Financial Glossary
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F
- A Nasdaq stock symbol specifying that the stock is a foreign company.
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Fabless Company
- The Fabless Semiconductor Association (FSA) defines fabless as follows:
Fabless (without fab) refers to the business methodology of outsourcing the manufacturing of silicon wafers, which hundreds of semiconductor companies have adopted. Fabless companies focus on the design, development and marketing of their products and form alliances with silicon wafer manufacturers, or foundries.
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Face Value
- The nominal value or dollar value of a security stated by the issuer. For stocks, it is the original cost of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity (generally $1,000). Also known as "par value" or simply "par".
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Face-Amount Certificate Company
- A type of investment firm that issues debt securities to its investors. These securities are called face-amount certificates and are backed by security interest on assets such as real property or other securities. This is similar in nature to mortgage bond debt financing.
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Facility
- A term used to describe financial assistance programs offered by lending institutions to help companies requiring capital
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Factor
- 1. A financial intermediary that purchases receivables from companies.
2. In terms of mortgages, the ratio of principal outstanding to the original balance.
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Factors Of Production
- An economic term to describe the inputs that are used in the production of goods or services in the attempt to make an economic profit. The factors of production include land, labor, capital and entrepreneurship.
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Factory Orders
- An economic indicator that reports the dollar level of new factory orders for both durable and non-durable goods. The factory orders report is released monthly by the Census Bureau of the U.S. Department of Commerce one or two weeks following the durable goods orders report.
The factory orders report is split up into four sections:
- New orders - indicating whether orders are growing or slowing
- Unfilled orders - indicating a backlog in production
- Shipments - indicating current sales
- Inventories - indicating strength of current and future production
It is also known as the "Manufacturers' Shipments, Inventories and Orders".
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Fade
- 1. A contrarian investment strategy used to trade against the prevailing trend. "Fading the market" is typically very high risk, requiring the trader to have a high risk tolerance. A fade trader would sell when a price is rising and buy when it's falling. Also known as "fading".
2. In a dealer market, it is the failure of a dealer to honor a quote when a customer or another dealer wants to trade.
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Fail
- A transaction that has not been settled before a deadline.
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Failed Break
- A price movement through an identified level of support or resistance that does not have enough momentum to maintain its direction. Since the validity of the breakout (or breakdown) is compromised, many traders close their positions and the price fails to make the sharp move that many were expecting.
A failed break is also commonly referred to as a "false breakout".
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Failure To Deliver
- An outcome in a transaction where one of the counterparties in the transaction fails to meet their respective obligations. When failure to deliver occurs, either the party with the long position does not have enough money to pay for the transaction, or the party in the short position does not own the underlying assets that are to be delivered. Failure to deliver can occur in both equity and derivatives markets.
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Fair And Accurate Credit Transactions Act - FACTA
- A U.S. resolution passed in 2003 that is aimed at enhancing protection measures for identity theft by creating standards for the handling of credit card numbers. This act allows individuals free access to their own credit reports and has created a nationwide alerts system.
This act is an amendment to the existing Fair Credit Reporting Act.
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Fair Credit Billing Act - FCBA
- A federal law designed to protect consumers from unfair credit billing practices. The Fair Credit Billing Act (FCBA) provides guidelines for both consumers and creditors including procedures to manage disputes regarding billing statements. In addition, any interest accrued on the billing error has to be dropped if your claim is confirmed.
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Fair Funds for Investors
- Provision introduced in 2002, under Section 308(a) of the Sarbanes-Oxley Act. Fair Funds for Investors was put into place to benefit those investors who have lost money because of the illegal or unethical activities of individuals or companies that violate securities regulations. Essentially, this provision enabled the Securities and Exchange Commission (SEC) to add civil money penalties to disgorgement funds for the relief of the victims of stock swindles.
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Fair Market Value
- The price that a given property or asset would fetch in the marketplace, subject to the following conditions:
1. Prospective buyers and sellers are reasonably knowledgeable about the asset; they are behaving in their own best interests and are free of undue pressure to trade.
2. A reasonable time period is given for the transaction to be completed.
Given these conditions, an asset's fair market value should represent an accurate valuation or assessment of its worth.
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Fair Trade Investing
- Investing in companies or projects that promote fair trade with producers in developing nations. Basic fair trade philosophies call for equal pay for suppliers of raw goods and materials as well as respect for strong environmental practices and a focus on the trading relationships between advanced economies and developing nations.
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Fair Value
- 1. The estimated value of all assets and liabilities of an acquired company used to consolidate the financial statements of both companies.
2. In the futures market, fair value is the equilibrium price for a futures contract. This is equal to the spot price after taking into account compounded interest (and dividends lost because the investor owns the futures contract rather than the physical stocks) over a certain period of time.
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Fair Weather Fund
- A type of mutual fund that has a tendency to perform well during a bull market. In other words, it is a mutual fund that generally outperforms the market when the market is doing well, and underperforms the market when the market is doing poorly.
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Fairness Opinion
- A report evaluating the facts of a merger or acquisition. Fairness opinions are compiled by qualified analysts or advisors, usually of an investment bank, for key decision makers. The report examines the fairness of the offered acquisition price.
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Fairway Bond
- A type of bond that accrues interest if the embedded index or interest-rate option underlying the bond remains within a specified range.
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Fakeout
- A term used in technical analysis to refer to a situation in which a trader enters into a position in anticipation of a future transaction signal or price movement, but the signal or movement never develops and the asset moves in the opposite direction.
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Fallen Angel
- 1. A bond that was once investment grade but has since been reduced to junk bond status.
2. A stock that has fallen substantially from its all time highs.
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Falling Knife
- A slang phrase for a security or industry in which the current price or value has dropped significantly in a short period of time. A falling knife security can rebound, or it can lose all of its value, such as in the case of company bankruptcy where equity shares become worthless.
A falling knife situation can occur because of actual business results (such as a big drop in net earnings) or because of increasingly negative investor sentiment.
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Falling Three Methods
- A bearish candlestick pattern that is used to predict the continuation of the current downtrend. This pattern is formed when the candlesticks meet the following characteristics:
1. The first candle in the pattern is a long red candlestick within a defined downtrend.
2. A series of ascending small-bodied candlesticks that trade within the range of the first candlestick.
3. A long red candlestick creates a new low, which suggests that the sellers are back in control of the direction.
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Fallout Risk
- The lending risk that occurs when the terms of a loan are confirmed simultaneously with the terms of a property sale. Because the mortgage terms are set but the sale is not finalized, there is a risk that the transaction may not be completed. This represents a risk to the mortgage pipeline, as the loan may not be issued.
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False Market
- A market where prices are manipulated and impacted by erroneous information, preventing the efficient negotiation of prices. These types of markets will often be marred by volatile swings because the true value of the market is clouded by the misinformation.
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Fama And French Three Factor Model
- A factor model that expands on the capital asset pricing model (CAPM) by adding size and value factors in addition to the market risk factor in CAPM. This model considers the fact that value and small cap stocks outperform markets on a regular basis. By including these two additional factors, the model adjusts for the outperformance tendency, which is thought to make it a better tool for evaluating manager performance.
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Family Limited Partnership - FLP
- A type of partnership designed to centralize family business or investment accounts. FLPs pool together a family's assets into one single family-owned business partnership that family members own shares of. FLPs are frequently used as an estate tax minimization strategy, as shares in the FLP can be transferred between generations, at lower taxation rates than would be applied to the partnership's holdings.
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Family Of Funds
- A group of mutual funds offered by one investment or fund company. Generally, the constituent funds cover a wide range of fund categories and investment objectives.
Also referred to as a "mutual fund family" or simply a "fund family".
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Family Offices
- Family offices are private wealth management advisory firms that serve ultra-high net worth investors. Family offices are different from traditional wealth management shops in that they offer a total outsourced solution to managing the financial and investment side of a affluent individual or family. For example, many family offices offer budgeting, insurance, charitable giving, family-owned businesses, wealth transfer and tax services.
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Fannie Mae - Federal National Mortgage Association - FNMA
- A government-sponsored enterprise (GSE) that was created in 1938 to expand the flow of mortgage money by creating a secondary mortgage market. Fannie Mae is a publicly traded company which operates under a congressional charter that directs Fannie Mae to channel its efforts into increasing the availability and affordability of homeownership for low-, moderate-, and middle-income Americans.
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Farm Credit System - FCS
- The Farm Credit System is a nationwide network of cooperative banks and associations that provide credit to farmers, agricultural concerns and related businesses. It was created by Congress in 1916 and was originally funded by the federal government to ensure American agriculture had a dependable source of credit. It is now self-funding and owned by its member-borrowers.
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Farm Price Index - FPI
- An index that monitors the prices received by farmers for sales including crops and livestock. The farm price index, which is released by the U.S. Department of Agriculture on a monthly basis, is a tool that analysts use as a leading indicator of inflation or deflation in the overall economy.
It is also known as the "Farm Products Price Index (FPPI)" or the "USDA Farm Price Index".
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Farmer Mac - Federal Agricultural Mortgage Corporation - FAMC
- A publicly traded, shareholder-owned corporation that was federally chartered by an act of Congress in 1988. Farmer Mac's mission is to establish a secondary market for agricultural real estate and rural housing mortgage loans, as well as to increase the availability of long-term credit at stable interest rates for American farmers, ranchers and rural homeowners.
To fulfill its mission, Farmer Mac purchases newly originated and seasoned agricultural loans from lenders, issues long-term standby commitments to purchase agricultural mortgage loans, exchanges loans for mortgage-backed securities through a swap program, and purchases and guarantees mortgage bonds backed by eligible agricultural mortgage loans.
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Farmers Home Administration - FmHA
- An agency of the U.S. Department of Agriculture created to assist farmers and families living in rural areas by financing and insuring loans for housing and other farming-related needs. The Farmers Home Administration (FmHA) provides credit and technical assistance to rural families and communities through four major programs: a housing program, utilities program, business program and community development program. The agency has about 1,900 county and district loans offices nationwide.
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FASB 157
- A Federal Accounting Standards Board (FASB) Statement that requires all publicly-traded companies in the U.S. to classify their assets based on the certainty with which fair values can be calculated. This statement created three asset categories: Level 1, Level 2 and Level 3. Level 1 assets are the easiest to value accurately based on standard market-based prices and Level 3 are the most difficult.
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Fast Market
- A financial market that has a combination of high volatility and heavy trading.
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Fast Market Rule
- In the United Kingdom, the exchange may determine that a market movement is so sharp that quotes cannot practically be kept current. Under the Fast Market Rule, market makers may be permitted to trade outside quoted ranges where updating quotes is deemed impractical.
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Fast Tape
- A type of futures market that occurs when a single traded price is unavailable because of the rapid and large number of transactions occurring in the pit or ring.
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Fat Cat
- A slang word used to describe executives who earn what many believe to be unreasonably high salaries and bonuses. These top executives also receive generous pensions and retirement packages, consisting of extra compensation not available to other company employees.
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FDIC Insured Account
- An account that meets the requirements to be covered or insured by the Federal Deposit Insurance Corporation (FDIC). An FDIC Insured Account has to be in a bank that is a participant of the FDIC program. The different accounts that can be FDIC insured are NOW, checking, savings, Certificate of Deposits (CD) and money market deposit accounts. Accounts that do not qualify as FDIC insured accounts are safe deposit boxes, investment accounts (stocks, bonds, etc.) mutual funds, life insurance policies, etc.
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FDIC Problem Bank List
- A list of commercial banks in the U.S. that are considered to be in financial difficulty. The Federal Deposit Insurance Corporation (FDIC) issues this problem list quarterly based on liquidity, capital levels and asset quality. Only institutions that are insured by the FDIC through the Deposit Insurance Fund (DIF) are included on the list. The actual names of the banks are not given, but the total assets are provided.
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Featherbedding
- Term used to describe the practice of a labor union requiring an employer to hire more workers than necessary for a particular task.
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Fed Balance Sheet
- A breakdown of the assets and liabilities held by the Federal Reserve. This report essentially outlines the factors that affect both the supply and the absorption of Federal Reserve funds. The Fed balance sheet report reveals the means the Fed uses to inject cash into the economy and is formally known as the Factors Affecting Reserve Balances Report.
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Fed Model
- A model thought to be used by the Federal Reserve that hypothesizes a relationship between long-term treasury notes and the market return of equities.
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FED Pass
- An action taken by the Federal Reserve that looks to increase the availability of credit by moving additional reserves into the banking system. The supply of loans is increased as more funds are injected into major banks, typically allowing lenders to originate more mortgages at lower interest rates.
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Fed Speak
- A phrase used to describe former Federal Reserve Board Chairman Alan Greenspan's tendency to make wordy statements with little substance. Many analysts felt that Greenspan's ambiguous "Fed speak" was an intentional strategy used to prevent the markets from overreacting to his remarks.
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Federal Advisory Council
- A group of 12 banking executives - one from each Federal Reserve District - that advises the Federal Reserve Board regarding the state of the banking industry and money supply. Positions on the Federal Advisory Council are determined by a voting process within each Federal Reserve District, with representatives often being elected to more than one term. Federal Advisory Council meetings take place at least quarterly in Washington D.C., with increasing frequency in times of financial crisis.
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Federal Agencies
- Special government organizations set up for a specific purpose such as the management of resources, financial oversight of industries or national security issues. These organizations are typically created by legislative action, but may initially be set up by a presidential order as well. The directors of these agencies are typically selected by Presidential appointment. A number of these organizations issue securities such as stocks and bonds that have been historically popular with investors.
