from that of a round lot. For example, if a round lot is 100 shares and an investor wants to sell 135, the trade will involve one round lot of 100 shares and one odd lot of 35 shares.

Old age security pension

The old age security pension is an amount of money paid by the Government of Canada to most Canadians aged 65 and over.

Ombudsman

An ombudsman investigates complaints filed by citizens against a company or organization. The ombudsman is usually an employee, but his position makes him independent from administrative pressure.

Opening price

The opening price is the price paid to purchase a security in the first transaction of a trading session.

Option

An option grants the right to buy (call option) or sell (put option) an asset at a fixed price for a specified period.

The asset, called an underlying interest, may be a common share, a commodity, a currency or an index (such as a stock market index). 

Over-the-counter market

An over-the-counter market is a market where securities (such as bonds, money market securities, shares) that are not registered on an exchange are traded. It is an interdealer market.

P

Par value

Par value, or face value, is the price indicated on a bond or debenture certificate. It usually corresponds to the amount of money the issuer agrees to pay at maturity (often $1,000).

Participating insurance

Participating insurance is insurance that allows the insured to receive benefits, such as lower fees for insurance policies, increased coverage, etc.

Participating security

A participating security, or equity security, is a security that entitles you to an ownership interest in a company. Common shares and preferred shares are participating securities. A person who holds 10% of a company’s participating securities owns a 10% interest in that company.

When a company ceases to operate, the proceeds from the sale of its assets are used to pay its debts and taxes, and the rest of the money is distributed to holders of participating securities (shareholders).

The company can distribute a portion of its earnings to holders of participating securities by paying them dividends. The participating securities of companies listed on an exchange are bought and sold at the exchange.  

Patrimony

Patrimony is the collection of a person’s property and economic rights. Examples include real estate, money in a bank account, shares and copyrights.

Pension adjustment (PA)

A pension adjustment is an amount that is used to determine the maximum allowable RRSP and VRSP contributions. In the case of a defined contribution pension plan, the PA reflects the employer’s and the employee’s contributions for the year.

Pension fund

A pension fund is a fund that pays retirement benefits. It includes contributions and income generated by these contributions.

Pension fund

A pension fund, or Supplemental Pension Plan (SPP), is a pension plan that an employer sets up for its employees. The retirement income must generally be paid over several years. 

Pension plan

A pension plan is a mechanism that allows members to save money and invest it in order to receive income when they retire. Some pension plans group many people together. This is true with pension funds.

Others are limited to a single member. This is the case with RRSPs

Periodic fixed amount purchase

A periodic fixed amount purchase is the investing of a fixed amount at regular intervals. For example, a $300 investment made every month.

Policy

In the field of insurance, a policy, or insurance policy, is an official document that is issued by the company and summarizes the insurance contract it has signed with one of its clients. The policy outlines the coverage provided, as well as exclusions and limitations.

Policyholder dividend

Participating insurance may return to the insured a portion of the premiums they paid. The insured may receive cash, pay lower insurance premiums or be offered some other option by the insurer.

Dividends are not guaranteed, and the insurance company may pay a higher or lower amount, subject to certain criteria. 

Political risk

Political risk is the risk that:

  • a government will not be able to honour its commitments
  • a government will change the rules to your disadvantage
  • political instability, such as a war, will decrease the value of an investment 
Portfolio

A portfolio is a group of various investments made by a person or a company.

For example, an investor’s portfolio can contain shares, bonds, mutual funds, options and other financial instruments. 

Potential return

Potential return is the maximum return that an investor can obtain, for example with an option. This return is not guaranteed.

Preferred share

A preferred share is a share that normally gives holders the right to receive a dividend before the dividends for holders of common shares are calculated.

Dividends can either be fixed or calculated according to a specific formula. For example, the dividend will be $0.3125 per quarter for the first five years, then adjusted every five years according to the rate for five-year Government of Canada bonds plus four per cent.

It is possible that holders of preferred shares will receive a dividend, but that holders of common shares will not.

Premium

A premium, or insurance premium, is an amount that a person or company must pay on a regular basis to keep their insurance in effect. For example, if Mary has to pay $200 per year to keep her life insurance in effect, then the premium is $200.

