630 Glossary
Derivative:An instrument whose value or contingent cash flows are a function of
the value of some other asset or economic variable.
Derivative instrument:A financial instrument that derives its value from its rela-
tionship to some other financial contract, currency, commodity, or index.
Discontinued operations:Operations that constitute an entire segment of the
firm’s business and not, for example, simply one product line in a segment made up of
a number of related product lines. Other key characteristics include: Segments en-
gage in business and produce revenues and incur expenses; the operations of seg-
ments are regularly reviewed by the chief operating officer of the enterprise; and
discrete financial information can be provided on the operations of segments.
Discount rate:A rate of return (cost of capital) used to convert a monetary sum,
payable or receivable in the future, into present value.
Duration gap:A situation in which assets are more sensitive to interest rates than
are liabilities. As interest rates rise, assets fall more than liabilities, wiping out equity.
DVD:Digital Video Disks are the direct descendents of CDs, but have the capacity
to store roughly 10 times the amount of data as does a CD. This capacity allows a
DVD to store all of the pictures and sounds that make up an entire, feature-length
movie.
Economic exposure:“Derived from the risk that currency f luctuations could af-
fect the dollar value of future cash f lows at the operating income level” (Dow 1995
annual report, p. 36).
Economies of scale:the decrease in the marginal cost of production as a firm’s
output expands.
EDGAR:The electronic filing system by which IPOs and other filings required
under the Securities Act of 1933 and the Securities Exchange Act of 1934 are ef-
fected. The public may access such filings through the World Wide Web.
EDI:Electronic Data Interchange. Used by businesses to transact commerce elec-
tronically. These transactions include purchase orders, shipping notifications, in-
voices, and so on.
Effective income tax rate:Total income tax provision (expense) deducted from
pretax income from continuing operations divided by pretax income from continuing
operations.
Effectiveness:The degree to which a goal is met.
Efficiency:A measure of the inputs needed to produce a given level of output in
pursuit of a goal, or the outputs produced in pursuit of a goal by a given level of
inputs.
Efficient search sequence:A pattern of searching for nonrecurring items that is
designed to maximize their discovery and minimize search time.
Electronic commerce:The transacting of business over the Internet, whether for
the purchase or sale of goods and services.
E-mail:Electronic mail is one of the most common and important computer appli-
cations, allowing people to communicate cheaply and quickly with other computer
users almost any where on earth.
Encryption:Encryption is a process of encoding data to protect its confidentiality.
Typically, we encrypt data before it is transmitted from one computer to another so
that, should the data be intercepted by a third party during transmission, the data