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Federal Communications Commission - FCC
- An independent U.S. government regulatory agency responsible for overseeing all interstate and international communications. The FCC acts to maintain standards and consistency among the ever-growing types of media and methods of distribution, while protecting the interests of both consumers and businesses. The agency is accountable to Congress.
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Federal Covered Advisor
- An investment advisor that manages over $25 million in assets for other investors.
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Federal Credit Union - FCU
- A credit union chartered and supervised by the National Credit Union Association (NCUA), a federal government agency that functions much like the FDIC. Federal credit unions operate like retail banks with one major exception: every credit union member is also a partial owner of the institution. Credit unions operating under the label "federal" are not directly run by the government or limited to government employees. Rather, they've simply opted to organize themselves under federal credit union regulations instead of state banking laws.
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Federal Debt
- The total amount of money that the United States federal government owes to creditors. The government's creditors include all individuals, businesses, governments and other organizations that own U.S. government debt securities. The federal debt exists as a result of federal government shortfalls, or deficit budgets in which the government's expenses exceed its revenues. The federal debt does not include any debts in the name of individuals, corporations and state or municipal governments.
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Federal Deposit Insurance Corporation - FDIC
- The U.S. corporation insuring deposits in the U.S. against bank failure. The FDIC was created in 1933 to maintain public confidence and encourage stability in the financial system through the promotion of sound banking practices.
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Federal Deposit Insurance Corporation Improvement Act - FDICIA
- Passed in 1991 at the height of the Savings and Loan Crisis (S&L), this act fortified the FDIC's role and resources in protecting consumers. The most notable provisions of the act raised the FDIC's U.S. Treasury line of credit from $5 million to $30 million, revamped the FDIC auditing and evaluation standards of member banks, and created the Truth in Savings Act (Regulation DD).
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Federal Discount Rate
- The interest rate set by the Federal Reserve that is offered to eligible commercial banks or other depository institutions in an attempt to reduce liquidity problems and the pressures of reserve requirements. The discount rate allows the federal reserve to control the supply of money and is used to assure stability in the financial markets.
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Federal Employee Retirement System - FERS
- A system that became effective in 1987 and replaced the Civil Service Retirement System (CSRS) as the primary retirement plan for U.S. federal civilian employees. Retirement benefits under FERS are accumulated in three ways: a) through Social Security benefits, b) through a basic benefit plan for which the employee is charged a nominal amount and c) through a Thrift Savings Plan (TSP), which comprises automatic government contributions, voluntary employee contributions and matching government contributions.
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Federal Farm Credit System - FFCS
- In the United States, a network of federally chartered financial institutions designed to provide credit-related services to the agricultural and farming sectors of the economy. In total, this government-sponsored enterprise comprises approximately 100 financial institutions that serve all 50 states and Puerto Rico.
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Federal Financial Institutions Examination Council - FFIEC
- An interagency body of the U.S. government made up of several U.S. financial regulatory agencies. The FFIEC prescribes uniform principles, standards, and report forms for the federal inspection of financial institutions. The FFIEC was created in 1979, and is meant to promote consistent and uniform standards for financial institutions.
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Federal Funds
- Funds deposited to regional Federal Reserve Banks by commercial banks, including funds in excess of reserve requirements.
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Federal Funds Rate
- The interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight.
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Federal Home Loan Bank System - FHLB
- An organization created by the Federal Home Loan Bank Act of 1932 to increase the amount of funds available for lending institutions who provide mortgages and similar loan agreements to individuals. This system was created in response to the depressive economic conditions of the era, which had impaired the U.S. banking system.
Also referred to as the "FHL Bank System".
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Federal Housing Finance Agency - FHFA
- A U.S. government agency created by the Housing and Economic Recovery Act of 2008 that regulates the secondary mortgage market by overseeing the activities of Fannie Mae, Freddie Mac and the 12 federal home loan banks. This new agency was established to act like a bank-regulator in order to strengthen and improve oversight of the U.S. housing finance system because of the secondary mortgage market's major role in the overall economy.
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Federal Income Tax
- A tax levied by the United States Internal Revenue Service (IRS) on the annual earnings of individuals, corporations, trusts and other legal entities. Federal income taxes are applied on all forms of earnings that make up a taxpayer's taxable income, such as employment earnings or capital gains.
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Federal Insurance Contributions Act - FICA
- A U.S. law requiring a deduction from paychecks and income that goes toward the Social Security program and Medicare. Both employees and employers are responsible for sharing the FICA payments.
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Federal Land Bank - FLB
- A bank which specializes in loans and financing for rural property such as farms, forestry and timber, other parks and recreational services. Federal Land Banks (FLB's) employ experts in the industry capable of throroughly explaining the products they offer based on the needs of the customer. With extended knowledge of the needs of the farming industry, they are the best option for those looking for rural real estate loans.
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Federal Open Market Committee - FOMC
- The branch of the Federal Reserve Board that determines the direction of monetary policy. The FOMC is composed of the board of governors, which has seven members, and five reserve bank presidents. The president of the Federal Reserve Bank of New York serves continuously, while the presidents of the other reserve banks rotate their service of one-year terms.
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Federal Poverty Level - FPL
- The set minimum amount of income that a family needs for food, clothing, transportation, shelter and other necessities. In the United States, this level is determined by the Department of Health and Human Services. FPL varies according to family size. The number is adjusted for inflation and reported annually in the form of poverty guidelines. Public assistance programs, such as Medicaid in the U.S., define eligibility income limits as some percentage of FPL.
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Federal Reserve Bank
- The banks that carry out Fed operations, including controlling the money supply and regulating member banks. There are 12 District Feds, headquartered in Boston, New York, Philadelphia, Cleveland, St. Louis, San Francisco, Richmond, Atlanta, Chicago, Minneapolis, Kansas City and Dallas.
They are also known as "district Feds".
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Federal Reserve Board - FRB
- The governing body of the Federal Reserve System. The seven members of the board of governors are appointed by the president, subject to confirmation by the Senate.
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Federal Reserve Credit
- Refers to the process of the Federal Reserve lending funds on a very short-term basis to member banks in order to meet their liquidity and reserve needs. By lending money to member banks, the Federal Reserve helps to maintain the steady flow of funds between consumers and bankings institutions.
Federal Reserve credit is most often extended by way of the "discount window," which is the Federal Reserves primary program of lending funds to member banks. The discount rate at which banks borrow depends on the creditworthiness of each bank, as well as the overall demand for funds at any given time.
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Federal Reserve Float
- Refers to the over-estimation of the country's money supply due to uncleared checks showing as an asset on the books of both the receiving and sending institution. This "double accounting" for a check occurs because the Federal Reserve generally credits a bank's account for the amount of a check within one to two days of that check being presented. However, it often takes slightly longer than that time for the same check to be presented to the issuing bank for actual payment of the funds, hence the double accounting of the amount.
The amount of float in the Federal Reserve System changes daily, weekly, and monthly. Typically, the first few banking days after the weekend, the end of the month and the holidays all experience a higher level of float due to an increased volume in processed checks.
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Federal Reserve Note
- The most accurate term used to describe the paper currency (dollar bills) circulated in the United States. These Federal Reserve Notes are printed by the U.S. Treasury at the instruction of the Federal Reserve member banks, who also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand. This term is often confused with Federal Reserve Bank Notes, which were issued and redeemable only by each individual member bank, but phased out in the mid-1930s.
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Federal Reserve Regulations
- Rules put in place by the Federal Reserve Board to regulate the practices of banking and lending institutions, usually in response to laws enacted by the legislature. The primary purpose of most Federal Reserve regulations is to protect individual consumers against banking and lending practices that are deceptive, can potentially cause financial harm or violate individual privacy rights.
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Federal Reserve System - FRS
- The central bank of the United States. The Fed, as it is commonly called, regulates the U.S. monetary and financial system. The Federal Reserve System is composed of a central governmental agency in Washington, D.C. (the Board of Governors) and twelve regional Federal Reserve Banks in major cities throughout the United States.
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Federal Savings and Loan
- A federally chartered savings and loan is a banking institution that functions in a very similar fashion to retail banks and credit unions, with some slight limitations on the type of services it can offer. Historically, the primary purpose of savings and loan associations was to allow members to deposit savings and borrow money at rates that were slightly more competitive than commercial banks. The competitive difference in interest and loan rates came from the fact that a savings and loan was "mutually owned" by its members, with no need to pass profits on to a third party.
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Federal Tax Brackets
- Income tax groupings specified by the Internal Revenue Service (IRS) that determine at what rate an individual, trust, or corporation's annual income will be subject to federal income tax. Federal tax brackets are adjusted periodically to account for the effects of inflation over time.
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Federal Trade Commission - FTC
- An independent federal agency whose main goals are to protect consumers and to ensure a strong competitive market by enforcing a variety of consumer protection and antitrust laws. These laws guard against harmful business practices and protect the market from anti-competitive practices such as large mergers and price-fixing conspiracies.
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Federal-State Unemployment Compensation Program
- A social safety net that provides temporary financial assistance to workers who have lost their jobs through no fault of their own. Each state has its own unemployment compensation program and its own qualification guidelines and benefit amounts. The state programs operate within overall guidelines created by federal law. Also known as "unemployment insurance".
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Fedwire
- A real-time gross settlement system (RTGS) of central bank money used in the United States by its Federal Reserve Banks to settle final payments in U.S. dollars electronically between its member institutions.
Owned and operated by the 12 Federal Reserve Banks, the Fedwire is a networked system for payment processing between the member banks themselves, or other Fedwire member participants. Members can consist of depository financial institutions in the United States, as well as U.S. branches of certain foreign banks or government groups, provided that they maintain an account with a Federal Reserve Bank.
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Fee-Based Investment
- An investment account in which the advisor's compensation is based on a set percentage of the client's assets instead of on commissions. Contrast this to commission-based investment, in which the advisor makes money based on the amount of trades made or the amount of assets sold to the client.
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Feed Ratio
- A ratio used in futures markets to express the profit margin associated with the feeding and selling of animals.
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Feedback-Rule Policy
- An economic policy that is triggered when a certain economic situation results in economic instability, as a result of gross domestic product (GDP) being either above or below full employment equilibrium or the price level not clearing the aggregate market. Feedback-rules are representations of what the government, in terms of monetary or fiscal policy, should do in order to help the economy get back to equilibrium.
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Feeder Fund
- A fund that conducts virtually all of its investing through another fund (called the master fund).
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FHA Loan
- A mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). FHA loans are designed for low to moderate income borrowers who are unable to make a large down payment. FHA loans allow the borrower to borrow up to 97% of the value of the home. The 3% down payment requirement can come from a gift or a grant, which makes FHA loans popular with first-time buyers.
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Fiat Money
- Currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith.
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Fibonacci Arc
- A charting technique consisting of three curved lines that are drawn for the purpose of anticipating key support and resistance levels, and areas of ranging.
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Fibonacci Channel
- A variation of the Fibonacci retracement pattern in which the trendlines run diagonally rather than horizontally. These channels are used to estimate areas of support and resistance in the same way as the horizontal Fibonacci retracement levels.
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Fibonacci Clusters
- A tool used in technical analysis that combines various numbers of Fibonacci retracements, all of which are drawn from different highs and lows. Fibonacci clusters are indicators which are usually found on the side of a price chart and look like a series of horizontal bars with various degrees of shading. Each retracement level that overlaps with another makes the horizontal bar on the side darker at that price level. The most significant levels of support and resistance are found where the Fibonacci cluster is the darkest.
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Fibonacci Extensions
- Levels used in Fibonacci retracement to forecast areas of support or resistance. Extensions consist of all levels drawn beyond the standard 100% level and are used by many traders to determine areas where they will wish to take profits. The most popular extension levels are 161.8%, 261.8% and 423.6%.
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Fibonacci Fan
- A charting technique consisting of three diagonal lines that use Fibonacci ratios to help identify key levels of support and resistance.
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Fibonacci Numbers/Lines
- Leonardo Fibonacci was an Italian mathematician born in the 12th century. He is known to have discovered the "Fibonacci numbers," which are a sequence of numbers where each successive number is the sum of the two previous numbers.
e.g. 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.
These numbers possess a number of interrelationships, such as the fact that any given number is approximately 1.618 times the preceding number.
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Fibonacci Retracement
- A term used in technical analysis that refers to the likelihood that a financial asset's price will retrace a large portion of an original move and find support or resistance at the key Fibonacci levels before it continues in the original direction. These levels are created by drawing a trendline between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.
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Fibonacci Time Zones
- An indicator used by technical traders to identify periods in which the price of an asset will experience a significant amount of movement. This charting technique consists of a series of vertical lines that correspond to the sequence of numbers known as Fibonacci numbers (1, 2, 3, 5, 8, 13, 21, 34, etc.). Once a trader chooses a starting position (most commonly following a major move) on the chart, a vertical line is placed on every subsequent day that corresponds to the position in the Fibonacci number sequence.
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FICO Score
- A type of credit score that makes up a substantial portion of the credit report that lenders use to assess an applicant's credit risk and whether to extend a loan.
FICO is an acronym for the Fair Isaac Corporation, the creators of the FICO score.
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Fiduciary
- 1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets for the benefit of the other person rather than for his or her own profit.