The premium should not be confused with the face amount, or insured amount, which is the amount that the insurance company has to pay out. In the same example, if Mary has life insurance that pays $100,000 to Peter upon her death, then the face amount is $100,000. 

Present value

The present value is the value on today’s date of an amount receivable at a later date. For example, if the expected rate of inflation is 2%, $1,000 will be worth $905.73 in 5 years.

Price/earnings ratio

The price/earnings ratio is a mathematical calculation that provides the approximate value of a share. It is calculated by dividing the market price of a company’s common shares by the net earnings per share over the past fiscal year.

For example, if a share trades for $40 and the company generated net earnings of $4 per share over the past fiscal year, then the price/earnings ratio is 10.  

Primary market

A primary market is a market where securities (such as shares and bonds) are issued for the first time, such as when a company issues new shares.

If the securities were previously issued and are already being bought and sold between investors, then this is a secondary market

Principal-protected note

A principal-protected note is an investment usually guaranteed by a financial institution. It does not necessarily carry a fixed interest rate. Its rate can fluctuate according to an external factor, such as a stock market index.

Privatization

Privatization is the process of converting an activity or business (such as a Crown corporation) from public to private ownership.

Privileged information

Privileged information is information that, if made public, could influence the price of a share traded on an exchange. Buying or selling shares using privileged information is illegal.

Probationary period supervisor

Certified representative, authorized by the AMF, who supervises a trainee during a training period or a probationary period.

Professional liability insurance

Professional liability insurance is insurance that covers the financial consequences of errors or omissions committed by insureds in carrying out their professional activities when they are personally liable for the consequences of their acts.

Promissory note

A promissory note is an investment that allows an investor to lend money to a company or another borrower. The borrower then promises to pay the investor a given amount at a fixed date or on demand.

Property and casualty insurance

Property and casualty insurance, i.e., fire, accident, or miscellaneous risks, is also called damage insurance or general insurance.

Property and Casualty Insurance Compensation Corporation (PACICC)

The Property and Casualty Insurance Compensation Corporation (PACICC) is a non-profit organization that pays insureds the insured amounts due to them by an insurance company, which is unable to do so, due to bankruptcy, for example.

Prospectus

A prospectus is a detailed information document that a company must prepare to be able to sell securities (such as shares) to the public.

It must provide full, true and plain disclosure of all material facts likely to affect the value or market price of the security in question.  

Prospectus exemption

A prospectus exemption is an exemption that allows a company to sell securities without issuing a prospectus.

Buying exempt securities is risky. Their resale is often subject to restrictions. 

Proxy

A proxy is a mandate that you give a person to do something on your behalf (vote at a meeting, sign a contract, etc.). It is a document that proves you have designated this person to represent you and that, ideally, contains a detailed description of the responsibilities entrusted to them. 

Proxy form

A proxy form is a document used by a shareholder to authorize another person to act on their behalf at an assembly.

Purchase fee

A purchase fee, or sales charge, is the fee paid when buying investment fund securities. Some funds are sold without a purchase fee. 

Purchasing power

A person’s purchasing power is their capacity to buy goods and services.

When a person’s income increases less than inflation, their purchasing power diminishes.  

Q

Québec Pension Plan (QPP)

The Québec Pension Plan (QPP) is an insurance and pension plan to which Québec workers are required to contribute. It provides current and former Québec workers and their family members with basic financial protection at retirement and in the event of death or disability.

Quorum

Quorum is the minimum number of members required to attend a general meeting to validly deliberate and make decisions.

Quote

In the field of insurance, a quote is an offer of insurance coverage issued by an insurance company. It specifies both the premium to be paid and the available coverage.  

R

Rate making

Rate making, or pricing, is the calculation of the cost of an insurance premium based on different factors, such as age and location of residence.

Rate of return

A rate of return is what you earn on your investment in the form of interest income, dividends, or capital gains. It is often calculated as a percentage.

For example, if an investment of $1,000 earns $20 per year, then the rate of return is 2% ($20 / $1,000 = 2%).

