The principal amount of a security that appears on the face of the instrument.
The par value of a security, as distinct from its market value.
A corporate bond which when issued was investment-grade rated by credit rating agencies such as Standard & Poor’s or Moody’s but is now downgraded due to a deteriorated financial situation.
Founded in 1938 Fannie Mae is the abbreviated term that refers to the Federal National Mortgage Association, which is located in Washington D.C, United States. Fannie Mae is a publicly floated, federal chartered, government-sponsored corporation that purchases mortgages from financial institutions, consolidates them and finally sells them on as mortgage-backed securities to investors through the open market. The Fannie Mae is currently listed on the New York Stock Exchange as FNM.
Fannie Mae operates by purchasing loans from authorized Mortgage lenders, either by money or by exchanging them for mortgage backed securities that consolidate the loans. On top of this for a fee, they carry the Fannie Mae guarantee of payment of interest and principal amount on time. Mortgage lenders may keep that security in a portfolio or sell it on. The Fannie Mae might also turn mortgages from its own loan portfolio in to securities and sell these mortgage backed packages to investors as securities on the mortgage market, once again guaranteeing that all payments will be made to the investor on time. By buying the mortgages, the Fannie Mae and its counterpart Freddie Mac give banks and other financial lenders the access to new money for more loans, thus giving the US mortgage and credit economies more liquidity.
Federal Reserve Banks are financial institutions that are part of the Federal Reserve System in the United States, which operates a central banking system. It is based on the Federal Reserve Act of 1913 and is set up as a part governmental entity and part private entity, with a board of directors located in Washington DC. Located in the major cities there are twelve Federal Reserve banks, each with their own board of directors. This system is responsible for all of the money in the United States.
The Federal Reserve Act was passed after several financial crises and bankruptcies, sparking the government to properly control the monetary and banking system so the United States economy remains stable.
Their main purpose and goals are to control the country’s monetary system by manipulating credit, money and the economy accordingly. To oversee and regulate the country’s banks, ensuring safety and efficiency. To maintain general stability in the financial system and to provide services and finance to the United States Government, national financial institutions, the public and to monitor the US’s payment system.
In the reserve banking system the money supply is created upon the government’s request based on several factors. If the country needs an influx of $5 million for example, the Federal Reserve will buy $5 million in government treasury bonds and then give the government the $5 million in dollars. This then goes in to the banking system and becomes legal tender. This has often fallen under great criticism, because in essence the government is now $5 million in debt to the Reserve. It gets even more questionable when the $5 million added to the economy is not actually a physical $5 million in notes, but more a computerized transaction, meaning the debt is actually offset in society. Some theorists claim that because of this there is no way out of debt and somewhere along the line the little guy will always lose out, as money is created out of debt and the debt just keeps growing as more money is needed.
The interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. The target federal funds rate is set by the Federal Reserve Board’s Federal Open Market Committee and is a principal tool of monetary policy. For more information, see www.federalreserve.gov.
Calculated each day by the Federal Reserve Bank of New York by averaging the rate at which the five major commercial paper dealers offer “AA” industrial Commercial Paper for various maturities. Most CP-based floating-rate notes are reset according to the 30- and 90-day CP composites.
An individual or an institution charged with the duty of acting for the benefit of another party as to matters coming within the scope of the relationship between them. For example, any person who exercises any discretionary authority or control over the management of a 401k retirement plan or its assets. A fiduciary is to act solely in the interest of plan participants and their beneficiaries.
An accounting period consisting of 12 consecutive months.
Finance is the blanket term that refers to the process of acquiring capital to fund the purchase of something, or an investment. It is a term usually used when credit is involved; such as “I am going to buy a new car on finance”, rather than using savings or income.
There are many reasons why an individual or business will seek out finance. The individual might need a new car, but doesn’t have the funds right away to purchase one, or they might have a business idea and need the finance to get the ball rolling. Equally a business may need finance to buy new equipment or to expand in to new markets.
There are many options for individuals looking for finance. They can take out a loan with interest that must be paid back in installments over a given time. They can use a credit card to make a purchase now and pay back next month, or a later date with added interest, or they could apply for a bank overdraft to cover them on a large purchase.
There are even more options for businesses looking for finance because financing a business can be a profitable investment. The business can look for a partner, seek out private investors, go public on the stock market, get a business loan or see if they are eligible for a grant from the government. Other options include getting an overdraft, trade credit from suppliers or leasing equipment.