2. A loan made on trust rather than against some security or asset.
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Fiduciary Abuse
- Describes a situation in which an individual who is legally appointed to manage another party's assets uses his or her power to benefit financially in an unethical or illegal fashion.
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Fiduciary Call
- A cost effective strategy designed to limit the costs associated with exercising a call option. When a European call option is purchased, the present value of the strike price is invested in a risk-free interest bearing account. When the investment matures, the value of the account will be enough to cover the costs of exercising the European option if the holder chooses to do so.
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Fiduciary Certification
- The certification process to ensure that fiduciaries uphold the prudent investment guidelines and practices set forth by state regulations. A certified fiduciary needs to fulfill all legal requirements set forth by the designation and adhere to the best practices doctrine.
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Fiduciary Negligence
- A professional malpractice in which a person fails to honor his or her fiduciary obligations and responsibilities. Fiduciary negligence occurs when a fiduciary fails to act on breaches of fiduciary duty when his or her actions could have prevented the infractions.
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Fiduciary Risk
- A type of risk that accounts for the possibility of a trustee/agent who is not optimally performing in the beneficiary's best interests. This does not necessarily mean that the trustee is using the beneficiary's resources for his/her own benefit; this could be the risk that the trustee is not achieving the best value for the beneficiary.
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Field Of Use
- Restrictions that are placed on a license granted for the use of an existing patent. Field of use restrictions limit the use of a patent to a certain industry, or even a specific product. These restrictions aim to protect patents against overuse or reckless use, and are a factor in the fees that are charged to patent licensees.
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Fifty Percent Principle
- A principle that predicts that, before the observed trend continues forward, a price correction of approximately 1/2 to 2/3 of the change in price will occur.
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Fighting The Tape
- The action of placing a trade or trades that go against the ticker tape.
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Filing Status
- A category that defines the type of tax return form an individual will use. Filing status is closely tied to marital status.
The five filing statuses are:
1. Single individual
2. Married person filing jointly or surviving spouse
3. Married person filing separately
4. Head of household
5. Qualifying window(er) with dependent child
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Fill
- The action of completing or satisfying an order for a security or commodity. It is the basic act in transacting stocks, bonds or any other type of security.
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Fill Or Kill - FOK
- An order to fill a transaction immediately and completely or not at all.
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Filter
- A set of criteria used to help an investor narrow down which financial instruments or conditions of financial instruments are the most profitable.
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Filter Rule
- Rules that attempt to guide investors towards buying and selling patterns that will be the most profitable.
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Final Dividend
- The final dividend declared at a company's Annual General Meeting (AGM) for any given year. This amount is calculated after all financial statements are recorded and the directors are aware of the company's profitability and financial health.
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Final Prospectus
- 1. The final version of a prospectus for a public offering of securities. This document is complete in all details concerning the offering and is referred to as a "statutory prospectus" or "offering circular."
2. Because open-end mutual funds are continuously offering shares to the public, a fund prospectus is usually updated annually and made available to the public. Mutual fund prospectuses are all of the "final" variety.
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Finality Of Payment
- Refers to the instant that a payment to another party is completed, at which point the receiving institution has irrevocable access to the money. This is more commonly referred to as the moment when funds are "good" in an account.
The concept and definition are especially important in an environment where one or more banking institutions could cease operations at any given moment. By having a strict operational definition of the finality of payment, a receiving institution does not have to worry about recently received funds disappearing from its account because the transferring institution suddenly became insolvent.
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Finance
- The science that describes the management of money, banking, credit, investments, and assets.
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Finance Charge
- A fee charged for the use of credit or the extension of existing credit. May be a flat fee or a percentage of borrowings, with percentage-based finance charges being the most common.
A finance charge is often an aggregated cost, including the cost of the carrying the debt itself along with any related transaction fees, account maintenance fees or late fees charged by the lender.
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Financial Accounting
- Reporting of the financial position and performance of a firm through financial statements issued to external users on a periodic basis.
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Financial Accounting Standards Board - FASB
- A seven-member independent board consisting of accounting professionals who establish and communicate standards of financial accounting and reporting in the United States. FASB standards, known as generally accepted accounting principles (GAAP), govern the preparation of corporate financial reports and are recognized as authoritative by the Securities and Exchange Commission.
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Financial Asset
- An asset that derives value because of a contractual claim. Stocks, bonds, bank deposits, and the like are all examples of financial assets.
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Financial Asset Securitization Investment Trust - FASIT
- A financing tool that allows for the securitization of non-mortgage assets and usually involves debt obligations with short maturities such as credit card receivables, home equity loans and car loans. Financial Asset Securitization Investment Trust (FASIT) is similar to Real Estate Mortgage Investment Conduits (REMIC), created under the Small Business Job Protection Act of 1996.
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Financial Blog
- An online journal (or web log) that provides news and information related to the finance industry. Financial blogs not only comment on news and information, but some also provide stock analysis based on both fundamental and technical principles. Most, if not all, financial blogs are provided free of charge to the general public. For the most part the style of these blogs is more casual than articles and often reflect the personal opinion of the respective writers.
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Financial Buyer
- A type of buyer in an acquisition that is primarily interested in a company's return on equity, investment, burden on management and cash flow. To determine this information, a financial buyer will carefully look over a company's financial statements and assets.
A financial buyer is typically a long-term investor looking for a solid, well-managed company. Financial buyers rarely make any immediate changes, except in turnaround situations where companies are not currently profitable.
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Financial Cooperative
- A financial institution that is owned and operated by its members. The goal of a financial cooperative is to act on behalf of a unified group as a traditional banking service. These institutions attempt to differentiate themselves by offering above-average service along with competitive rates in the areas of insurance, lending and investment dealings.
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Financial Crimes Enforcement Network - FinCEN
- A network administered by the United States Department of the Treasury whose goal it is to prevent and punish criminals and criminal networks that participate in money laundering. FinCEN operates domestically and internationally, and it consists of three major players: law-enforcement agencies, the regulatory community and the financial-services community.
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Financial Distress
- A condition where a company cannot meet or has difficulty paying off its financial obligations to its creditors. The chance of financial distress increases when a firm has high fixed costs, illiquid assets, or revenues that are sensitive to economic downturns.
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Financial Engineering
- The creation of new and improved financial products through innovative design or repackaging of existing financial instruments.
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Financial Guarantee
- An non-cancellable indemnity bond that is backed by an insurer in order to guarantee investors that principal and interest payments will be made. Many insurance companies specialize in financial guarantees and similar products that are used by debt issuers as a way of attracting investors. The guarantee provides investors with an additional level of comfort that the investment will be repaid in the event that the securities issuer would not be able to fulfill the contractual obligation to make timely payments. It also lowers the cost of financing for issuers because the guarantee typically earns the security a higher credit rating and therefore lower interest rates.
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Financial Holding Company (FHC)
- A financial institution engaged in nonbanking activities that offers customers a wide range of financial services, including the opporunity to purchase insurance products and invest in securities. Financial Holding Companies (FHCs) were created by changes in legislation brought about by the Gramm-Leach-Bailiy Act of 1999 that first allowed bank holding companies to affiliate with securities firms and insurance companies.
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Financial Industry Regulatory Authority - FINRA
- A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's regulation committee. The Financial Industry Regulatory Authority is responsible for governing business between brokers, dealers and the investing public. By consolidating these two regulators, FINRA aims to eliminate regulatory overlap and cost inefficiencies.
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Financial Information Exchange - FIX
- A financial information exchange (FIX) protocol system used by funds, investment managers and firms. FIX systems are used to transfer accurate and timely financial information regarding securities trades through and across security exchange houses, enabling users to make timely and accurate decisions. FIX has become a standard in equity trades.
Also written as "financial information eXchange".
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Financial Innovation
- Advances over time in the financial instruments and payment systems used in the lending and borrowing of funds. These changes, which include innovations in technology, risk transfer and credit and equity generation, have increased available credit for borrowers and given banks new and less costly ways to raise equity capital.
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Financial Institution - FI
- An establishment that focuses on dealing with financial transactions, such as investments, loans and deposits. Conventionally, financial institutions in composed of organizations such as banks, trust companies, insurance companies and investment dealers. Almost everyone has deal with a financial institution on a regular basis. Everything from depositing money to taking out loans and exchange currencies must be done through financial institutions.
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Financial Institutions and Prudential Policy Unit - FIPP
- A division within the Centre for European Policy Studies. The Financial Institutions and Prudential Policy Unit (FIPP) is mainly a research unit which looks into four main areas of concern: regulation and supervision of financial institutions and financial stability; investigating size, diversity and innovation in the financial sector in Europe; internal market for financial services; positioning of small/ regional/ international financial centers.
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Financial Institutions Reform, Recovery And Enforcement Act - FIRREA
- A law enacted to ensure that real estate appraisals are performed up to standard. This includes regulation on the competency of the appraisers, supervisory standards and accurate and full documentation. The FIRREA also holds claim to the creation of the Resolution Trust Corporation, the restructuring of the regulation authority, the abolishment of the Federal Savings and Loan Insurance Corporation and the creation of the Savings Association Insurance Fund and the Bank Insurance Fund.
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Financial Institutions Regulatory Act
- A United States Federal law enacted in 1978 pertaining to depository financial institutions. The act made 5 major changes to these institutions. The act created the Central Liquidity Facility and the Federal Financial Institutions Examination Council (FFIEC), made electronic funds transfers federally regulated, changed the terms under which loans were provided to directors, officers, etc, as well as authorized cease and desist orders to be placed on them.
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Financial Instrument
- A real or virtual document representing a legal agreement involving some sort of monetary value. In today's financial marketplace, financial instruments can be classified generally as equity based, representing ownership of the asset, or debt based, representing a loan made by an investor to the owner of the asset. Foreign exchange instruments comprise a third, unique type of instrument. Different subcategories of each instrument type exist, such as preferred share equity and common share equity, for example.
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Financial Intermediary
- An institution that acts as the middleman between investors and firms raising funds. Often referred to as financial institutions.
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Financial Literacy
- The possession of knowledge and understanding of financial matters. Financial literacy is mainly used in connection with personal finance matters. Financial literacy often entails the knowledge of properly making decisions pertaining to certain personal finance areas like real estate, insurance, investing, saving (especially for college), tax planning and retirement. It also involves intimate knowledge of financial concepts like compound interest, financial planning, the mechanics of a credit card, advantageous savings methods, consumer rights, time value of money, etc.
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Financial Market
- Broad term describing any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial markets are typically defined by having transparent pricing, basic regulations on trading, costs and fees and market forces determining the prices of securities that trade.
Some financial markets only allow participants that meet certain criteria, which can be based on factors like the amount of money held, the investor’s geographical location, knowledge of the markets or the profession of the participant.
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Financial Modeling
- The process by which a firm constructs a financial representation of some, or all, aspects of the firm or given security. The model is usually characterized by performing calculations, and makes recommendations based on that information. The model may also summarize particular events for the end user and provide direction regarding possible actions or alternatives.
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Financial Operating Plan - FOP
- A financial plan outlining the revenues and expenses over a period of time. A financial operating plan (FOP) uses past performances, incomes and expenses to forecast what to expect in the following years. It then incorporates past and recent trends into the planning so as to most accurately forecast what is to come. It will define goals for areas such as budgeting, sales, payroll, etc, as well as create a cash flow projection.
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Financial Performance
- A subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. This term is also used as a general measure of a firm's overall financial health over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation.
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Financial Plan
- A comprehensive evaluation of an investor's current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans.
Most individuals work in conjunction with an investment or tax professional and use current net worth, tax liabilities, asset allocation, and future retirement and estate plans in developing the plan. These will be used along with estimates of asset growth to determine if a person's financial goals can be met in the future, or what steps need to be taken to ensure that they are.
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Financial Planner
- A qualified investment professional who helps individuals and corporations meet their long-term financial objectives by analyzing the client's status and setting a program to achieve that client's goals. Financial planners specialize in tax planning, asset allocation, risk management, retirement and/or estate planning.
Also referred to as a "Registered Financial Planner," when the financial planner is registered with the Registered Financial Planner Institute (RFPI).
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Financial Porn
- A slang term used to describe sensationalist reports of financial news and products causing irrational buying that can be detrimental to investors' financial health. Short-term focus by the media on a financial topic can create excitement that does little to help investors make smart, long-term financial decisions, and in many cases clouds investors' decision-making ability.
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Financial Portal
- A website that provides a variety of financial data and information, acting as an information hub for clients who are individual investors requiring timely financial news and data to make their investment decisions.
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Financial Privacy
- A term used to encompass a wide variety of privacy issues. It relates to not only the use of information within financial institutions but also externally. Full financial privacy prohibits the selling of consumers information to companies who wish to use it for telemarketing, marketing or soliciting customers without their consent.
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Financial Risk
- The risk that a company will not have adequate cash flow to meet financial obligations.
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Financial Sector
- A category of stocks containing firms that provide financial services to commercial and retail customers. This sector includes banks, investment funds, insurance companies and real estate.
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Financial Services Modernization Act Of 1999
- A law that works to partially deregulate the financial industry. The Financial Services Modernization Act of 1999 allows companies working in the financial sector to integrate their operations and invest in each others businesses and consoldiate. This includes businesses such as insurance companies, brokerage firms, investment dealers, commercial banks etc.
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Financial Services Roundtable
- The Financial Services Roundtable represents 100 of the largest integrated financial services companies which provide banking, insurance and investment products and services to American consumers.