Real interest rate

The real interest rate is the interest rate less inflation.

For example, if your investment earns 3% interest annually and the inflation rate is 2%, your real interest rate will be approximately 1% (3% - 2%).

However, this is an approximation. In this example, a more complex calculation indicates that the real interest rate would be exactly 0.98%. For most investors, this is not a significant difference. 

Real rate of return

The real rate of return is the rate of return less inflation.

For example, if you have an investment that earns a return of 3% annually and inflation is at 2%, your real rate of return will be 1% (3% - 2%).

However, this is an approximation. In this example, a more complex calculation indicates that the real rate of return would be exactly 0.98%. For most investors, this is not a significant difference. 

Real return bond

A real return bond is a bond that pays interest at a rate that is adjusted for changes in the consumer price index.

Record date

The record date is the date on which a shareholder must be registered on the books of a company in order to receive dividends or exercise a right, such as the right to vote at the general meeting of shareholders.

Redeemable bond

A bond is called a redeemable bond, or callable bond, if the issuing company can buy it back from the investor prior to the maturity date.

A redeemable bond usually offers higher returns than a standard bond because the investor assumes the risk of having to sell it back to the issuer, even if selling it back is not to the investor’s advantage.

This type of bond should not be confused with a retractable bond, which gives the investor the right to redeem the bond prior to the maturity date. 

Redeemable share

A redeemable share is a share that the issuer can buy back whenever it wishes, at a predetermined price.

However, the issuer may have to fulfill certain conditions in order to exercise this right. As a result, shares may be bought back only after a given period of time, after 5 years for example. 

Reduced paid-up insurance

Reduced paid-up insurance is life insurance for which the insured no longer pays premiums but remains insured for a lower face amount.

Registered amount

A registered amount is an amount deposited in a registered account, such as an RRSP.

Registered Education Savings Plan (RESP)

A Registered Education Savings Plan, or RESP, is a registered account (an account with a bank or on-line broker, for example) in which investments can be made, the returns on which are not taxable as long as the money stays in the RESP.

An RESP is used to partially or fully fund the beneficiary’s postsecondary education.

An investor who puts money in an RESP CANNOT deduct an equivalent amount from their taxable income.

However, if certain conditions are met, an RESP may provide access to various government grants. 

Registered investment

A registered investment is an investment made in a registered plan, such as an RRSP.

Registered Retirement Income Fund (RRIF)

A Registered Retirement Income Fund is a plan that allows participants to defer taxes on investment income. The funds held in a RRIF are usually transferred from an RRSP.

Unlike with an RRSP, participants in a RRIF must withdraw a minimum amount each year (as with a LIRA).

Amounts withdrawn are taxable, as with an RRSP. 

Registered shareholder

A shareholder whose identity is officially known by the company. Dividends are generally distributed only to registered shareholders on a given date.

Replacement cost

For automobile or home insurance, replacement cost is the amount needed to replace a damaged item with a new item.

If an insurance contract includes replacement cost coverage, the insured will receive a new item, or a cash amount equivalent to a new item, if an item has been irreparably damaged following a covered loss. 

Reporting issuer

A reporting issuer is an issuer that is required under the Securities Act to prepare and publicly disseminate prospectuses, financial statements, and other public information documents.

Resolution

A resolution is a proposal submitted to a vote during a meeting of a company’s shareholders.

RESP

An RESP, or Registered Education Savings Plan, is a registered account (an account with a bank or on-line broker, for example) in which investments can be made, the returns on which are not taxable as long as the money stays in the RESP.

An RESP is used to partially or fully fund the beneficiary’s postsecondary education.

An investor who puts money in an RESP CANNOT deduct an equivalent amount from their taxable income.

However, if certain conditions are met, an RESP may provide access to various government grants. 

Respondent

The respondent is the person authorized to send the documents with which the enterprise fulfills its statutory and regulatory obligations. The respondent is necessarily the natural person who operates the enterprise if it is a sole proprietorship, a director or an officer of the enterprise if it is a legal person, or a partner of the enterprise if it is a partnership.

Restricted share

A restricted share is a share with limited or no voting rights except under special circumstances.

