Electronic communications network

Electronic communications network (also known by its acronym, ECN) is any network that automatically matches potential buyers and sellers, as well as automatically completes their transactions.

Definitions

According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),

ECN. In an ECN (electronic communications network), orders from potential buyers and sellers are automatically matched and the transaction is automatically completed.

• Economic life. The number of years a project should be operated to maximize its net present value; often less than the maximum potential life.
• Economic Value Added (EVA). A method used to measure a firm's true profitability. EVA is found by taking the firm's after-tax operating profit and subtracting the annual cost of all the capital a firm uses. If the firm generates a positive EVA, its management has created value for its shareholders. If the EVA is negative, management has destroyed shareholder value.
• Effective annual rate (equivalent annual rate, EAR or EFF%). The effective annual rate is the rate that, under annual compounding, would have produced the same future value at the end of 1 year as was produced by more frequent compounding, say quarterly. If the compounding occurs annually, then the effective annual rate and the nominal rate are the same. If compounding occurs more frequently, then the effective annual rate is greater than the nominal rate.
• Efficient frontier. The set of efficient portfolios out of the full set of potential portfolios. On a graph, the efficient frontier constitutes the boundary line of the set of potential portfolios.
• Efficient Markets Hypothesis (EMH). States (1) that stocks are always in equilibrium and (2) that it is impossible for an investor to consistently “beat the market.” The EMH assumes that all important information regarding a stock is reflected in the price of that stock.
• Efficient portfolio. Provides the highest expected return for any degree of risk. The efficient portfolio also provides the lowest degree of risk for any expected return.
• Embedded option. An option that is a part of another project. Also called real options, managerial options, and strategic options.
• Entrenchment. Occurs when a company has such a weak board of directors and has such strong antitakeover provisions in its corporate charter that senior managers feel there is little chance of being removed.
• Equilibrium. The condition under which the intrinsic value of a security is equal to its price; also, when a security's expected return is equal to its required return.
• Equity risk premium, RPM. Expected market return minus the risk-free rate; also called market risk premium or equity premium.
• EROIC. Expected return on invested capital (EROIC) is equal to expected NOPAT divided by the amount of capital that is available at the beginning of the year.
• ESOP (employee stock ownership plan). A type of retirement plan in which employees own stock in the company.
• Euro. The currency used by nations in the European Monetary Union.
• Eurobond. Any bond sold in some country other than the one in whose currency the bond is denominated. Thus, a U.S. firm selling dollar bonds in Switzerland is selling Eurobonds.
• Eurodollar. A U.S. dollar on deposit in a foreign bank or a foreign branch of a U.S. bank. Eurodollars are used to conduct transactions throughout Europe and the rest of the world.
• Exchange rate. Specifies the number of units of a given currency that can be purchased for one unit of another currency.
• Exchange rate risk. Refers to the fluctuation in exchange rates between currencies over time.
• Ex-dividend date. The date when the right to the dividend leaves the stock. This date was established by stockbrokers to avoid confusion, and it is four business days prior to the holder-of-record date. If the stock sale is made prior to the ex-dividend date, then the dividend is paid to the buyer; if the stock is bought on or after the ex-dividend date, the dividend is paid to the seller.
• Exercise price. The price stated in the option contract at which the security can be bought (or sold). Also called the strike price.
• Exercise value. Equal to the current price of the stock (underlying the option) minus the strike price of the option.
• Expectations theory. States that the slope of the yield curve depends on expectations about future inflation rates and interest rates. Thus, if the annual rate of inflation and future interest rates are expected to increase, then the yield curve will be upward sloping; the curve will be downward sloping if the annual rates are expected to decrease.
• Expected rate of return, r^s. The rate of return expected on a stock given its current price and expected future cash flows. If the stock is in equilibrium, the required rate of return will equal the expected rate of return.
• Extension. A form of debt restructuring in which creditors postpone the dates of required interest or principal payments, or both.
• Extra dividend. A dividend paid, in addition to the regular dividend, when earnings permit. Firms with volatile earnings may have a low regular dividend that can be maintained even in years of low profit (or high capital investment) but is supplemented by an extra dividend when excess funds are available.

Related concepts

• Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.

Related lectures

• Introduction to Financial Management.