The stated goals of the Financial Services Roundtable are to:
- Be the premier executive forum for the leaders of the financial services industry
- Provide powerful legislative and regulatory advocacy
- Enhance the industry's public reputation
- Promote best practices and a strong infrastructure in technology
The Roundtable believes that financial services companies are integral to the nation's economy and that the competitive marketplace, not government, should largely govern the delivery of financial products and services. It underscores the necessity of uniform national standards across state lines and the effective use of technology to efficiently deliver financial products and services.
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Financial Stability Plan (FSP)
- A plan unveiled by the Obama administration in April, 2009, that was designed to stabilize the U.S. economy during the financial crisis of 2008-2009. The Financial Stability Plan (FSP) promised to take measures to solidify the American banking system, securities markets, mortgage and consumer credit markets. This somewhat controversial plan came as a response to the 2008 fallout in the mortgage and financial markets.
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Financial Statements
- Records that outline the financial activities of a business, an individual or any other entity. Financial statements are meant to present the financial information of the entity in question as clearly and concisely as possible for both the entity and for readers. Financial statements for businesses usually include: income statements, balance sheet, statements of retained earnings and cash flows, as well as other possible statements.
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Financial Supermarket
- A company offering a wide range of financial services (e.g. stock, insurance and real-estate brokerage).
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Financing
- The act of providing funds for business activities, making purchases or investing. Financial institutions and banks are in the business of financing as they provide capital to businesses, consumers and investors to help them achieve their goals.
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Financing Statement
- A written document outlining the financing agreement between the lender and the borrower. It pertains specifically to the collateral taken from the borrower. It is filed under the Uniform Commercial Code and its primary use is to lay claim on the property and inform other creditors of that claim.
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Finder's Fee
- A commission paid to an intermediary or the facilitator of a transaction. The finder's fee is rewarded because the intermediary discovered the deal and brought it forth to interested parties. Depending on the circumstance, the finder's fee can be paid by either the transaction's buyer or seller.
Also known as "referral income" or "referral fee".
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Finding And Development - F&D
- A cost incurred when a company purchases, researches and develops properties in an effort to establish commodity reserves. Exploration and development businesses rely on finding commodities to manufacture and sell. Finding and development costs represent a cost of doing business for these types of companies.
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Fine Print
- Non-standard terms included in a contract, often in a small font.
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Finite Reinsurance
- A type of reinsurance that transfers over only a finite or limited amount of risk. Risk is reduced through accounting or financial methods, along with the actual transfer of economic risk. By transferring less risk to the reinsurer, the insurer receives coverage on its potential claims at a lower cost than traditional reinsurance.
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Finmins
- Nickname given to the finance ministers from various countries who meet at global trade summits. Finance ministers are appointed and, depending on the country, the position can be given to an elected representative or to a non-elected official. The role played by a finance minister and the power he or she holds will vary among countries, but "finmins" are generally responsible for shaping or advising on the budget of a country and helping with other economic policies.
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FINRA BrokerCheck
- An information vehicle containing statistics on both past and present securities brokers and firms registered with FINRA. With FINRA BrokerCheck, an investor can find a firm's history, learn of any indiscretions and locate and identify popular choices among investors.
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Fire Sale
- A situation in which the prices of securities in the financial markets are considered to be very low.
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Firewall
- Legal barriers that prevent both the transference of inside information and the performance of financial transactions between commercial and investment banks.
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Firm Commitment
- 1. A lending institution's promise to enter into a loan agreement with a specific entity within a certain period of time.
2. An underwriter's agreement to assume all inventory risk and purchase all securities directly from the issuer for sale to the public at the price specified.
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Firm Order
- 1. A market order to buy or sell a security for a brokerage's proprietary account. A firm order requires a trader to be fully authorized by the brokerage before executing the transaction.
2. A buy or sell order executed by a broker for a client's account. This is not contingent on the customer's confirmation.
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Firm Quote
- A price quote on a security, made by a dealer or market maker, that guarantees a bid or ask price up to the amount quoted. This differs from a nominal quote wherein the price and quantity of a bid or ask quote are not firmly posted.
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First Call
- A company that gathers research notes and earnings estimates from brokerage analysts. The estimate is compared to the actual reported earnings, and then the difference between the two is the earnings surprise.
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First Dollar Coverage
- An insurance policy feature that provides full coverage for the entire value of a loss without a deductible. Typically, first dollar coverage exists all the way up to the full amount on the policy.
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First In, First Out - FIFO
- An asset-management and valuation method in which the assets produced or acquired first are sold, used or disposed of first. FIFO may be used by a individual or a corporation.
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First In, Still Here - FISH
- An accounting buzzword that describe when companies still have inventory on hand that is not being sold due to inattention or obsolescence. While not an official type of accounting treatment, the term is named after the LIFO and FIFO accounting methods.
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First Mortgage
- A mortgage in a first lien position on the property that secures the mortgage. A first mortgage has priority over all other liens or claims on a property in the event of default.
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First Mover
- A form of competitive advantage that a company earns by being the first to enter a specific market or industry. Being the first allows a company to acquire superior brand recognition and customer loyalty. The company also has more time to perfect its product or service.
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First Notice Day
- The first day that a notice of intent to deliver a commodity can be made by a clearinghouse to a buyer in fulfillment of a given month's futures contract.
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First To File Rule
- A rule stating that whoever is the first to file suit is awarded their home courts. The first to file rule provides an advantage in that the litigator may be familiar with the judge/court, and will not have to incur any extra costs such as travel expenses, nor leave their home for the duration of the trial. The first to file rule is just a general rule. It is not law, and exceptions can be made.
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First-Time Home Buyer
- An individual who is purchasing a principal residence for the first time. First-time home buyers are more commonly recognized according to several criteria with regards to an individual retirement account (IRA). If these criteria are met the owner can be granted special privileges, such as exemption from the early-distribution penalty.
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Fiscal Agent
- An organization, such as a bank or trust company, that takes responsibility for the fiscal duties of an unrelated party.
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Fiscal Capacity
- In economics, the ability of groups, institutions, etc. to generate revenue. The fiscal capacity of governments depends on a variety of factors including industrial capacity, natural resource wealth and personal incomes.
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Fiscal Deficit
- When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.
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Fiscal Effort
- The amount of revenue collected by a government, often shown as a percent of the fiscal capacity. This value creates an estimate of the total amount the government could collect in revenue.
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Fiscal Imbalance
- A situation where all of the future debt obligations of a government are different from the future income streams. Both of the obligations and the income streams are measured at their respective present values, and will be discounted at the risk free rate plus a certain spread.
A vertical fiscal imbalance describes a situation where revenues do not match expenditures for different levels of government. A horizontal imbalance describes a situation where revenues do not match expenditures for different regions of the country.
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Fiscal Policy
- Government spending policies that influence macroeconomic conditions. These policies affect tax rates, interest rates and government spending, in an effort to control the economy.
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Fiscal Year - FY
- Any 12-month period that a company uses for accounting purposes.
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Fiscal Year-End
- The completion of a one-year, or 12-month, accounting period.
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Fisher Effect
- A theory describing the long-run relationship between inflation and interest rates.
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Fisher's Separation Theorem
- A theory stating that:
1. A firm's choice of investments are separate from its owner's attitudes towards the investments.
2. It is possible to separate a firm's investment decisions from the firm's financial decisions.
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Fitch Ratings
- An international credit rating agency based out of New York City and London. The company's ratings are used as a guide to investors as to which investments are most likely going to yield a return. It is based on factors such as how small an economic shift would be necessary to affect the standing of the bond, and how much, and what kind of debt is held by the company.
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Fitch Sheet
- A data sheet containing historical listings of trades for a security. The fitch sheet shows a variety of transaction details, including the price, volume, time of trade and on which exchange the deal was executed.
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Five Against Bond Spread - FAB
- A spread in the futures markets created by taking offsetting positions in futures contracts for five-year treasury bonds and long-term (15-30 year) treasury bonds.
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Five Against Note Spread - FAN
- A spread in the futures markets created by taking offsetting positions in futures contracts for five-year treasury notes and ten-year treasury bonds.
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Five Cs Of Credit
- A method used by lenders to determine the credit worthiness of potential borrowers. The system weighs five characteristics of the borrower, attempting to gauge the chance of default.
The five Cs of credit are:
-Character
-Capacity
-Capital
-Collateral
-Conditions
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Five-Year Rule
- If a retirement account owner dies before the required beginning date for receiving distributions, the beneficiary may distribute the inherited assets over his/her (the beneficiary's) life expectancy or distribute the assets under the five-year rule. Under the five-year rule, the assets must be distributed by December 31 of the fifth year since the retirement account owner's death.
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Fixed Annuity
- An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal.
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Fixed Asset
- A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be consumed or converted into cash any sooner than at least one year's time.
Fixed assets are sometimes collectively referred to as "plant".
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Fixed Capital
- Assets or capital investments that are needed to start up and conduct business, even at a minimal stage. These assets are considered fixed in that they are not used up in the actual production of a good or service, but have a reusable value. Fixed-capital investments are typically depreciated on the company’s accounting statements over a long period of time, up to 20 years or more.
Examples include factories, office buildings, computer servers, insurance policies, legal contracts and manufacturing equipment – anything that is not continually purchased in the course of production of a good or service.
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Fixed Cost
- A cost that remains constant, regardless of any change in a company's activity.
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Fixed Exchange Rate
- A country's exchange rate regime under which the government or central bank ties the official exchange rate to another country's currency (or the price of gold). The purpose of a fixed exchange rate system is to maintain a country's currency value within a very narrow band. Also known as pegged exchange rate.
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Fixed Income
- A type of investing or budgeting style for which real return rates or periodic income is received at regular intervals at reasonably predictable levels. Fixed-income budgeters and investors are often one and the same - typically retired individuals who rely on their investments to provide a regular, stable income stream. This demographic tends to invest heavily in fixed-income investments because of the reliable returns they offer.
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Fixed Income Clearing Corporation (FICC)
- An agency that deals with the confirmation, settlement and delivery of fixed-income assets in the U.S. The agency ensures the systematic and efficient settlement of U.S. Government securities and mortgage-backed security transactions in the market.
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Fixed Interest Rate
- A loan or mortgage with an interest rate that will remain at a predetermined rate for the entire term of the loan.
Also known as a "fixed-rate mortgage".
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Fixed Term
- Describes an investment vehicle, usually some kind of debt instrument, that has a fixed time period of investment. With a fixed-term investment, the investor parts with his or her money for a specified period of time and is repaid his or her principal investment only at the end of the investment period.
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Fixed-Asset Turnover Ratio
- A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues.
The fixed-asset turnover ratio is calculated as:
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Fixed-Charge Coverage Ratio
- A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated as the following:
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Fixed-For-Fixed Swaps
- An arrangement between two parties (known as counterparties) in which both parties pay a fixed interest rate that they could not otherwise obtain outside of a swap arrangement.
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Fixed-For-Floating Swap
- An advantageous arrangement between two parties (counterparties), in which one party pays a fixed rate, while the other pays a floating rate.
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Fixed-Income Arbitrage
- An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income arbitrage strategy, the investor assumes opposing positions in the market to take advantage of small price discrepancies while limiting interest rate risk.
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Fixed-Income Security
- An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. Unlike a variable-income security, where payments change based on some underlying measure such as short-term interest rates, the payments of a fixed-income security are known in advance.
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Fixed-Income Style Box
- Created by Morningstar, a fixed-income style box is designed to visually represent the investment characteristics of bonds and bond mutual funds. This is a valuable tool for investors to use to determine the risk-return structures of their bonds/ bond portfolios and/or how these investments fit into their investing criteria.
Also referred to as a "bond style box".
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Fixed-Period ARM
- An adjustable-rate mortgage (ARM) with an initial fixed-interest-rate period. After the fixed-interest rate expires, the interest rate starts to adjust based on an index plus a margin. The amount by which the interest rate can adjust after the fixed period is usually subject to an interest rate cap structure.
These are often called "hybrid ARMs".
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Fixed-Rate Capital Securities
- A security issued by a corporation that has a $25 par value (although some are issued with a $1,000 par value) and offers investors a combination of the features of corporate bonds and preferred stock. These securities provide the benefits of attractive yields, fixed monthly, quarterly or semiannual income, investment time frames that are generally predictable (20-49 years, although some are perpetual), liquidity and investment-grade credit quality (in most cases).
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Fixed-Rate Certificate of Deposit
- A certificate of deposit (CD) which has a set interest rate to be paid throughout the entire lilfe of the investment. There are many types of fixed rate CDs, such as liquid CDs, brokered CDs, callable CDs and traditional CDs.
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Fixed-Rate Mortgage
- A mortgage that has a fixed interest rate for the entire term of the loan. The distinguishing factor of a fixed-rate mortgage is that the interest rate over every time period of the mortgage is known at the time the mortgage is originated. The benefit of a fixed-rate mortgage is that the homeowner will not have to contend with varying loan payment amounts that fluctuate with interest rate movements.
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Fixed-Rate Payment
- The amount due every period by a borrower to a lender under a fixed-rate loan. The fixed-rate loan payments will be equal amounts until the loan plus interest are paid in full. The payment amount can be calculated using the following formula:
Where:
P is the constant payment you make every period
R is the interest rate per period
N is the number of periods
Loan is the total loan amount
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Fixed-Rule Policy
- A fiscal or monetary policy designed to be an economic goal or target of a government. A fixed-rule policy, by definition, is pursued no matter the condition of the economy, and is considered independent of the current economic state.