Retained earnings

Retained earnings are a company’s earnings that have not yet been distributed to shareholders.

Retractable bond

A bond is called a retractable bond if the investor who holds it can redeem it prior to the maturity date.

This type of bond should not be confused with a callable bond, which the issuer may buy back from the investor. 

Retractable share

Retractable shares are shares that the holder can sell back to the issuer at a predetermined date under certain conditions.

Return

A return is the gain you earn on your investment in the form of interest income, dividends, or capital gains.

The return is often calculated as a percentage. If an investment of $1,000 earns $20 per year, then the rate of return is 2% ($20 / $1,000 = 2%). 

Revocable beneficiary

A revocable beneficiary is the person designated on an insurance contract to receive the insurance benefits (money paid by the insurer). Unlike the irrevocable beneficiary, the revocable beneficiary can be replaced without their consent.

Right of revocation

A right of revocation is the right to cancel an agreement (such as a contract or power of attorney) according to a pre-determined procedure.

Risk

In the field of investment, risk is the possibility of earning a lower return than anticipated or losing all or a portion of the amounts invested. There are several types of risk that can affect the value of an investment, including credit risk, counterparty risk, currency risk, and political risk.

In insurance, risk is the likelihood that an event will take place, causing a loss. For a risk to be insurable, it must be uncertain. Furthermore, it cannot depend solely on the willingness of the insured. 

Risk of a credit rating downgrade

The risk of a credit rating downgrade is the possibility that a rating agency will downgrade the credit rating of a company whose bonds you hold (for example, the financial position of the company that issued the bonds becomes precarious), which decreases the value of the investment.

RL-1 slip

An RL-1 slip is a form that an employer completes and submits to the Government of Québec to declare amounts paid to an employee (usually a salary) during the year, as well as various deductions retained.

The RL-1 slip is essential for completing an income tax return.

The corresponding form that is submitted to the Canada Revenue Agency is the T4 slip.

Round lot

With respect to trading securities, an odd lot is a lot with a standard number of shares. The definition of a round lot can vary based on the price of the security or the exchange.

RRSP

An RRSP, or Registered Retirement Savings Plan, is a registered account (an account with a bank or on-line broker, for example) in which investments can be made, the returns on which are not taxable as long as the money stays in the RRSP.

Investors who make contributions to their RRSP can deduct an equivalent amount from their taxable income (subject to certain conditions) and, as a rule, pay less tax.

However, when amounts are withdrawn from an RRSP, they must be added to taxable income.

The main purpose of an RRSP is to accumulate savings for retirement.  

Rule of 72

The Rule of 72 is a calculation for estimating the number of years it will take your investment to double if you know the expected return.

To apply the rule, divide 72 by the rate of return you will receive.

For example, if you expect to receive a 6% annual return, it will take 12 years for the value of your investment to double (72 / 6 = 12). 

S

Savings

Savings is the amount of money you are able to set aside. It represents the difference between your income and your expenses.

Savings bond

A savings bond is a bond issued by the federal government or by a provincial government. It is actually a loan granted by the investor to the government issuer.

A savings bond usually has a term between 3 and 10 years.  

Savings vehicle

A savings vehicle is a financial product, such as a Treasury bill or an RRSP, used to save for the future.

Secondary market

A secondary market is a market where securities (such as shares and bonds) that were previously issued are bought and sold between investors. Exchanges and over-the-counter markets are secondary markets.

Securities that are issued for the first time, such as new shares issued by a company, are traded on the primary market

Secured loan

A secured loan is a loan for which the borrower provides property as a guarantee.

Securitization

Securitization is a financial transaction that commonly consists in converting receivables into marketable securities for subsequent sale to investors.

Security

A security is a legal instrument that grants certain privileges and that, as a rule, can be bought or sold. Here are some examples of securities: 

Security clearance report

The security clearance report is used to verify the judicial background and moral character of a person or a business. This report is issued by the Sûreté du Québec.

Segregated fund

A segregated fund is a fund issued by insurers. It is similar to a mutual fund, but has additional guarantees. For example, capital may be reimbursed in the event of death, even if your investments have declined in value.  

