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Glossary of Investment Terms: M

M1
Cash in circulation plus demand deposits at commercial banks. There are variations between the precise definitions used by national financial authorities.

M2
Includes demand deposits time deposits and money market mutual funds excluding large CDs.

M3
In the UK it is M1 plus public and private sector time deposits and sight deposits held by the public sector.

M4
In the US it is M2 plus negotiable CDs.

Maintenance Margin
The minimum margin which an investor must keep on deposit in a margin account at all times in respect of each open contract.

Make a Market
A dealer is said to make a market when he or she quotes bid and offer prices at which he or she stands ready to buy and sell.

Managed Float
When the monetary authorities intervene regularly in the market to stabilise the rates or to aim the exchange rate in a required direction.

Margin
(1)Difference between the buying and selling rates, also used to indicate the discount or premium between spot or forward.
(2)For options the sum required as collateral from the writer of an option.
(3)For futures a deposit made to the clearing house on establishing a futures position account.
(4) The percentage reserve required by the US Federal Reserve to make an initial credit transaction.

Margin Call
A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse future price movements.

Marginal Risk
The risk that a customer goes bankrupt after entering into a forward contract. In such an event the issuer must close the commitment running the risk of having to pay the marginal movement on the contract.

Mark to Market
The daily adjustment of an account to reflect accrued profits and losses often required to calculate variations of margins.

Markup
Premium.

Market Amount
The minimum amount conventionally dealt for between banks.

Market Maker
A market maker is a person or firm authorised to create and maintain a market in an instrument.

Market Order
An order to buy or sell a financial instrument immediately at the best possible price.
Market Risk - Exposure to changes in market prices.

Marshall - Lerner
A model that states that if the sum of the elasticity's of demand for a country's and that of the imports exceed one, then devaluation will have a positive effect upon the trade balance.

Marry
Where a dealer is able to match two customer deals which off set one another.

Matched Book
If the distribution of the maturities of a banks liabilities equal that of its assets , it is said to be running a matched book.

Matching
The process of ensuring that purchases and sales in each currency and deposits given and taken in each currency are in balance , by amount and maturity.

Matching Systems
Electronic Systems duplicating the traditional brokers market. A price shown by a bank is available to all trades.

Maturity Date
(1) The last trading day of a futures contract.
(2) Date on which a bond matures, at which time the face value will be returned to the purchaser. Sometimes the maturity date is not one specified date but a range of dates during which the bond may be repaid.

Mid-price or Middle Rate
The price half-way between the two prices, or the average of both buying and selling prices offered by the market makers.

Minimum Price Fluctuation
The smallest increment of market price movement possible in a given futures contract.

Minimum Reserve
Reserves required to be deposited at central banks by commercial banks and other financial institutions. Sometimes referred to as Registered Reserves.

Mismatch
(1) A mismatch between the interest rate maturities of a banks assets and liabilities.
(2) Forward purchases differ in the value date from the forward sales in a given currency.

MITI
Japanese ministry of International Trade & Industry.

MM
Money Markets

Monetarism
A school of economics which believes that strict control of money supply is the principal tool for implementing monetary policy, especially against inflation. Policies include cuts in public spending and high interest rates.

Monetary Base
Currency in circulation plus banks' required and excess deposits at the central bank.

Monetary Easing
A modest loosening of monetary constraint by changing interest rate, money supply, deposit ratios.

Monetary Policy
A central bank's management of a country's money supply. Economic theory underlying monetary policy suggests that controlling the growth of the amount of money in the economy is the key to controlling prices and therefore inflation. However, central banks' monetary capability is severely limited by global money movements. This forces them to use the indirect tool of exchange rate manipulation.

Monetary Union
An agreement between countries to maintain a fixed exchange rate between their currencies. A process which the EMS is intended to lead to, especially after the Maastricht Treaty.

Money Market
A market consisting of financial institutions and dealers in money or credit who wish to either borrow or lend.

Money Market Operations
Comprises the acceptance and re-lending of deposits on the money market.

Money Supply
The amount of money in the economy, which can be measured in a number of ways. See definitions of M0-M4.

Most Favored Nation (MFN)
An undertaking to give the rate of tariff concession offered to members of the GATT. More concessionaire rates can exist.

Moving Average
A way of smoothing a set of data, widely used in price time series.