Compound Interest

Interest earned on principal plus interest that was earned earlier. If $100 is deposited in a bank account at 10%, the depositor will be credited with $110 at the end of the first year and $121 at the end of the second year. That extra $1, which was earned on the $10 from the first year, is the compound interest.  This example involves interest compounded annually, and interest can also be compounded on a daily, quarterly, half-yearly, or other basis. 

Simple Interest

Interest calculation based only on the original principal amount. Simple interest contrasts with compound interest, which is applied to the principal plus accumulated interest. For example, $100 on deposit at 12% simple interest would yield $12 per year (12% of $100). The same $100 at 12% interest compounded annually would yield $12 only in the first year. The second year’s interest would be 12% of the first year’s accumulated interest and principal of $112, or $13.44. The third year’s payment would be 12% of $125.44 – the second year’s principal plus interest – or $15.05. For computing interest on loans, simple interest is distinguished from various methods of calculating interest on a pre-computed basis.

Soft Currency

Funds from a country that are not acceptable in exchange for the hard currencies of other countries, often a currency with a value that fluctuates as a result of the country’s political or economic uncertainty. As a result of this currency instability, foreign exchange dealers tend to avoid it – also known as a “weak currency.” Soft currencies are fixed at unrealistic exchange rates and are not backed by gold, so that countries with hard currencies, like with the USA and its Dollar and the UK with its British Pound, are reluctant to convert assets into those soft currencies.

Special Situations

  1. Undervalued stock that should soon rise in value because of an imminent favorable turn of events. A special situation stock may be about to introduce a revolutionary new product or be undergoing a much-needed management change. Many securities analysts concentrate on looking for and analyzing special situation stocks.
  2. Stocks that fluctuate widely in daily trading, often influencing market averages, because of a particular one’s development, such as the announcement of a TAKEOVER bid.

Takeover

A change in the controlling interest of a corporation. A takeover may be a friendly acquisition or an unfriendly bid that the TARGET COMPANY might fight with SHARK REPELLENT techniques. A hostile takeover (aiming to replace existing management) is usually attempted though a PUBLIC TENDER OFFER. Other approaches might be unsolicited merger proposals to directors, accumulation of shares in the open market, or proxy fights that seek to install new directors.

Target Company

The firm that has been chosen as attractive for a TAKEOVER by a potential acquirer. The acquirer may buy up to 5% of the target’s stock without public disclosure, but must report all transactions and supply other information to the relevant Securities Authorities should purchases exceed 5%.

Shark Repellent

Measure undertaken by a corporation to discourage unwanted TAKEOVER attempts. Also called a “porcupine provision.”

For example:

  • Establishing a ‘defensive merger’ by combining with another organization aimed at upsetting the TAKEOVER bidding company.
  • Setting up a GOLDEN PARACHUTE contract with top executives aimed at making it prohibitively expensive to get rid of existing management.
  • Forming a STAGGERED BOARD OF DIRECTORS as a way of making it more difficult for a corporation RAIDER to install a majority of directors sympathetic to the bid.
  • There are many other alternative actions that may be used to discourage TAKEOVERS.

Tender Offer

An offer to buy shares of a corporation, usually at a PREMIUM above the shares’ market price, for cash, securities, or both, often with the objective of taking control of the TARGET COMPANY. A tender offer may arise from friendly negotiations between the company and a corporate suitor, or may be unsolicited and possibly unfriendly, resulting in countermeasures being taken by the target firm.