Sell stop order

In securities trading, a sell stop order is an order to sell that is triggered automatically once the price of the security falls to a specified price.

This type of order helps limit an investor’s losses on a security that was purchased at a higher price. With a sell stop order, an investor does not need to constantly monitor the market. 

Share

A share, also referred to as stock, is an equity security that entitles you to an ownership interest in a company. A person who holds 10% of a company’s shares owns a 10% interest in that company.

The company can distribute a portion of its earnings to shareholders by paying them a dividend.

The shares of companies listed on an exchange are bought and sold at the exchange.

When a company ceases to operate, the proceeds from the sale of its assets are used to pay its debts and taxes, and the rest of the money is distributed to shareholders.

Share capital

Share capital is the equity that shareholders invest in a company when it is founded or when it issues new shares.

Share capital does not include the money paid by shareholders if they buy their shares from another shareholder (instead of from the company when it issues shares), since the money is paid to the shareholder who is selling their shares. 

Shareholder

A shareholder is a person who holds shares in a company. The shareholder can be a company itself.

Shareholders’ ledger

The shareholders’ ledger is a document indicating the names and addresses of a company’s shareholders in addition to the number of shares held.

Shell company

A shell company is a company, such as a business corporation, that does not conduct any business activity.

Some con artists use shell companies to give an air of legitimacy to their operations.  

Short selling

Short selling occurs when you sell a security you do not own.

An investor borrows a security from a dealer or other financial intermediary and sells it immediately on the market. The investor will later have to buy back the security and deliver it to the intermediary.

If the security declines in value, the investor can buy it back (redeem) at a lower price. His profit will be the difference between the selling price and the redemption price.

This investment strategy can be extremely risky. If the value of the security rises, the investor will have to pay back the difference and will therefore suffer a loss. Theoretically, the loss could be unlimited. For sophisticated investors only! 

Simplified pension plan

A simplified pension plan is a defined contribution pension plan administered by a financial institution.

Funds accumulated in this plan can be used to purchase an annuity with an insurer or transferred to a Locked-In Retirement Account (LIRA)

Simplified prospectus

A simplified prospectus is an abbreviated prospectus that meets all the legal requirements and provides the information to which investors are entitled.

Statement of cash flows

The statement of cash flows is the financial report that analyzes the changes in a company’s liquidities during the reporting period.

Statement of changes in equity

The statement of changes in equity, or statement of retained earnings, is the financial report that summarizes the changes in a company’s equity during a given period.

Statement of comprehensive income

The statement of comprehensive income, or income statement, is the financial report that presents a company’s revenue, expenses and net income (profit or loss) for a given period.

Statement of financial position

The statement of financial position, or balance sheet, is a document that gives a complete picture, on a given date, of the financial situation of a person, family, company, etc.

It lists assets and liabilities (debts), and the difference between the two (net worth). 

Statement of retained earnings

The statement of retained earnings, or statement of changes in equity, is the financial report that summarizes the changes in a company’s equity during the reporting period.

Stock market index

A stock market index is a statistic that measures stock market developments. These indexes are frequently used as an indicator of economic conditions.

Stop limit order

In securities trading, a stop limit order is an order to buy or an order to sell that is carried out only when the price of a security reaches the trigger price

Strike price

An option’s strike price is the price at which a share, commodity, currency or market index underlying an option (underlying interest) can be purchased (in the case of a call option) or sold (in the case of a put option).

Stripped bond

A stripped bond is a bond on which no interest is paid.

The investor earns a return by purchasing the bond at a lower price than the price paid at maturity. For example, the investor can pay $750 for a bond with a value of $1,000 at maturity. 

Subscription right

A subscription right is a privilege that a company gives its common shareholders to allow them to buy additional shares at a specified price usually below market price. Shareholders must exercise their rights within a short period, generally between six and eight weeks.

Subscription warrant

A subscription warrant is a contract that gives the holder the right to purchase a bond, shares or another security at a certain price, within a specified period. Subscription warrants are generally offered to investors when they acquire another security (such as bonds or preferred shares).

