Guide to Analysing Companies

B
BUYER’S MARKET
59
01 Essential Finance 10/11/06 2:21 PM Page 59

---

Cc
Cable
The name given by traders to the pound/dollar exchange rate. It
stems from the days when New York relayed the rate to London
via a transatlantic cable.
Call
A demand made by a company that a shareholder must pay the
amount due on a certain date for shares that have been issued
as partly paid. It can also be the right to redeem bonds
before their scheduled maturity date. Such dates are usually
specified in the prospectus for a bond issue.
Call option
A contract to buy a certain number of shares at a stated
price (the strike price) within a specified period of time. A call
option will be exercised when the spot price rises above the
strike price. If it is not exercised, the option expires at the end of
the specified period. Call options are usually taken out by in-
vestors who think the price of a security will rise signifi-
cantly. By buying call options, investors stand to make a bigger
profit for a smaller outlay than if they were to buy the underly-
ing security. By selling call options, the owners of securities can
also generate extra income but have to relinquish ownership if
the strike price is met. For example, if an investor is optimistic
about the prospects for a share, he or she might buy a call
option for, say, $15, giving him or her the right to buy the un-
derlying security at $350. Assume too that the market price of
the security is $320. The investor would be in profit if the share
price rose above $365, covering the $350 exercise price and the
$15 cost of the option.
60
01 Essential Finance 10/11/06 2:21 PM Page 60

---

Call premium
The price of acquiring a call option. A call option gives the
holder the right (but not the obligation) to purchase, say, 100
shares of a security at a fixed price before a specified date in
the future. For this right, the buyer of the call option pays the
seller, called the writer, a fee, called a premium, which is for-
feited if the buyer fails to exercise the right within the agreed
period. (See also option.)
Camel
An acronym for the five things that banking supervisors look
for most keenly when examining a bank:
 capital adequacy
 asset quality
 Management quality
 earnings
 liquidity
The increasing sophistication of financial markets has en-
couraged regulators to give banks more flexibility in running
their businesses. This helps banks to balance the risks they
take and to match the maturity of their loans with the de-
posits they take in. As the lender of last resort if a bank
or financial institution fails, a central bank likes to have as
much warning as possible of impending danger.
Cap
A ceiling imposed on the amount of interest and/or capital
that is to be repaid on a loan. With an adjustable-rate mort-
gage in the United States, there can be several different caps:
 an annual adjustment cap, which places a restriction on
the amount of interest that can be paid in one year;