GlossaryG–5conversion value The market price of
the share, multiplied by the number
of shares that bondholders receive if
they convert.
convertible bond A bond that gives
investors the option to convert it into
the issuer’s ordinary shares.
corporate bonds Bonds issued by
corporations.
corporate control The monitoring,
supervision and direction of a
corporation or other business
organisation.
corporate finance The activities
involved in managing cash (money)
that flows through a business.
corporate governance The processes
and rules that determine how a
company is governed.
corporate governance function The
activities involved in developing
company-wide structures and
incentives that influence managers to
behave ethically and make decisions
that benefit shareholders.corporate venture capital
funds Subsidiaries or stand-
alone companies established by
nonfinancial corporations to
gain access to emerging
technologies.corporation In Australia, a legal entity
set up to conduct business and
regulated by the Australian Securities
and Investments Commission (ASIC)
under the Corporations Act 2001.
Also referred to as a ‘company’. A
corporation can be limited by share
or by guarantee, or be a no-liability
company, or a proprietary limited or
private company.
Corporations Act 2001 The
Commonwealth Act regulating,
among other matters, corporate
insolvency in Australia.
correlation coefficient A statistical
measure of the degree of
interdependence between two
variables, indicating how they vary
together. The correlation coefficient
can range from –1 to +1. A value
of +1 indicates the variables are
perfectly correlated, while a value
of –1 indicates they are perfectly
negatively correlated. A value of zero
indicates that the variables have zero
interdependence. In the context
of portfolio management, the risk
of the returns of a portfolio of two
assets is reduced when it contains
assets whose returns are negatively
correlated with each other.
cost of marginal investment in accounts
receivable The marginal investment
in accounts receivable required to
support a proposed change in credit
policy multiplied by the required
return on investment.
counterparty risk The risk that the
counterparty in an over-the-counter
options transaction will default on its
obligation.
coupon The periodic interest payment
that a bond pays to investors.
coupon rate The rate derived by
dividing the bond’s annual coupon
payment by its face value.
coupon yield The amount obtained
by dividing the bond’s coupon by its
current market price (which does
not always equal its face value). Also
called current yield.
coverage ratio A debt ratio that uses
data from the income statement to
assess the company’s ability to generate
sufficient cash flow to make scheduled
interest and principal payments.
covered bonds These bonds are direct,
unconditional obligations of the
issuer. In Australia, they were in the
process of being issued for the first
time in 2012, by banks.
credit monitoring The ongoing review
of a company’s accounts receivable
to determine if customers are paying
according to the stated credit terms.creditor days A measure of the average
time a business takes to pay its creditors.
credit scoring Applies statistically
derived weights for key financial
and credit characteristics to predict
whether or not a credit applicant with
specific scores for each characteristic
will pay the requested credit in a
timely fashion.
credit terms The terms of sale for
customers.
cross exchange rate An exchange rate
between two currencies calculated by
taking the ratio of the exchange rate
of each currency, expressed in terms
of a third currency.
cross-default covenant A positive debt
covenant in which the borrower is
considered to be in default on all
debts if it is in default on any debt.
cross-hedging A hedge in which the
underlying securities in a futures
contract and the assets being hedged
have different characteristics.
cum dividend Between the
announcement date and ex-dividend
date, shares are said to be cum
dividend, meaning that current or new
shareholders are entitled to receive
dividends.
currency board arrangement An
exchange rate system in which each
unit of the domestic currency is
backed by a unit of some foreign
currency.
currency forward contract A contract
that involves exchanging one currency
for another at a fixed date in the
future.
currency swap A swap contract in
which two parties exchange payment
obligations denominated in different
currencies.
current ratio A measure of a
company’s ability to meet its short-
term obligations, defined as current
assets divided by current liabilities.