U

Unbiased predictor 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 debt holders.

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 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 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 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.