Introduction to Finance

Sight draft
An instrument requiring imme-
diate payment
Simple interest
Interest earned only on the 
investment’s principal
Sinking fund
Requirement that the issuer 
retire specifi ed portions of the bond issue over 
time
Sinking fund payments
Periodic bond prin-
cipal repayments
Special dividend
An extra dividend declared 
by the fi rm over and above its regular dividend 
payout
Special drawing rights (SDRs)
Reserve 
assets created by the IMF and consisting of a 
basket or portfolio of currencies that could be 
used to make international payments
Speculative infl ation
Caused by the expec-
tation that prices will continue to rise, result-
ing in increased buying to avoid even higher 
future prices
Speculative motives
Holding marketable 
securities to take advantage of unusual cash 
discounts or price bargains on materials if it 
can pay quickly with cash
Speculative value 
or
 time value of an option
Diff erence between the option premium and its 
intrinsic value; it is larger the longer the time 
to expiration and the higher the underlying 
stock’s price volatility
Spot exchange rate
Current rate being quoted 
for delivery of the currency on the spot
Spot market
The cash market for trading 
securities; where securities are bought and sold
Spread
(1) 
diff erence between the bid and 
ask prices; (2) diff erence between the off er 
price and the price paid by the investment bank
Stand-alone principle
Analysis focuses on 
the project’s own cash fl ows, uncontaminated 
by cash fl ows from the fi rm’s other activities
Standard deviation
The square root of the 
variance