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FJD
- The abbreviation for the Fijian dollar, the official currency of the Republic of the Fiji Islands. The Fijian dollar has been the country's official currency since 1969, when it replaced the Fijian pound. The currency sign is the $, or FJ$ to differentiate it from the U.S. dollar. The most often used Fijian coins are 5, 10, 20 and 50 cents, and banknotes are $2, $5, $10, $20, $50 and $100.
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FKP
- The abbreviation for the Falkland Islands pound, the official currency of Falkland Islands. The Falkland Islands pound was brought to the region during the British occupation of 1833. The FKP symbol is £ or FK£. It is pegged to the British pound sterling and can be used interchangeably with the pound sterling.
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Flag
- A technical charting pattern that looks like a flag with a mast on either side. Flags result from price fluctuations within a narrow range and mark a consolidation before the previous move resumes. Likewise, "pennant" formations are usually treated like flag formations because they are very similar in appearance, tend to show up at the same place in an existing trend, and have the same volume and measuring criteria.
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Flash Price
- Ticker tape display designation used when volume on an exchange is so heavy that the tape runs more than five minutes behind. The "flash price" interrupts the delayed prices to show the current price of a heavily traded stock.
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Flash Trading
- A controversial computerized trading practice offered by some stock exchanges. Flash trading uses highly sophisticated high-speed computer technology to allow traders to view orders from other market participants fractions of a second before others in the marketplace. This gives flash traders the advantage of being able to gauge supply and demand and recognize movements in market sentiment before other traders.
Flash orders are also known as "step-up orders" or "pre-routing orders".
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Flat
- 1. A price that is neither rising nor declining.
2. In forex, the condition of being neither long nor short in a particular currency. Also referred to as 'being square'.
3. A bond that is trading without accrued interest.
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Flat Benefit Formula
- A method of calculating an employer's contribution to an employee's defined benefit plan whereby the employer multiplies an employee's months of service by a predetermined flat monthly rate.
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Flat On A Failure
- Closing out a position and taking profits when the security in question moves up to a target level but fails to break through it. This can be seen as a method of extracting what profit a trade has been able to produce so far because the trader believes that further movement past the target level is unlikely.
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Flat Tax
- A system that taxes everyone at the same rate, regardless of their income bracket.
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Flat Yield Curve
- A yield curve in which there is little difference between short-term and long-term rates for bonds of the same credit quality. This type of yield curve is often seen during transitions between normal and inverted curves.
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Flexi-Cap Fund
- A type of mutual or hedge fund that is not restricted to investing in any company with a predetermined market capitalization. This type of fund structure will be indicated in the fund's prospectus, and will provide the fund manager with greater investment choices and diversification possibilities.
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Flexible Exchange Option - FLEX
- An option, generally written by a clearing house, whose expiration date, strike price, and exercising style can be modified.
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Flexible Expense
- An expense that is easily altered or avoided by the person bearing the cost. Flexible expenses are costs that may be manipulated in amount or eliminated by not engaging in the activity that incurred the expense.
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Flexible Fund
- A mutual fund or other pooled investment that may change its investment strategy as it sees fit, as opposed to sticking to one particular investment vehicle, company size, or asset allocation. If a fund is flexible in its strategy, this will usually be stated in the prospectus and/or other marketing material.
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Flexible Payment ARM
- A type of adjustable-rate mortgage that allows the borrower to select from four different payment options each month: a 30-year, fully amortizing payment; a 15-year, fully amortizing payment; an interest-only payment or a "minimum payment".
Flexible payment ARMs are also known as "payment option ARMs".
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Flexible Spending Account - FSA
- A type of savings account available in the United States that provides the account holder with specific tax advantages. Set up by an employer for an employee, the account allows employees to contribute a portion of their regular earnings to pay for qualified expenses, such as medical expenses or dependent care expenses.
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Flight To Quality
- The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This flight is usually caused by uncertainty in the financial or international markets. However, at other times, this move may be an instance of investors cutting back on the more volatile investments for the conservative ones (i.e. diversifying) without much consideration of the international markets.
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Flip
- A point when traders shift from having more long positions to having more short positions.
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Flip-Flop Note
- A type of fixed-income security that allows its holder to choose a payment stream from two different sources of debt. Flip-flop notes provide investors with two options of return, allowing them to choose the underlying debt with the higher yield for the period.
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Flipper
- 1. A short-term investor or day trader who buys pre-IPO shares, swiftly spinning them out into public markets for a quick profit.
2. A real estate participant who purchases a home, renovates it and sells it for a profit a short time later.
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Flipping
- A type of real estate investment strategy in which an investor purchases properties with the goal of reselling them for a profit. Profit is generated either through the price appreciation that occurs as a result of a hot housing market and/or from renovations and capital improvements. Investors who employ these strategies face the risk of price depreciation in bad housing markets.
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Float
- The total number of shares publicly owned and available for trading. The float is calculated by subtracting restricted shares from outstanding shares.
Also known as "free float".
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Float Time
- The amount of time between when an individual writes and submits a check as a payment and when the individual's bank receives the instruction to move funds from the account. Before the implementation of the Check Clearing for the 21st Century Act (Check 21), the average float time was two to four days, but now most checks are cleared within a day.
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Floater
- A bond or other type of debt whose coupon rate changes with market conditions (short-term interest rates). Also known as "floating-rate debt".
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Floater Insurance
- A type of insurance policy that covers property that is easily movable and provides additional coverage over what normal insurance policies do not. This can cover anything from jewelery to expensive stereo equipment.
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Floating Exchange Rate
- A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that particular currency relative to other currencies. Thus, floating exchange rates change freely and are determined by trading in the forex market. This is in contrast to a "fixed exchange rate" regime.
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Floating Interest Rate
- An interest rate that is allowed to move up and down with the rest of the market or along with an index. This contrasts with a fixed interest rate, in which the interest rate of a debt obligation stays constant for the duration of the agreement.
A floating interest rate can also be referred to as a variable interest rate because it can vary over the duration of the debt obligation.
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Floating-Rate Note - FRN
- A note with a variable interest rate. The adjustments to the interest rate are usually made every six months and are tied to a certain money-market index. Also known as a "floater".
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Floor
- The lowest acceptable limit as restricted by controlling parties.
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Floor Broker - FB
- An employee of a member firm who executes trades on the exchange floor on behalf of the firm's clients.
Also known as a "pit broker".
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Floor Limit
- A purchase amount over which further authorization is needed by the merchant. The floor limit is a predetermined limit set by the merchant and the creditor.
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Floor Planning
- A form of financing pertaining specifically to inventory. A lender will purchase the inventory from the borrower and as the inventory sells, the borrower will repay the debt. It is essential that the creditworthiness of both parties is established and that a procedure for if the inventory does not sell is in place before the lending takes place.
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Floor Trader - FT
- An exchange member who executes transactions from the floor of the exchange exclusively for his or her own account.
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Floortion
- A type of option that gives the holder the right, but not the obligation, to purchase or sell an interest rate floor at a specific price during a predetermined period of time. A floortion combines the benefits of both an interest rate floor and an option. The only upfront cost to the holder is the premium the holder has to pay to purchase the option.
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Flotation
- The process of changing a private company into a public company by issuing shares and soliciting the public to purchase them.
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Flotation Cost
- The costs associated with the issuance of new securities.
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Flow Derivative
- A securitized product that aims to provide maximum leverage. Some popular flow derivatives include vanilla options, leveraged synthetic spot positions (WAVE XXLs) and synthetic structured forwards (such as bonus certificates). Flow derivatives are traded on exchanges or other electronic platforms.
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Flow Of Funds - FOF
- A set of accounts that is used to follow the flow of money within various sectors of an economy. Specifically, the account analyzes economic data on borrowing, lending and investment throughout sectors like households, businesses and farms.
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Flowback
- When foreign investors perform a massive sell-off of a company's cross-listed shares back to the country of issuance as a result of an impending cross-border merger. In some situations, these cross-border mergers give foreign investors the perception that certain serious drawbacks are so apparent that they have no choice but to sell their shares.
Flowback can also refer to an investor's right to convert an American depositary receipt (ADR) into its representative stock.
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Flower Bond
- Fixed income products that were originally purchased by investors at a discount for the purpose of paying federal estate taxes upon their maturity.
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FMAN
- An acronym representing the months February, May, August, and November.
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Foam The Runway
- A term indicating the last-minute infusion of cash into a company about to go bankrupt. Airports foam runways prior to an imminent crash landing to help reduce friction and sparks. Just as foaming the runway is a last stand against a horrible crash landing, a company obtaining a loan to stay in business is a last stand against going under.
"Foam the runway" is also a general statement in business, which refers to preparing for a potential disaster.
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Focus List
- A list of recommended stocks published by an investment firm's research department. Focus lists generally consist of a small number of stocks that the firm believes are the most attractive opportunities at the time.
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Follow On Public Offer - FPO
- An issuing of shares to investors by a public company that is already listed on an exchange. An FPO is essentially a stock issue of supplementary shares made by a company that is already publicly listed and has gone through the IPO process.
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Follow-On Offering
- An offering of additional shares after a company has had an initial public offering.
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Follow-Up Action
- Any subsequent trading that affects an established position in a security or derivative. Follow-up actions are taken to change the amount of exposure an investor has in a position, or to limit a strategy's losses or profits.
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Food And Drug Administration - FDA
- A government agency established in 1906 with the passage of the Federal Food and Drugs Act. The agency is currently separated into five centers, which oversee a majority of the organization's obligations involving food, drugs, cosmetics, animal food, dietary supplements, medical devices, biological goods and blood products.
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Fool In The Shower
- A phrase used to describe the idea that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once. It describes a scenario where a central bank, such as the Federal Reserve acts to stimulate or slow down an economy. When the first stimulus is made, the effect may not be immediate, which can cause decision makers to increase the magnitude of the change, eventually causing too much stimulus.
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Fool's Gold
- A gold-colored mineral that is often mistaken for real gold. Also known as Iron Pyrite.
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For Sale By Owner
- A method of selling property without the use of an agent or broker. Generally, the reason that the seller does not use the services of an agent or broker is because they want to avoid paying a hefty commission for the transaction.
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Forbearance
- A postponement of loan payments, granted by a lender or creditor, for a temporary period of time. This is done to give the borrower time to make up for overdue payments.
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Force Majeure
- A French term literally translated as "greater force", this clause is included in contracts to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling obligations.
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Forced Conversion
- The occurrence of an issuer of a convertible security exercising the right to call the issue, forcing investors to convert their securities into the predetermined number of shares.
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Forced Liquidation
- An action taken by brokerage houses that offsets and closes all positions within delinquent customer accounts in order to reduce exposure.
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Forecasting
- The process of analyzing current and historical data to determine future trends.
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Foreclosure - FCL
- A situation in which a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract.
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Foreclosure Prevention Act of 2008
- A housing act that is designed to help families keep homes that are facing foreclosure and stabilize the overall housing market. The American Housing Rescue and Foreclosure Prevention Act of 2008 seeks to achieve this goal through measures such as increased tax credits for low-income households and first time home buyers, and by encouraging the use of housing bonds to finance rental properties and affordable housing projects.
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Foregone Earnings
- The difference in earnings or performance between what is actually achieved and what could have been achieved with the absence of specific fees, expenses or lost time. Forgone earnings represent the investment capital that the investor spent on investment fees. The assumption is that if the investor had been exposed to lower fees, he or she would have generated a better return. This term is often used when referring to management fees or other expenses paid to mutual funds, exchange-traded funds, or other pooled investment vehicles.
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Foreign
- 1. A non-U.S. company with securities trading on the North American market.
2. In general, any corporation organized under the laws of another country.
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Foreign Bond
- A bond that is issued in a domestic market by a foreign entity, in the domestic market's currency.
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Foreign Branch Bank
- A type of foreign bank that is obligated to follow the regulations of both the home and host countries. Because the foreign branch banks' loan limits are based on the parent bank's capital, foreign banks can provide more loans than subsidiary banks.
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Foreign Credit Insurance Association - FCIA
- A federal agency that provides insurance for U.S. exporters. The Foreign Credit Insurance Association is a voluntary association formed in 1961 by some 50 U.S. insurance companies and sponsored by the Export-Import bank.
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Foreign Currency Convertible Bond - FCCB
- A type of convertible bond issued in a currency different than the issuer's domestic currency. In other words, the money being raised by the issuing company is in the form of a foreign currency. A convertible bond is a mix between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock.
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Foreign Currency Effects
- The gain or loss on foreign investments due to changes in the relative value of assets denominated in a currency other than the principal currency with which a company normally conducts business. A rising domestic currency means foreign investments will result in lower returns when converted back to the domestic currency. The opposite is true for a declining domestic currency.
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Foreign Currency Fixed Deposit - FCFD
- A fixed investment instrument in which a specific sum of money with an agreed upon time and interest rate is deposited into a bank. Although fixed deposits have virtually no risk, foreign currency fixed deposits introduce an element of risk because investors must exchange their currency into the target currency and then covert it back again once the term is over.
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Foreign Currency Swaps
- An agreement to make a currency exchange between two foreign parties. The agreement consists of swapping principal and interest payments on a loan made in one currency for principal and interest payments of a loan of equal value in another currency. The Federal Reserve System offered this type of swap to several developing countries in 2008.
