Financial Glossary – Z
Z bond – a bond that accrues interest added to its principal balance. It is also known as an accrual bond.
Zero Balance Account – a bank account that maintains a zero balance all the time. The only time money goes into the account is when a check is issued – the amount is the same as the amount on the check. As soon as the check is cleared, the account goes back to a zero balance.
Zero-Based Budgeting – a budgeting method in which all expenses start the accounting period at zero – the slate is wiped clean. Every function within a company or organization is analyzed for its needs and costs – from scratch. Zero-based budgeting contrasts with traditional budgeting approaches, in which the previous period’s spending is carried forward.
Zero-Cost Option – a trading strategy in which one option is bought while another one is sold at the same time – they both have equal value. By buying and selling two things with the same value at the same time, they cancel each other out, leaving the trader with a zero balance – hence the name. It is also called zero-cost hedge and risk reversal strategy.
Zero-Coupon Bond – also known as a discount bond, is a bond bought at a price lower than its par value, with the par value repaid when it reaches maturity. This type of bond does not disperse an annual interest payment.
Zero Dollar Contract – a kind of contract where either no money changes hands, or a donation of just one dollar is made. This type of contract is commonly made between government departments and companies.
Zero-Sum Game – a game or business situation where there is one winner and one loser; the winner’s total minus the loser’s total loss equals zero – hence the term ‘zero-sum’. An example could be an arm-wresting contest or game of poker. The opposite is a non-zero sum game. Most business transactions are not zero-sum games, for the simple reason that nobody would enter a zero-sum deal.
Zombie Bank – a financial institution that is worth less than nothing, but continues operating, mainly because of government support.
Zombie Company – a business that is heavily in debt and is only able to pay the interest on its loans, i.e. it cannot reduce the principle. The term includes companies that were bailed out and would not have survived without help. Also called a zombie firm or living dead.
Zombie Virus – in the world of IT (information technology), a zombie could be a malicious virus, worm, Trojan horse, or any program that infects and takes control of computers and smartphones and gets them to do illegal things. Zombies can cause websites to shut down because they get flooded with visits from zombie computers – infected computers.
Zoning – local government by-laws that define how certain parts of the city may be used, specifically land use. Some areas are residential, while others are destined for agriculture, industry or commerce. The aim of zoning is to make communities as safe as possible, and ensure that growth occurs in an orderly way.