Subsidiary

A subsidiary is a company that belongs, in whole or in part, to another company that controls it.

Substandard risk

In the field of insurance, a substandard risk is a risk with a probability that is too high for the insurer to assume it under the normal conditions of an insurance contract.

To insure this risk, the insurer will add restrictive clauses in the contract or require a higher premium

Succession

The succession is the transmission of a deceased person’s patrimony (assets) to their heirs. The term is also used to designate the patrimony that is passed on to them.

Supplemental Pension Plan (SPP)

A Supplemental Pension Plan, or SPP, is a pension plan that is generally set up by an employer. There are several different categories of SPP, including:

  • Traditional private pension plans
  • Simplified pension plans 
Swap

A swap is a financial contract under which two companies (or sometimes two individuals) exchange earnings, an expense, currency or other financial instruments.

For example, an investor may exchange a security’s floating interest rate for the fixed interest rate of another financial instrument. 

T

T4 slip

A T4 slip is a form that an employer completes and submits to the Canada Revenue Agency to declare amounts paid to an employee (usually a salary) during the year, as well as various deductions retained.

The T4 is essential for completing an income tax return.

The corresponding form that is submitted to the Government of Québec is the RL-1 slip

Takeover bid

A takeover bid is an action in which a person or company publicly notifies the shareholders of the targeted company of its intent to purchase a certain number of shares within a certain period of time at a given price.

Tax base

The tax base is the amount used to calculate income tax. For a person, the tax base is all of their taxable income.

Tax credit

A tax credit is an amount that a taxpayer can deduct from their tax due. It is therefore different from a tax deduction, which is an amount deducted from the total income used to calculate tax due.

Tax deduction

A tax deduction is the amount a taxpayer can deduct from their total income for the purpose of calculating the tax due. It is therefore different from a tax credit, which is an amount deducted directly from tax due.

Tax rate

The tax rate is a percentage applied to all of a person’s or company’s taxable income for the purpose of calculating tax due.

It answers the question: “How much tax, as a percentage, do I pay on all of my annual income?”

It is separate from the marginal tax rate, which is calculated on the last dollar earned.  

Tax-Free Savings Account (TFSA)

A TFSA is a “Tax-Free Savings Account.” It is a savings vehicle (like an RRSP) that allows deposited funds to grow tax-free. This money can be invested in shares, bonds, guaranteed investment certificates or other types of savings or investments.

Making contributions to a TFSA will not entitle you to any tax deductions. However, when you withdraw the money from the TFSA, you will not pay any taxes.

A TFSA lets you save for any reason you choose (buying a home, car, etc.). 

Taxable income

Taxable income is the portion of income that is used to calculate tax due. Some types of investments, such as RRSPs, can be used to lower taxable income, and therefore for most people, tax due. 

Taxation

Taxation is all the laws and regulations applicable to taxes.

Technical analysis

Technical analysis is a method for assessing the future value of a company’s shares by analyzing share prices over time, for example using graphs and charts.

Technical analysis is therefore a very different approach from fundamental analysis, which looks at the company itself and its business context. 

Term deposit

A term deposit, also called a guaranteed investment certificate (GIC) or certificate of deposit, is a security indicating that an investor has lent money to a financial institution. Term deposits earn interest. 

Term life insurance

Term life insurance is life insurance that provides the beneficiary with coverage for a limited period. Term policies are generally renewable at prices set in advance that increase periodically.

Termination of an insurance contract

The termination of an insurance contract is the ending of the contract. All of the effects of the contract are cancelled, as though the contract had never existed (the amounts paid are reimbursed, coverage disappears retroactively, etc.).

Termination is therefore different from cancellation. When an insurance contract is cancelled, coverage ceases, but past coverage is still valid. The amounts paid for the past coverage are not reimbursable. 

Toronto Stock Exchange

The Toronto Stock Exchange is Canada’s biggest exchange

Total assets

Total assets are what a person or company owns (their assets: money in the bank, buildings, furniture, etc.) minus their debts (their liabilities: mortgage loan, etc.).