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Foreign Deposits
- A deposit made at, or money put in to, domestic banks outside of the United States. These deposits are not subject to deposit insurance premiums (a premium paid to ensure that funds can be retreived if the debtor cannot repay the deposit), or reserve requirements (the amount of funds an institution must hold relative to its deposits).
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Foreign Direct Investment - FDI
- An investment abroad, usually where the company being invested in is controlled by the foreign corporation.
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Foreign Draft
- An alternative to foreign currency. A foreign draft is a bank draft which is drawn on a financial institution in the country of currency. They can be purchased at commercial banks and usually have a fee depending on the institution and the type of account you hold.
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Foreign Earned Income Exclusion
- The amount of income earned from a foreign source that is excludable from domestic taxation. The foreign earned income exclusion can only be claimed by those who meet the foreign residence or physical presence tests, who have a tax home in a foreign country, and have foreign income.
Tax payers wishing to exclude foreign earned income must make an election to do so.
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Foreign Exchange Dealers Association Of India - FEDAI
- An association of banks specializing in the foreign exchange activities in India. The Foreign Exchange Dealers Association of India, which was created in 1958, regulates the governing rules and determines the commissions and charges associated with the interbank foreign exchange business.
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Foreign Exchange Market
- The market in which participants are able to buy, sell, exchange and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The forex market is considered to be the largest financial market in the world.
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Foreign Fund
- A mutual fund, closed-end fund or exchange-traded fund that invests in companies located outside of the investor's country of residence.
Also known as an "international fund."
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Foreign Institutional Investor - FII
- An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds.
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Foreign Invested Enterprise - FIE
- Any one of a number of legal structures under which a company can participate in the foreign economy. FIEs tend to have tight government regulation at nearly every important business juncture, which limits the efficiency at which any foreign company can profit from foreign ventures as well as the amount of control that a foreign parent has over the FIE.
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Foreign Items
- A check/draft drawn on a financial institution different from the one it is being presented at. Foreign currency can also be considered a foreign item when depositing into the account, as special procedures may come into play.
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Foreign Official Dollar Reserves - FRODOR
- A term coined by economist Ed Yardeni relating international liquidity to the effect of foreign central banks on U.S. monetary policy. It is measured as the sum of U.S. Treasury and U.S. agency securities held by foreign banks.
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Foreign Plan
- A retirement savings plan created by a person or a company to benefit individuals who are not Canadian residents. These beneficiaries may or may not be Canadian citizens, but the plan applies to income they earn for services they perform outside of Canada.
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Foreign Tax Credit
- A non-refundable tax credit for income taxes paid to a foreign government as a result of foreign income tax withholdings. The foreign tax credit is available to anyone who either worked in a foreign country or has investment income from a foreign source.
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Foreign Tax Deduction
- One of the itemized deductions that may be taken for taxes paid to a foreign government, which typically are classified as a tax withholding. The foreign tax deduction is usually taken in lieu of the foreign tax credit, if the deduction is more advantageous to the taxpayer.
Foreign taxes are deductible from your U.S. income tax return only if the foreign source has an international tax treaty with the United States.
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Foreign-Exchange Risk
- 1. The risk of an investment's value changing due to changes in currency exchange rates.
2. The risk that an investor will have to close out a long or short position in a foreign currency at a loss due to an adverse movement in exchange rates. Also known as "currency risk" or "exchange-rate risk".
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Forensic Accounting
- Forensic Accounting utilizes accounting, auditing, and investigative skills to conduct an examination into a company's financial statements. Thus, providing an accounting analysis that is suitable for court.
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Forex - FX
- The market in which currencies are traded. The forex market is the largest, most liquid market in the world with an average traded value that exceeds $1.9 trillion per day and includes all of the currencies in the world.
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Forex Account
- The type of account a forex trader opens with a retail forex broker. Forex accounts come in many forms, but the first that is opened is often the forex demo account.
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Forex Analysis
- An examination of the changes in the forex market that are used by a trader to determine whether to buy or sell a currency pair at any one time. Forex analysis could be technical in nature, using charting tools, or fundamental, using economic indicators and/or news-based events.
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Forex Arbitrage
- A trading strategy that is used by forex traders who attempt to make a profit on the inefficiency in the pricing of currency pairs. The strategy involves reacting quickly to opportunities, and is usually accomplished through the use of computers.
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Forex Broker
- Firms that provide currency traders with access to a trading platform that allows them to buy and sell foreign currencies. A currency trading broker, also known as a retail forex broker, or forex broker, handles a very small portion of the volume of the overall foreign exchange market. Currency traders use these brokers to access the 24-hour currency market.
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Forex Charting Software
- An analytical, computer-based tool used to help currency traders with forex trading analysis by charting the price of various currency pairs along with various indicators. Forex charting software packages are used by many traders to determine the direction on any given currency pair.
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Forex Charts
- A charting package that allows a trader to view historical currency exchange rates. Currency charts are provided within forex charting software, which usually comes free of charge when a trading account is opened with a forex broker. As with charts used for trading other securities, like stocks or futures, they are used primarily by the technical analyst, or chartist.
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Forex eBooks
- An electronic document that provides information on forex trading for free or for a fee. A forex ebook generally provides value to a trader by providing general information on strategies, signals, systems and promotional material.
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Forex Forecasting Software
- An analytical tool used to help currency traders with forex trading analysis through charts and indicators. Forex forecasting software provides charts of currency pairs that display price changes over time as well as indicator overlays including moving averages, which aid analysts and traders in determining appropriate and profitable entry and exit points for their forex trades. As with charting software used for trading other securities, forex charting software is used primarily by technical analysts to forecast future price movements.
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Forex Futures
- An exchange-traded contract to buy or sell a specified amount of a given currency at a predetermined price on a set date in the future. All forex futures are written with a specific termination date, at which point delivery of the currency must occur unless an offsetting trade is made on the initial position.
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Forex Hedge
- A transaction implemented by a forex trader to protect an existing or anticipated position from an unwanted move in exchange rates. By using a forex hedge properly, a trader who is long a foreign currency pair can be protected from downside risk, while the trader who is short a foreign currency pair can protect against upside risk.
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Forex Market
- The market in which participants are able to buy, sell, exchange and speculate on currencies. The forex markets is made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The currency market is considered to be the largest financial market in the world, processing trillions of dollars worth of transactions each day.
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Forex Market Hours
- The hours during which forex market participants are able to buy, sell, exchange and speculate on currencies. The forex market is open 24 hours a day, five days a week. International currency markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors around the world. Because this market operates in multiple time zones, it can be accessed at almost any time.
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Forex Mini Account
- A type of brokerage account that is used by beginner traders looking to enter the foreign exchange market. A forex mini account allows the investor to take a smaller position in a currency than if they were to trade the standard lots used by those with a regular account. Generally, a mini account allows the trader to trade contract sizes of 10,000 units rather than the standard 100,000.
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Forex Option & Currency Trading Options
- A security that allows currency traders to realize gains without having to purchase the underlying currency pair. By incorporating leverage, forex options magnify returns and provide a set downside risk. Alternatively, currency trading options can be held alongside the underlying forex pair to lock in profits or minimize risk. In this case, limiting the upside potential is usually necessary for capping the downside as well.
Because options contracts implement leverage, traders are able to profit from much smaller moves when using an options contract than a traditional retail forex trade would allow. When combining traditional positions with a forex option, hedging strategies such as straddles, strangles and spreads can be used to minimize the risk of loss in a currency trade.
Because of the risk of loss involved in writing options, most retail forex brokers do not allow traders to sell options contracts without high levels of capital for protection.
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Forex Option Trading
- A security that allows currency traders to realize gains without having to purchase the underlying currency pair. By incorporating leverage, forex options magnify returns and set a firm downside risk level. Alternatively, currency trading options can be held alongside the underlying forex pair to lock in profits or minimize risk. In this case, limiting the upside potential is usually necessary for capping the downside as well.
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Forex Pivot Points
- A set of indicators developed by floor traders in the commodities markets to determine potential turning points, also known as "pivots". Forex pivot points are calculated to determine levels in which the sentiment of the market could change from "bullish" to "bearish." Currency traders see pivot points as markers of support and resistance.
Forex pivot points are calculated as the average of the high, low and close from the previous trading session:Forex Pivot Point = (High + Low + Close) / 3
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Forex Scalping
- A trading strategy used by forex traders to buy a currency pair and then to hold it for a short period of time in an attempt to make a profit. A forex scalper looks to make a large number of trades and earn a small profit each time.
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Forex Signal System
- A set of analyses that a forex trader uses to determine whether to buy or sell a currency pair at any given time. Forex signal systems could be based on technical analysis charting tools or news-based events. The day trader's currency trading system is usually made up of a multitude of signals that work together to create a buy or sell decision. Forex trading signals are available for free, for a fee or are developed by the traders themselves.
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Forex Spot Rate
- The current exchange rate at which a currency pair can be bought or sold. The spot forex rate differs from the forward rate in that it prices the value of currencies compared to foreign currencies today, rather than at some time in the future. The spot rate in forex currency trading, is the rate that most traders use when trading with an online retail forex broker.
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Forex System Trading
- A method of trading forex that is based on a series of analyses to determine whether to buy or sell a currency pair at a given time. Forex system trading could be based on a set of signals derived from technical analysis charting tools or fundamental news-based events. The day trader's currency trading system is usually made up of technical signals that create a buy or sell decision when they point in a direction that has historically led to a profitable trade.
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Forex Trading Robot
- A computer program based on a set of forex trading signals that helps determine whether to buy or sell a currency pair at any one time. Forex robots are designed to remove the psychological element of trading, which can be detrimental.
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Forex Trading Strategy
- A set of analyses that a forex day trader uses to determine whether to buy or sell a currency pair at any given time. Forex trading strategies can be based on technical analysis charting tools or fundamental, news-based events. The day trader's currency trading strategy is usually made up of a multitude of signals, which trigger buy or sell decisions. Forex trading strategies are available for free, for a fee or are developed by the traders themselves.
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Forex Training
- A form of instruction or mentorship that provides information on forex trading tactics, methods and successful practices. Forex training acts as a guide for the retail forex trader, providing insight into successful strategies, signals and systems as well as other general information on the foreign exchange market.
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Forfaiting
- The purchasing of an exporter's receivables (the amount importers owe the exporter) at a discount by paying cash. The forfaiter, the purchaser of the receivables, becomes the entity to whom the importer is obliged to pay its debt.
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Forfeiture
- The loss of an asset, or rights to an asset, as a result of defaulting on contractual obligations or conditions.
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Form 1040X
- A form used by taxpayers who have to amend their tax returns for any reason. Form 1040X is an itemized, line-by-line description of all necessary adjustments, so that the taxpayer can clearly record the exact type and amount of each amendment, and give a brief description of what is being amended and why.
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Form 1078
- An official document issued by the Internal Revenue Service (IRS) permitting the undersigned to claim residency within the U.S. for income tax reporting purposes. The form is officially called a "Certificate of Alien Claiming Residence in the United States", and will make the undersigned's total income subject to the tax laws of the United States for the tax period specified.
Form 1078 is used only if the undersigned became a resident alien before 2001. For all other cases, form W-9 is used instead.
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Form 1098
- A form filed with the Internal Revenue Service (IRS) that details the amount of interest and mortgage-related expenses paid on a mortgage during the tax year. These expenses can be used as deductions on a U.S. income tax form, Schedule A, which reduces taxable income and the overall amount owed to the IRS. The mortgage lender is required by the IRS to provide this form to borrowers.
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Form 1099-B
- A form issued by a broker or barter exchange that summarizes the proceeds of all stock transactions. The sale of a stock will be accompanied by a gain or loss, which must be reported to the IRS when you file your taxes. Specifically, figures from form 1099-B are used on IRS Form 1040, Schedule D.
Brokers are required to provide you form 1099-B by January 31.
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Form 1099-DIV
- A form sent to investors by investment fund companies. The form is a record of all taxable capital gains and dividends paid to an investor, including those that have been re-invested in a given taxation year. The amounts stated on the form represent the amounts that fund companies are attributing to each investor's investment return for the year and reporting to the IRS. Investors use Form 1099-DIV to help report income received from investments on their tax return each year.
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Form 1099-INT
- The form issued by all payers of interest income to investors at year's end. Form 1099-INT breaks down all types of interest income and related expenses. Payers must issue Form 1099-INTs for any party to whom they paid at least $10 of interest during the year.
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Form 1099-Q
- An IRS form that an individual who receives distributions from a Coverdell Education Savings Account (ESA) receives from his or her respective investment company. The form is used by the individual to fill out both federal and state tax returns.
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Form 1099-R
- An Internal Revenue Service (IRS) form with which an individual reports his or her distributions from annuities, profit-sharing plans, retirement plans, IRAs, insurance contracts and/or pensions. The following are some of the items included on the form: the gross distribution paid during the given tax year, the amount of the distribution that is taxable, the federal income tax that has been withheld, the contributions made to the investment or premiums paid, and a code that represents the type of distributions made to the holder of the plan.
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Form 144
- A form that must be filed with the SEC when an executive officer, director, or affiliate of a company places an order to sell that company's stock. Also known as Rule 144.
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Form 3
- A document that must be filed with the Securities and Exchange Commission (SEC) by an insider affiliated with a public company's operation or by any investor owning 10% or more of the company's outstanding shares.