Generally in business finance is either considered short-term or long-term. An example of needing long term finance would be the building of a factory to increase output, or buying out a rival competitor. Short term finance could be just for buying in some extra stock during a period of high demand.
Financial crisis is a term commonly used when an individual finds themselves in an unsustainable financial lifestyle, whereby their debt far outweighs their income and therefore they stand to lose assets, such as homes. This can occur through poor personal management of money, unforeseen circumstances or on a more global basis through economic crisis when the whole economy is in a slump.
In a much broader sense (although or the more relevant in 2008 as of writing) financial crisis can also refer to the entire country and/or world as opposed to on a personal level. In this case it is defined as a situation where confidence is lost in a country or several country’s currency, other financial assets or economy as a whole, causing international investors to withdraw their investments and funds from the country, thus bringing the confidence level down even further and causing major economic problems which have a ripple affect all around the world.
This can also be a crash in the stock market, banking panics that result in mass withdrawals of money making the system collapse, general recession and basically anything that puts stress on mass finances.
In 1931 there was a huge banking run in the United States, which saw the majority of people withdraw their balances from their accounts, causing a massive crash. Conspiracy theorists have their views on why this happened, but it all started with speculation and mass panic. This is echoed with the stock market and crashes associated with the mass sale of stocks as people try to get out before the impending doom; however it is this panic that starts it off.
The 2008 subprime mortgage crash is also an example of a financial crisis, which saw a big recession in the real estate market. On a national and global scale financial crisis ebbs and flows and things usually level out with government policy. The economy mathematically has to go up and down. On a personal level it can only be up to the individual.
Created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange, FINRA is the largest non-governmental regulator for all securities firms doing business in the United States.
A Financial Instrument is usually classed as a document (although they may come in other formats, such as verbal agreements) that has a direct monetary value or the power to create monetary value at a later date, through a contract that agrees the payment of money to another party. Documents like cheques, bonds and shares are not a form of currency, but they do have a monetary value and are therefore financial instruments, or representations of worth.
More specifically “Financing Instruments” are documents such as share certificates, promissory notes, or bonds that are used to obtain financing for a business or company. In other words their creation in turn brings in equity capital or loan capital for the company. Financing a business is putting money in to it to make it successful, so therefore financing instruments are instruments that are used to acquire this money.
The opposite of financing instruments are debt instruments. A debt instrument is usually referred to as a document, contract or obligation to repay a specific amount of money to an institution or other business. Although you have yet to pay back this money, the instrument represents the monetary value involved with the repayment. In a broad sense the instruments of a business are split in to two categories.Debt (what is owed) or equity (the money tied up in the business).
The most common form of equity for a company is stocks and shares still owned by the business, aka the pieces of paper that represent part ownership of the business that it certain cases can be freely sold and traded in the market place. Again they are not exact currency themselves but represent a proportionate value of the company and can therefore be sold for money or traded for other stocks of a similar worth.
Tax and expenditure changes can be a very effective way of influencing demand. In effect this is what Fiscal Policy is; a government policy that keeps the economy and inflation in check by altering tax. Governments across the world have different stances on fiscal policy. Some like to keep it neutral, some like to alter it for growth and others pay little attention to it.
A tax increase effectively reduces the spending power of the taxpayers because it reduces their disposable income. The opposite works for a tax decrease. It can be used selectively to target particular groups of people or specific types of spending, meaning fiscal policy doesn’t affect all people in the same way, which often causes controversy among those highly affected.
Depending on the current status of the economy the government will have different fiscal policy objectives. For example:
To increase the amount of new businesses the government could cut corporation tax for small firms. To cut consumer spending sales tax (in the UK VAT, in Canada GST) can be increased. To improve the wealth of the poor the government could increase the amount in higher band of income tax, whilst reducing the amount in the lower band, or cutting the starting rate so the poor need to earn more before tax is paid.
It is not just tax that is used as part of fiscal policy, but also various forms of government spending. For example if in general the government just cut government spending then there would be less money in the economy, which can have numerous outcomes. Fiscal policy is closely related to other government policies, most notably Monetary Policy, which controls the money supply in the country
Fixed assets (sometimes called plant assets) are items that are used over and over again by the business. They include buildings, equipment and vehicles. They usually have a high monetary value with a long term function. Unlike current assets, fixed assets are harder to turn quickly in to cash. They are assets that the business plans to hold on to for a year or more and are not intended for immediate resale like stock and inventory.