Trading expense ratio (TER)

The trading expense ratio, or TER, is the percentage that the fund’s trading expenses represent with respect to the fund’s total value.

Traditional supplemental pension plan

A traditional supplemental pension plan is a contract that must be registered with the Régie des rentes du Québec (RRQ) in which the employer, either alone or with plan participants, undertakes to periodically pay into a pension fund to accumulate a retirement pension.

Trailing commission

The trailing commission is a commission paid out of a mutual fund’s management fees. It is calculated based on the value of the investment. It covers the services and advice that the representative provides to investors who have units in the fund.

Travel insurance

Travel insurance is insurance that protects you against certain unexpected events that can arise during a trip.

It can provide various types of coverage, such as coverage for illnesses or accidents during a trip outside Québec. It can provide protection against unforeseen expenses for medical care, hospitalization, trip cancellation/interruption, or stolen luggage, as well as in the event of death.

Treasury bill

A treasury bill is a short-term investment guaranteed by a government. It reaches maturity within a year at most. At maturity, the government pays out a greater amount than the amount invested.

Trigger price

On an exchange, a trigger price is the price at which a stop limit order is executed. The transaction takes place only when the specified price is reached. 

Trust

A trust is an arrangement under which an individual or company entrusts movable or immovable property (e.g., shares, bonds, a house) to another party (the trustee), who undertakes to hold and administer this property on behalf of one or more other individuals or companies.

Trust deposit

A trust deposit is a deposit made to a bank account managed by a person (the trustee or account holder) on behalf of another person (a beneficiary). 

Trustee

In the context of a trust, the trustee is the person who undertakes to hold and administer the assets in the trust on behalf of one or more other individuals or companies.

TSX Venture Exchange

The TSX Venture Exchange is an exchange that specializes in venture capital in Canada.

U

Underlying interest

An underlying interest is the asset upon which a derivative (call or put option, futures, etc.) or other investment (such as exchange-traded funds) is based and that influences its value. The underlying interest may be a stock, an index, a currency or a commodity.

Universal life insurance

Universal life insurance is life insurance that also includes a savings component. By paying a premium that is higher than the cost of insurance, the insured can save money tax free. However, a number of restrictions apply, and the insured may have to pay tax upon withdrawing the saved amounts.

Unsecured bond

An unsecured bond is a fixed-income investment, similar to other bonds, except that it is generally not backed by specific assets. Also known as a debenture.

Unused contribution room

Unused contribution room is contribution room that a person had in previous years but that they did not use.

Unused contribution room from previous years is generally added to the contribution room for the current year to determine the total amount that a person can put in their RRSP, VRSP, TFSA or other registered plan, without paying a penalty.  

V

Variable annuity

A variable annuity is an annuity that provides payments that vary according to the return earned on the underlying investments.

Voluntary Retirement Savings Plan (VRSP)

A Voluntary Retirement Savings Plan, or VRSP, is a plan offered by companies to their employees.

Participation in a VRSP is voluntary. Employees can contribute to a VRSP through automatic payroll deductions.

As with an RRSP, employee contributions are deducted from taxable income, and no taxes are payable on the income generated as long as the money stays in the VRSP.  

VRSP

A VRSP, or Voluntary Retirement Savings Plan, is a plan offered by companies to their employees.

Participation in a VRSP is voluntary. Employees can contribute to a VRSP through automatic payroll deductions.

As with an RRSP, employee contributions are deducted from taxable income, and no taxes are payable on the income generated as long as the money stays in the VRSP.  

W

Waiting period

The waiting period is the period during which an insured is not eligible for insurance benefits, even though the covered risk may have occurred. For example, in disability insurance, an insured may be disabled but not receive money from their insurer during the first two weeks of a disability.

Waiver of premium

A waiver of premium is the right, for an insured, not to pay their insurance premium.

Whole life insurance

Whole life insurance is life insurance that provides coverage until the death of the insured. Premiums are usually fixed for this type of insurance. This type of policy usually has a cash surrender value.

Wind-up

Wind-up involves selling assets to convert them into cash. For example, in the event of bankruptcy, a company can sell its assets to pay its debts. 

X

Y

Z

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