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Form 4
- A document that must be filed with the Securities and Exchange Commission (SEC) whenever there is a material change in the holdings of company insiders. Insiders required to submit a Form 4 include directors and officers of the company as well as any shareholders owning 10% or more of the company's outstanding stock.
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Form 5
- A document that must be filed with the Securities and Exchange Commission (SEC) by an insider who has conducted insider transactions during the year which were not previously reported via a Form 4 submission.
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Form 8891
- An IRS form that must be completed by any U.S. citizen or resident who participates in or receives annuities from a registered Canadian retirement savings plan or income fund (RRSP and RRIF). Form 8891 is used to report any contributions made, earnings accrued but not distributed and distributions received from these plans, but mainly it is used to elect to defer U.S. tax on your RRSP or RRIF.
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Form ADV
- A required submission to the Securities and Exchange Commission (SEC) by a professional investment advisor that specifies the investment style, assets under management (AUM), and key officers of the firm. The form must be updated annually and available as public record for companies managing in excess of $25 million.
If past disciplinary action has been taken against the advisor, this must be noted in the first section of a Form ADV. The second section deals with the AUM, investment strategy, fee arrangements and service offerings of the firm.
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Form S-4
- A form that must be submitted to the Securities and Exchange Commission in the event of a merger or an acquisition between two companies. The form must also be submitted for exchange offers.
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Form T
- A form required by the NASD for reporting an equity trade executed after normal market hours.
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Formal Tax Legislation
- The steps required to propose a new tax law or a change to an existing one. The process involves the President and Congress.
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Formula Investing
- A method of investing that rigidly follows a prescribed theory or formula, using the results as blanket investment policy. Formula investing can be related to how an investor handles asset allocation, investments between funds or securities, or decides when and how much money to invest.
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Fortune 500
- An annual list of the 500 largest companies in the United States. The list is compiled using the most recent figures for revenue.
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Forward Averaging
- Treating lump-sum retirement-plan distributions as if they occurred over a five- or ten-year period. Forward averaging is available only to qualified plan participants who were born before 1936 and meet certain requirements.
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Forward Commitment
- 1. A contract pertaining to the future sale or purchase of a security. Price and date are specified in the contract.
2. A formal promise to make a loan sometime in the future. It typically refers to a mortgage-backed security where the funds are usually needed at a later date.
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Forward Contract
- A cash market transaction in which delivery of the commodity is deferred until after the contract has been made. Although the delivery is made in the future, the price is determined on the initial trade date.
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Forward Delivery
- A delivery of the underlying asset at the date agreed upon in a forward contract. At the forward delivery, one party will supply the underlying asset and one will buy the asset. The terms and price of the asset was the one agreed upon at the onset of the contract or trade date.
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Forward Discount
- In a foreign exchange situation where the domestic current spot exchange rate is trading at a higher level then the current domestic futures spot rate for a maturity period. A forward discount is an indication by the market that the current domestic exchange rate is going to depreciate in value against another currency.
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Forward Dividend Yield
- An estimation of a year's dividend expressed as a percentage of current stock price. The year's projected dividend is measured by taking a stock's most recent actual dividend payment and annualizing it. Forward dividend yield is calculated by dividing a year's worth of future dividend payments by a stock's current share price.
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Forward Earnings
- A company's forecasted, or estimated, earnings made by analysts or by the company itself. Forward earnings differ from trailing earnings (which is the figure that is quoted more often) in that they are a projection and not a fact. There is are many methods used to calculate forward earnings and no single established way.
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Forward Forward
- An agreement between two parties to engage in a loan transaction in the future. The lender agrees to lend the borrower funds on a specified future date. The borrower agrees to repay the loan, plus a premium, at a date beyond the loan issue date.
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Forward Integration
- A business strategy that involves a form of vertical integration whereby activities are expanded to include control of the direct distribution of its products.
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Forward Margin
- The difference between the spot rate and the estimated future rate for a certain commodity. The forward margin on foreign currency, for instance, would typically be specified as number of points over or under the spot rate.
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Forward Market
- The over-the-counter trading of forward contracts.
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Forward Points
- The number of basis points added to or subtracted from the current spot rate to determine the forward rate. When points are added to the spot rate, there is a forward points premium; when points are subtracted from the spot rate, there is a points discount.
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Forward Premium
- When dealing with foreign exchange (FX), a situation where the spot futures exchange rate, with respect to the domestic currency, is trading at a higher spot exchange rate then it is currently. A forward premium is frequently measured as the difference between the current spot rate and the forward rate, but any expected future exchange rate will suffice.
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Forward Price
- The predetermined delivery price for an underlying commodity, currency or financial asset decided upon by the long (the buyer) and the short (the seller) to be paid at predetermined date in the future.
At the inception of a forward contract, the forward price makes the value of the contract zero.
The Forward Price can be determined by the following formula:
where:
S0 represents the current spot price of the asset
F0 represents the forward price of the asset at time T
er represents a mathematical exponential function
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Forward Price To Earnings - Forward P/E
- A measure of the price-to-earnings ratio (P/E) using forecasted earnings for the P/E calculation. While the earnings used are just an estimate and are not as reliable as current earnings data, there is still benefit in estimated P/E analysis. The forecasted earnings used in the formula can either be for the next 12 months or for the next full-year fiscal period.
Also referred to as "estimated price to earnings".
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Forward Pricing
- A Securities and Exchange Commission regulation that requires that investment companies price all of their buy and sell orders of fund shares according to the next net asset value (NAV). This valuation process is for open-end mutual fund transactions in which the mutual fund itself is constantly issuing and redeeming mutual fund shares at the most recent NAV per share.
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Forward Rate
- The amount that it will cost to deliver a currency, commodity, or some other asset some time in the future.
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Forward Rate Agreement - FRA
- An over-the-counter contract between parties that determines the rate of interest, or the currency exchange rate, to be paid or received on an obligation beginning at a future start date. The contract will determine the rates to be used along with the termination date and notional value. On this type of agreement, it is only the differential that is paid on the notional amount of the contract.
Also known as a "future rate agreement".
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Forward Spread
- The price difference between the spot price of a security and the forward price of the same security taken at a specified interval. The forward spread is usually calculated using the forward price one month after the spot price. An at par forward spread is found when the spot price and the forward price are the same.
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Forward Swap
- A swap agreement created through the synthesis of two swaps differing in duration for the purpose of fulfilling the specific time-frame needs of an investor. Also referred to as a "forward start swap," "delayed start swap," and a "deferred start swap."
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Forward Triangular Merger
- A type of merger that occurs when the subsidiary of the acquiring corporation merges with the target firm.
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Foul Weather Fund
- A mutual fund that tends to perform well or better than the overall market during weak market conditions. Foul weather funds are created with downward market moves in mind where the goal of the fund is to limit or benefit from the effects of downward moves in the market.
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Found Money
- Money or funds that an investor possesses but just discovers.
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Four Cs
- Short for carat, cut, clarity and color. These four characteristics are the main determinants of a diamond's value.
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Fourier Analysis
- A type of mathematical analysis that attempts to identify patterns or cycles in a time series data set which has already been normalized. By first removing any effects of trends or other complicating factors from the data set, the effects of periodic cycles or patterns can be identified more accurately, leaving the analyst with a good estimate of the direction that the data under analysis will take in the future. Named after the nineteenth-century French mathematician and physicist Joseph Fourier.
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Fourth Market
- The trading of exchange-listed securities between institutions on a private over-the-counter computer network, rather than over a recognized exchange such as the New York Stock Exchange (NYSE) or Nasdaq. Trades between institutions will often be made in large blocks and without a broker, allowing the institutions to avoid brokerage fees.
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Fox-Trot Economy
- A term coined by investment strategist Jeffery Saut that describes a period in which "fast-fast" growth economic figures are expected to be followed by periods of "slow-slow" figures.
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Fractal
- A type of pattern used in technical analysis to predict a reversal in the current trend. A fractal pattern consists of five bars and is identified when the price meets the following characteristics:
1. A shift from a downtrend to an uptrend occurs when the lowest bar is located in the middle of the pattern and two bars with successively higher lows are positioned around it.
2. A shift from an uptrend to a downtrend occurs when the highest bar is located in the middle of the pattern and two bars with successively lower highs are positioned around it.
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Fractional Ownership
- Percentage ownership in an asset. Fractional ownership shares in the asset are sold to individual shareholders who share the benefits of the asset such as usage rights, income sharing, priority access and/or reduced rates. The usage benefits that the fractional owners receive are similar to those of timeshare owners.
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Fractional Reserve Banking
- A banking system in which only a fraction of bank deposits are backed by actual cash-on-hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties. Most countries operate under this type of system.
Also known as "fractional deposit lending".
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Fractional Share
- A share of equity that is less than one full share. Fractional shares usually come about from stock splits, dividend reinvestment plans (DRIPs) and similar corporate actions. Normally, fractional shares cannot be acquired from the market.
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Franchise
- A type of license that a party (franchisee) acquires to allow them to have access to a business's (the franchisor) proprietary knowledge, processes and trademarks in order to allow the party to sell a product or provide a service under the business's name. In exchange for gaining the franchise, the franchisee usually pays the franchisor initial start-up and annual licensing fees.
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Franchise Factor
- The measurement of the impact on a company's price-earnings (P/E) ratio per unit growth in new investment. For example, a franchise factor of 3 would indicate that the P/E ratio of a company would increase by three units for every unit of growth in the company's book value.
The franchise factor can be calculated as the product of annual investment returns in excess of market returns and the duration of the returns. A P/E ratio will not be elevated with a high franchise factor alone.
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Franchise Tax
- A tax levied at the state level against businesses and partnerships chartered within that state. In some states, companies with operations in that state may also be liable for the tax even if they are chartered in another state. This is a privilege tax that gives the business the right to be chartered and/or operate within that state.
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Franchisee
- The party in a franchising agreement that is purchasing the right to use a business's trademarks, associated brands and other proprietary knowledge in order to open a branch. In addition to paying an annual franchising fee to the underlying company, the franchisee must also pay a portion of its profits to the franchisor.
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Franchiser
- A party in a franchising enterprise that ultimately owns the rights, trademarks and proprietary knowledge of the specific business entity. This owner (franchiser) grants the right to operate a branch of the business under the names, brands and all associated aspects of the business to another party (the franchisee) in exchange for an annual fee and a portion of the branch's profits.
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Franked Dividend
- An arrangement in Australia that eliminates the double taxation of dividends. Dividends are dispersed with tax imputations attached to them. The shareholder is able to reduce the tax paid on the dividend by an amount equal to the tax imputation credits. Basically, taxation of dividends has been partially paid by the company issuing the dividend.
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Franked Income
- After-tax investment income that is distributed by one U.K. company to another. This income is often distributed in the form of dividends. The idea behind franked income is to prevent double taxation.
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Frankfurt Stock Exchange (FRA) .F
- Located in Frankfurt, Germany, the FRA is one of the largest and most efficient trading facilities in the world. The FRA is one of the oldest exchanges in the world and posts several indices, such as the DAX, the VDAX and the Eurostoxx 50. Its owner is Deutsche Borse, which owns the other German exchanges as well.
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Franking Credit
- A type of tax credit found in countries such as Australia that allows domestic companies to pass through taxes that have already been paid on corporate profits. The investor receiving stock dividends will also receive a quantity of franking credits in proportion to the overall tax rate of the company per dollar in profits.
When filing personal income taxes, the investor will record as income both the amount of the dividend and the amount of the franking credit; however, the franking credits can be deducted from the total tax due. If the investor has franking credits remaining and no more income tax due, franking credits can be returned as a tax refund to the investor.
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Fraption
- A type of option that gives the option holder the opportunity to enter into a forward rate agreement at a specific strike price during a predetermined amount of time. Buyers use fraptions to protect against falls in interest rates at the cost of a slight premium.
Also known as an "interest rate guarantee".
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Fraudulent Conveyance
- The illegal transfer of property to another party in order to defer, hinder or defraud creditors.
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Freddie Mac - Federal Home Loan Mortgage Corp - FHLMC
- A stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing for middle income Americans. The FHLMC purchases, guarantees and securitizes mortgages to form mortgage-backed securities. The mortgage-backed securities that it issues tend to be very liquid and carry a credit rating close to that of U.S. Treasuries.
Also known as "Freddie Mac".
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Free Alongside - FAS
- A trade term requiring the seller to deliver goods to a named port alongside a vessel designated by the buyer. "Alongside" means that the goods are within reach of a ship's lifting tackle.
When used in trade terms, the word "free" means the seller has an obligation to deliver goods to a named place for transfer to a carrier.
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Free and Clear
- A slang phrase describing the situation of someone when he or she gains outright ownership of an asset, such as when it is completely paid off and no creditor has a claim on the property.
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Free Application Of Student Aid (FAFSA)
- The form that must be completed in order to qualify for any type of governmental financial aid for higher education, such as Pell Grants or PLUS loans. This form must be submitted each summer by a certain deadline to qualify for aid the coming school year. A FAFSA must be submitted for state financial aid as well.
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Free Asset Ratio - FAR
- The market value of an insurance company's assets in excess of its policy liabilities.
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Free Carrier - FCA
- A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. Costs for transportation and risk of loss transfer to the buyer after delivery to the carrier.