Fixed assets are normally integral parts of the business that are needed for day to day operations to run efficiently. For example if a business suddenly didn’t have their building or premises then nothing could go ahead.
Although company items like patents and trademarks are fixed assets in theory, they are usually referred to as fixed intangibles or fixed intangible assets. Although fixed assets are rarely sold, fixed intangible assets are even less likely to be sold by a company.
On a balance sheet fixed assets are listed, however over time their value decreases as they get older and less efficient. For example buying a car and selling it 5 years later will not cover the initial purchase cost. Recording this loss is considered an expense and in accounting it is called depreciation. Over time fixed assets generally depreciate.
Fixed assets are one of the many factors taken in to account when valuing a business and its worth. A business with lots of fixed assets is often considered financially secure in the long term.
Investments that represent an IOU from the government or a corporation to the investor and offer specific payments at predetermined times. Public and private bonds, government securities, and the 401k’s guaranteed accounts, are fixed-income investments. Guaranteed fixed-income accounts offer investors a guarantee against the loss of both principal and the interest earned on that principal.
A long-term bond with a set interest rate to maturity.
A mortgage featuring level monthly payments, determined at the outset, which remain constant over the life of the mortgage.
A bond whose interest rate is adjusted periodically according to a predetermined formula; it is usually linked to an interest rate index such as LIBOR.
Refers to the structure which is established in the bond resolution or the trust documents which sets forth the order in which funds generated by the enterprise will be allocated to various purposes.
An agreement to enter into a swap at some date in the future.
This valuation of stocks based on fundamental factors, such as company earnings, growth prospects, and so forth, to determine a company’s underlying worth and potential for growth.
In business, Futures is the generalized term that refers to the various kinds of Futures contract that are traded on the futures exchange. The process works by either agreeing to buy or sell various financial instruments (such as bonds, currencies or stock) at a certain time in the future, which due to various economic factors could prove valuable or invaluable to both parties and it is this risk that spurs futures traders to enter the market. Some futures contracts might call for the physical delivery of the asset, while others are settled in the cash amount. The term futures come from the act of agreeing with a contract to buy and sell in the future.
The profit margins in futures contracts come from fluctuations in the market. For example you may enter in to a futures contract to buy a certain amount of oil in five years, but in five years the value of the oil may have dropped significantly meaning the seller would make a profit. If however the value skyrocketed then you would make the profits. The price of the sale is agreed beforehand in the contract so it can be seen as a risky investment and sale.
Despite this risk the seller will go to great lengths to predict where the market is heading and along with the buyer will try to come up with a “futures price” that will best suit the situation. This doesn’t mean that both sides won’t be bartering for the best deal and there are other outside factors that can affect the agreed price.
An options contract, which is similar to a futures contract, gives the holder the right to exercise the contract’s terms, whereas in a futures contract both parties agree and the ultimate transaction must take place. In other words options give the buyer an option to choose.
The value of an asset at a specified date in the future, calculated using a specified rate of return.
The Financial Times Stock Exchange (simply known as the FTSE 100 “footsie”) is a UK based index that tracks the top 100 high cap public companies taken from the London Stock Exchange, making it an important bench mark for the entire stock market as a whole. As well as being featured in the Financial Times newspaper, its performance is quoted by almost all analysts as a solid indication as to the way the British economy is doing. The FTSE 100 is now automatically calculated and produces a new figure every 15 seconds in conjunction with the LSE’s computer systems. It has the same function as the United States based S&P 500 and is often used along with that figure to monitor the world economy.
The FTSE 100 began life in 1984, with a 1000 as its base level, and is still owned and operated by the FTSE Group (a combined venture between the Financial Times and the London Stock Exchange). Currently the index represents around 81% the London Stock Exchange’s total market capitalization. This 81% makes up about £1,171 billion.
Other than capitalization the selection process is based on liquidity, free float, nationality, and all companies must be public limited and have a valid listing on the London Stock Exchange in either Pounds Sterling or Euros. If a company is already listed on the FTSE 250 (a band below the FTSE 100) and they expand in to the top 90 corporations in terms of capitalization, they will be promoted at the next quarterly update.
Other FTSE owned indexes include the FTSE All Share Index, the FTSE 250 Index as mentioned, and the FTSE 350 Index which combines both previous indexes. Smaller cap companies are tracked on the FTSE Small Cap Index. Listings as of 2008 include the Vodafone Group, Cadbury, British Sky Broadcasting Group and Barclays Bank.