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Financial Definitions; F thru K
The ever-increasing number of investment products and financial services on the market today can be confusing. We’ve created this glossary of financial definitions to help you understand some of the more common investment and financial terms you may come across. Your financial advisor can explain these terms in more detail and discuss them with you as they relate to your situation.
Face Value – The value of the bond on the face of the bond, unless otherwise specified by the issuing company. The face value is usually the amount that the issuing company promises to pay at maturity. The face value does not indicate the market value. This is sometimes called face value.
Financial Futures – Futures contracts based on financial instruments such as US Treasuries, CDs and other interest rate sensitive issues, currencies and stock market indicators.
Fiscal year – the reporting year of the company. Due to the nature of their particular business, some companies do not use the calendar year for their accounting. A typical example is a department store that finds December 31st too early to close the books after the Christmas rush. Therefore, many stores close their accounting year on January 31. Therefore, their fiscal year runs from February 1 of one year to January 31 of the following year. Other companies’ fiscal year may run from July 1 to the following June 30. However, most companies operate on a calendar year basis.
Fixed Charges – The fixed costs of a business, such as bond interest, that it is willing to pay whether or not it is earned, and that are deducted from revenue before calculating return on equity.
Flat Income Bond – This term means that the price at which the bond trades includes a charge for the receipt of all unpaid interest. Bonds with outstanding interest or principal are traded flat. Income bonds, which pay interest only on the amount earned, typically trade at breakeven. All other bonds are usually sold “and interest,” meaning that the buyer pays the seller the market price plus accrued interest from the last payment date.
Floor – A huge trading floor – about the size of a football field – where stocks, bonds and options are bought and sold on the New York Stock Exchange.
Floor Broker – A member of the Exchange who executes orders to buy or sell any listed securities on the Exchange floor.
Formula Investing – An investment technique. One formula calls for the funds to shift from common stocks to preferred stocks or bonds when a selected market indicator rises above a certain predetermined point — and to return the funds to common stock investments when the market average falls.
Free and open market – a market where supply and demand are freely expressed in price. This is in contrast to a controlled market where supply, demand and price can be regulated.
Fundamental Research – Analysis of industries and companies based on factors such as sales, assets, earnings, products or services, markets and management. For economics, basic research includes gross national product, interest rates, unemployment, inventories, savings, etc.
Funded debt – usually interest-bearing bonds or notes of a company. May include long-term bank loans. Does not include short-term loans, preferred or common shares.
Futures – Exchange-traded contracts specifying a future date for delivery or receipt of a specific quantity of a specific tangible or intangible product. Commodities traded in futures markets include stock index futures, agricultural products such as wheat, soybeans and pork; metals; and financial instruments. Futures are used by companies to hedge against adverse price changes and by speculators who hope to profit from such changes.
General Mortgage – A bond that is secured by a general mortgage on corporate property but may be preceded by one or more other mortgages.
Gilt-Edged – A high-quality bond issued by a company that has demonstrated its ability to generate comfortable profits over the years and pay interest to its bondholders without interruption.
Abandonment – a term with many different meanings. For one, a member of the Exchange can act on the floor for another member by executing an order for him along with a third member. The first member tells the third member that he is acting on behalf of the other member and is “giving up” the other member’s name, not his own.
Gold Fix – fixing the price of gold by dealers (especially at the central bank’s twice-daily meeting in London); the fix is the global base price for pricing gold bullion and gold-related contracts and products.
Good delivery – certain basic conditions must be met before delivery of a security sold on the Exchange. The collateral must be in the proper form to execute the sales contract and transfer title to the buyer.
Good ‘Til Canceled (GTC) or open order – An order to buy or sell that remains in effect until it is either filled or canceled.
Government Bonds – Obligations of the US government that are considered the highest class of securities issued.
Growth stock – a company’s stock whose earnings have grown relatively quickly.
Hedging – Buying or selling a derivative security (such as options or futures) to reduce or neutralize the risk of owning all or part of another security.
Holding company – A corporation that owns the securities of another company and, in most cases, has voting rights.
Mortgage – Pledge of securities as collateral – for example, to secure a debit balance in a collateral account.
Income Bond – In general, income bonds promise to repay the principal but only pay interest when it is earned. In some cases, unpaid interest on a revenue bond may accrue as a claim against the company when the bond matures. A revenue bond can also be issued instead of a preference share.
Indenture – A written agreement under which bonds and debentures are issued, stating the term, interest rate, and other terms.
Index – a statistical measure expressed as a percentage of the base year or years. For example, the NYSE Composite Index of all NYSE common stocks is based on 50 in 1965. The index is not an average.
Institutional Investor – An organization whose primary purpose is to invest its own assets or assets it has entrusted to others. Includes pension funds, investment firms, insurance companies, universities and banks.
Interest – Payments that borrowers make to lenders for the use of their money. A company pays interest on its bonds to its bondholders.
Interrogation Device – A computer terminal that transmits market information on screen or paper tape – last sale price, quotes, volume, etc.
Intrinsic Value – The difference in dollars between the strike price of an option and the current cash value of the underlying security. Intrinsic value and time value are two components of option premium or price.
Investing – Using money to earn money, generate income, or increase capital, or both.
Investment Banker – Also known as an underwriter. An “intermediary” between the company issuing the new securities and the public. A common practice is for one or more investment bankers to buy a new issue of shares or bonds directly from the company. The group forms a syndicate to sell securities to individuals and institutions. Investment bankers also distribute very large blocks of stocks or bonds – perhaps in the hands of estates.
Investment Company – A company or trust that uses its capital to invest in other companies. There are two main types: closed-end and open-ended. Shares of closed-end investment companies, some of which are listed on the New York Stock Exchange, are freely transferable on the open market and are bought and sold like other shares. The capitalization of these companies will remain the same unless action is taken to change it, which rarely happens. Open-ended funds sell their shares to investors, are willing to buy back their old shares and are not listed. Open-ended funds are so called because their capitalization is not fixed; they issue more shares than people want.
Investment adviser – A person whose main activity is acting as an investment adviser and providing investment supervision services.
IRA – Individual Retirement Account. Tax-advantaged pension plan. An IRA allows you to invest directly in stocks and bonds through intermediaries such as mutual funds, insurance companies and banks, or through stockbrokers.
Issue – securities of a company or distribution of such securities.
Keogh Plan – A tax-advantaged personal pension scheme that can be set up by the self-employed.
More financial definitions can be found at http://www.slave2work.com/articles/financialdefinitions.html
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