1. Glossary of Financial Terms
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Unbiased predictor
U A theory that spot prices at some future date will be
equal to today's forward rates.
Unbundling
When a multinational firm unbundles its transfer of
funds into separate flows for specific purposes. See:
bundling.
Uncovered call
A short call option position in which the writer does
not own shares of underlying stock represented by his
option contracts. Also called a "naked" call, it is much
riskier for the writer than a covered call, where the
writer owns the underlying stock. If the buyer of a call
exercises the option to call, the writer would be forced
to buy the stock at market price.
Uncovered put
A short put option position in which the writer does
not have a corresponding short stock position or has
not deposited, in a cash account, cash or cash
equivalents equal to the exercise value of the put. Also
called "naked" puts, the writer has pledged to buy the
stock at a certain price if the buyer of the options
chooses to exercise it. The nature of uncovered
options means the writer's risk is unlimited.
Underfunded pension plan
A pension plan that has a negative surplus (i.e.,
liabilities exceed assets).
Underinvestment problem
The mirror image of the asset substitution problem,
wherein stockholders refuse to invest in low-risk
assets to avoid shifting wealth from themselves to the
debtholders.
Underlying
The "something" that the parties agree to exchange in
a derivative contract.
Underlying asset
The asset that an option gives the option holder the
right to buy or to sell.
Underlying security
Options: the security subject to being purchased or
sold upon exercise of an option contract. For example,
IBM stock is the underlying security to IBM options.
Depository receipts: The class, series and number of

2. the foreign shares represented by the depository
receipt.
Underperform
When a security is expected to appreciate at a slower
rate than the overall market.
Underpricing
Issue of securities below their market value.
Underwrite
To guarantee, as to guarantee the issuer of securities a
specified price by entering into a purchase and sale
agreement. To bring securities to market.
Underwriter
A party that guarantees the proceeds to the firm from a
security sale, thereby in effect taking ownership of the
securities. Or, stated differently, a firm, usually an
investment bank, that buys an issue of securities from
a company and resells it to investors.
Underwriting
Acting as the underwriter in a purchase and sale.
Underwriting fee
The portion of the gross underwriting spread that
compensates the securities firms that underwrite a
public offering for their underwriting risk.
Underwriting income
For an insurance company, the difference between the
premiums earned and the costs of settling claims.
Underwriting syndicate
A group of investment banks that work together to sell
new security offerings to investors. The underwriting
syndicate is led by the lead underwriter. See also: lead
underwriter.
Underwritten offering
A purchase and sale.
Undiversifiable risk
Related: Systematic risk
Unemployment rate
The ratio of the number of people classified as
unemployed to the total labor force.
Unfunded debt
Debt maturing within one year (short-term debt). See:
funded debt.
Unilateral transfers
Items in the current account of the balance of
payments of a country's accounting books that
corresponds to gifts from foreigners or pension
payments to foreign residents who once worked in the

3. country whose balance of payments is being
considered.
Unique risk
Also called unsystematic risk or idiosyncratic risk.
Specific company risk that can be eliminated through
diversification. See: diversifiable risk and
unsystematic risk.
Unit benefit formula
Method used to determine a participant's benefits in a
defined benefit plan by multiplying years of service by
the percentage of salary.
Unit investment trust
Money invested in a portfolio whose composition is
fixed for the life of the fund. Shares in a unit trust are
called redeemable trust certificates, and they are sold
at a premium above net asset value.
Universal life
A whole life insurance product whose investment
component pays a competitive interest rate rather than
the below-market crediting rate.
Unleveraged beta
The beta of an unleveraged required return (i.e. no
debt) on an investment when the investment is
financed entirely by equity.
Unleveraged required return
The required return on an investment when the
investment is financed entirely by equity (i.e. no debt).
Unlimited liability
Full liability for the debt and other obligations of a
legal entity. The general partners of a partnership have
unlimited liability.
Unmatched book
If the average maturity of a bank's liabilities is less
than that of its assets, it is said to be running an
unmatched book. The term is commonly used with the
Euromarket. Term also refers to the condition when a
firm enters into OTC derivatives contracts and
chooses to hedge that risk by not making trades in the
opposite direction to another financial intermediary. In
this case, the firm with an unmatched book hedges its
net market risk with futures and options, usually.
Related expressions: open book and short book.
Unseasoned issue
Issue of a security for which there is no existing
market. See: seasoned issue.
Unsecured debt

4. Debt that does not identify specific assets that can be
taken over by the debtholder in case of default.
Unsterilized intervention
Foreign exchange market intervention in which the
monetary authorities have not insulated their domestic
money supplies from the foreign exchange
transactions.
Unsystematic risk
Also called the diversifiable risk or residual risk. The
risk that is unique to a company such as a strike, the
outcome of unfavorable litigation, or a natural
catastrophe that can be eliminated through
diversification. Related: Systematic risk
Upstairs market
A network of trading desks for the major brokerage
firms and institutional investors that communicate
with each other by means of electronic display
systems and telephones to facilitate block trades and
program trades.
Uptick
A term used to describe a transaction that took place at
a higher price than the preceding transaction involving
the same security.
Uptick trade
Related:Tick-test rules
U.S. Treasury bill
U.S. government debt with a maturity of less than a
year.
U.S. Treasury bond
U.S. government debt with a maturity of more than 10
years.
U.S. Treasury note
U.S. government debt with a maturity of one to 10
years.
Utility
The measure of the welfare or satisfaction of an
investor or person.
Utility value
The welfare a given investor assigns to an investment
with a particular return and risk.
Utility function
A mathematical expression that assigns a value to all
possible choices. In portfolio theory the utility
function expresses the preferences of economic
entities with respect to perceived risk and expected
return.