When used in trade terms, the word "free" means the seller has an obligation to deliver goods to a named place for transfer to a carrier.
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Free Cash Flow - FCF
- A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt. FCF is calculated as:
It can also be calculated by taking operating cash flow and subtracting capital expenditures.
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Free Cash Flow For The Firm - FCFF
- A measure of financial performance that expresses the net amount of cash that is generated for the firm, consisting of expenses, taxes and changes in net working capital and investments.
Calculated as:
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Free Cash Flow Per Share
- A measure of a company's financial flexibility that is determined by dividing free cash flow by the total number of shares outstanding. This measure serves as a proxy for measuring changes in earnings per share.
Calculated as:
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Free Cash Flow To Equity - FCFE
- This is a measure of how much cash can be paid to the equity shareholders of the company after all expenses, reinvestment and debt repayment.
Calculated as: FCFE = Net Income - Net Capital Expenditure - Change in Net Working Capital + New Debt - Debt Repayment
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Free Cash Flow Yield
- An overall return evaluation ratio of a stock, which standardizes the free cash flow per share a company is expected to earn against its market price per share. The ratio is calculated by taking the free cash flow per share divided by the share price. To illustrate:
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Free Credit Balance
- The cash held by a broker in a customer's margin account that can be withdrawn by the customer at any time without restriction. This balance is calculated as the total remaining money in a margin account after margin requirements, short sale proceeds and special miscellaneous accounts are taken into consideration.
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Free Enterprise
- An economic system where few restrictions are placed on business activities and ownership. In this system, governments generally have minimal ownership of enterprises in the market place. This system aims for limited restrictions on trade and minimal government intervention.
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Free File Fillable Tax Forms
- Electronic versions of tax forms, first posted by the IRS in 2009, to allow taxpayers, regardless of their income, to file their taxes online at no cost. Free file fillable tax forms are meant to speed up the process of receiving refunds, and minimize errors in filing. Taxpayers file their tax returns by accessing the forms on the IRS' website, entering their tax data, and then signing and filing electronically.
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Free Market
- A market economy based on supply and demand with little or no government control. A completely free market is an idealized form of a market economy where buyers and sells are allowed to transact freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation.
In financial markets, free market stocks are securities that are widely traded and whose prices are not affected by availability.
In foreign-exchange markets, it is a market where exchange rates are not pegged (by government) and thus rise and fall freely though supply and demand for currency.
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Free On Board - FOB
- A trade term requiring the seller to deliver goods on board a vessel designated by the buyer. The seller fulfills its obligations to deliver when the goods have passed over the ship's rail.
When used in trade terms, the word "free" means the seller has an obligation to deliver goods to a named place for transfer to a carrier.
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Free Reserves
- A measurement of a bank's reserves that is equal to the difference between borrowed reserves and excess reserves. This is the amount which the bank has available to lend to clients. A bank is required by federal law to hold a specific amount of reserves at any given time. The excess reserves are calculated by subtracting the required reserves from the total reserves it holds.
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Free Rider Problem
- 1. In economics, the free rider problem refers to a situation where some individuals in a population either consume more than their fair share of a common resource, or pay less than their fair share of the cost of a common resource.
2. In the context of a brokerage firm, a free rider problem refers to a situation where a client has been allowed to purchase shares without actually paying for them, and then subsequently sells the shares (ideally for profit).
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Free Right Of Exchange
- An investor's right to transfer an asset to another party without incurring any transaction fees on the exchange. Unlike a sales transaction, the investor is either giving away or trading stock and should not be taxed on the transaction.
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Free Trade Area
- A group of countries that invoke little or no price control in the form of tariffs or quotas between each other. Free trade areas allow the agreeing nations to focus on their competitive advantage and to freely trade for the goods they lack the experience at making, thus increasing the efficiency and profitability of each country.
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Free-Crowd System
- A system of commodity trading in which floor members can make bids and offers simultaneously for personal or customer accounts, which is common in the U.S.
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Free-Float Methodology
- A method by which the market capitalization of an index's underlying companies is calculated. Free-float methodology market capitalization is calculated by taking the equity's price and multiplying it by the number of shares readily available in the market. Instead of using all of the shares outstanding like the full-market capitalization method, the free-float method excludes locked-in shares such as those held by promoters and governments.
Calculated as:
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Freed Up
- 1. A slang phrase used in the underwriting process to refer to the time when the underwriters are no longer obligated to sell securities at the agreed upon price, as decided by the syndicate. When an underwriter is freed up, it is allowed to trade any remaining securities at the market price.
2. The amount of capital that becomes available to an investor when a position is closed. The "freed up" capital can then be used to invest in other assets.
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Freeriding
- 1. An illegal practice in which an underwriting syndicate member withholds part of a new securities issue and later sells it at a higher price.
2. The illegal activity of buying a stock and selling it before paying for the purchase.
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Freeze Out
- An action taken by a firm's majority shareholders that pressures minority holders to sell their stake in the company. A variety of maneuvers may be considered freeze out tactics, such as the termination of minority shareholder employees or the refusal to declare dividends.
Also referred to as a "squeeze out".
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Freight Derivatives
- A financial instrument's value that is derived on the future levels of freight rates, such as "dry bulk" carrying rates and oil tanker rates. Freight derivatives are used most often by end users (such as ship owners and grain-houses) and by suppliers (such as integrated oil companies and international trading corporations) to mitigate risk and hedge against price spikes in the supply chain.
As with all derivatives, market speculators, like hedge funds and individual traders, participate in both the buying and selling of these contracts providing for a new, more liquid, marketplace.
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Frequency Distribution
- A representation, either in a graphical or tabular format, which displays the number of observations within a given interval. The intervals must be mutually exclusive and exhaustive. Frequency distributions are usually used within a statistical context.
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Friction Cost
- The implicit and explicit costs associated with market transactions.
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Frictional Unemployment
- Unemployment that is always present in the economy, resulting from temporary transitions made by workers and employers or from workers and employers having inconsistent or incomplete information.
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Frictionless Market
- A theoretical trading environment where all costs and restraints associated with transactions are non-existent.
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Friedrich Hayek
- A famous economist born in Vienna, Austria, in 1899. Friedrich Hayek is well-known for his numerous contributions in the field of economics and political philosophy. Hayek's approach mostly stems from the Austrian school of economics and emphasizes the limited nature of knowledge. He is particularly famous for his defense of free-market capitalism and is remembered as one of the greatest critics of the socialist consensus.
Friedrich Hayek is the co-winner of the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 1974. He died on March 23, 1992.
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Friendly Hands
- A nickname for investors in an IPO who will likely hold onto the security for a long time.
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Friendly Loan
- A loan agreement between associates. This type of loan is known as a friendly loan because the agreement is usually made between friends, family or acquaintances. These types of loan agreements are rarely legally documented and stipulations are usually verbally agreed upon.
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Friendly Takeover
- A situation in which a target company's management and board of directors agree to a merger or acquisition by another company. In a friendly takeover, a public offer of stock or cash is made by the acquiring firm, and the board of the target firm will publicly approve the buyout terms, which may yet be subject to shareholder or regulatory approval. This stands in contrast to a hostile takeover, where the company being acquired does not approve of the buyout and fights against the acquisition.
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Friends and Family Shares
- When a company gives pre-IPO shares to friends and family members.
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Fringe Benefits
- A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are met. Any employee who receives taxable fringe benefits will have to include the fair market value of the benefit in their taxable income for the year, which will be subject to tax withholdings, and social security benefits payments.
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Front Fee
- The premium charged upon the initial purchase of a compound option.
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Front Month
- Used in futures trading to refer to the contract month with an expiration date closest to the current date, which is often in the same month. In other words, this would be the shortest duration contract that could be purchased in the futures market. Contracts that are a month or more behind the front month contracts are referred to as back month contracts.
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Front Office
- The sales personnel and corporate finance employees in a financial services company. It's in the front office where revenues are generated.
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Front Running
- The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients have been given the information.
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Front-End Debt-to-Income Ratio - DTI
- A variation of the debt-to-income ratio (DTI) that calculates how much of a person's gross income is going towards housing costs. If a homeowner has a mortgage, the front-end DTI ratio is usually calculated as housing expenses (such as mortgage payments, mortgage insurance, etc.) divided by gross income. In contrast, a back-end DTI calculates the percentage of gross income going towards other types of debt like credit card or car loans.
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Front-End Load
- A commission or sales charge applied at the time of the initial purchase for an investment, usually mutual funds and insurance policies. It is deducted from the investment amount and, as a result, it lowers the size of the investment.
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Front-End Ratio
- A ratio that indicates what portion of an individual's income is used to make mortgage payments. It is calculated as an individual's monthly housing expenses divided by his or her monthly gross income and is expressed as a percentage. Monthly gross income is simply annual income divided by 12 (months). Lenders use the front-end ratio in conjunction with the back-end ratio to approve mortgages.
Calculated as:
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Frontier Markets
- Less advanced capital markets from the developing world. Frontier markets are countries with investable stock markets that are less established than those in the emerging markets.
They are also known as "pre-emerging markets".
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Frontspread
- A type of options spread in which a trader holds more short positions than long positions. This type of spread has unlimited risk of loss while also limiting profit potential. This type of trade is often implemented by professional traders who believe that the price of an underlying asset will make a calculated move higher or that volatility will decrease.
Also known as a "ratio vertical spread".
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Froth
- Market conditions preceding an actual market bubble where asset prices become detached from their underlying intrinsic values as demand for those assets drives their prices to unsustainable levels. Market froth marks the beginning of unsustainable rates of asset price inflation.
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Frozen Account
- An account to which no withdrawals or purchases can be charged. This usually occurs when the account holder fails to pay promptly for purchases charged to the account. For example, cash accounts are frozen for 90 days until the full purchase price of the intended order is paid in full.
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FTSE
- A company that specializes in index calculation. Although not part of a stock exchange, co-owners include the London Stock Exchange and the Financial Times.
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FTSE NASDAQ 500 Index
- Introduced in July 2005, the FTSE NASDAQ 500 is one of four indexes in the FTSE NASDAQ Index Series. It includes the 500 largest NASDAQ companies by market capitalization with an emphasis on technology stocks. Its holdings encompass the holdings of two other indexes, the FTSE NASDAQ Large Cap and the FTSE NASDAQ Mid Cap.
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FTSE RAFI US 1000 Index
- An index of stocks based on the largest 1,000 fundamentally ranked companies. The FTSE RAFI US 1000 Index was launched on November 28, 2005 as part of FTSE Group's non-market cap weighted stocks. The fundamental weighting factors include dividends, book value, sales and cash flow.
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Fugit
- The amount of time that an investor believes is left until it would no longer be beneficial to exercise an option early, or the likelihood that an American-style option will be used before it expires. The fugit concept was named and created by Mark Garman, a Berkeley professor who studied the optimal time for exercising an American option using binomial trees.
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Fulcrum Fee
- An additional, performance-based fee an advisor charges a client. The advisor charges the fee when he or she achieves a return above a specified benchmark.
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Fulcrum Point
- A point of inflection (POI) on a graph where the pattern of the financial instrument's payout changes direction.
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Full Carry
- A futures market in which the price difference between contracts with two different delivery months equals the full cost of carrying the commodity from the delivery month of the first contract to the next. Carrying costs include interest, insurance and storage. Also known as "full carry market" or "full carrying charge market".
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Full Charge
- The event in which the price of a futures contract covers all of the carrying charges of the underlying asset, such as storage and insurance. Also referred to as a "full carry".
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Full Disclosure
- 1. The U.S. Securities and Exchange Commission's (SEC) requirement that publicly-traded companies release and provide for the free exchange of all material facts that are relevant to their ongoing business operations.
2. The general need in business transactions for both parties to tell the whole truth about any material issue pertaining to the transaction.
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Full Employment
- A situation in which all available labor resources are being used in the most economically efficient way. Full employment embodies the highest amount of skilled and unskilled labor that could be employed within an economy at any given time. The remaining unemployment is frictional.
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Full Faith And Credit
- A phrase used to describe the unconditional guarantee or commitment by one entity to back the interest and principal of another entity's debt. This full faith and credit commitment is typically employed by a government to help lower the borrowing costs of a smaller, less stable government or a government-sponsored agency. When this occurs, the smaller government or agency takes on the backer's credit quality.
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Full Ratchet
- An anti-dilution provision that, for any shares of common stock sold by a company after the issuing of an option (or convertible security), applies the lowest sale price as being the adjusted option price or conversion ratio for existing shareholders.
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Full Recourse Debt
- A guarantee that no matter what happens, the borrower will repay the debt. Typically with a full recourse loan no occurrence, such as loss of job or sickness, can get the borrower out of the debt obligation. In this situation, if there is no collateral for the loan, the lender can go after the borrowers personal assets to collect if the loan is defaulted.
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Full Stock
- A stock with a par value of $100 per share. This can be either a preferred or common share.
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Full Trading Authorization
- A level of trading authorization that grants an agent or broker the power to place orders, withdraw funds or make inquiries concerning a client's account. Written documentation must be completed by the client before an agent or broker can be given power of attorney over the client's account.
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Full-Service Broker
- A broker that provides a large variety of services to its clients, including research and advice, retirement planning, tax tips, and much more. Of course, this all comes at a price, as commissions at full-service brokerages are much higher than those at discount brokers.
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Full-Time Student
- A status that is important for determining dependency exemptions. Full-time status is based on what the individual's school considers full time.