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Fair price The equilibrium price for futures contracts. Also called the theoretical futures price, which equals
the spot price continuously compounded at the cost of carry rate for some time interval.

Fair price provision See:appraisal rights.

Fair-and-equitable test A set of requirements for a plan of reorganization to be approved by the bankruptcy

Fallout risk A type of mortgage pipeline risk that is generally created when the terms of the loan to be
originated are set at the same time as the sale terms are set. The risk is that either of the two parties, borrower
or investor, fails to close and the loan "falls out" of the pipeline.

FASB Financial Accounting Standards Board. Sets accounting standards for U.S. firms.

FASB No. 8 U.S. accounting standard that requires U.S. firms to translate their foreign affiliates' accounts by
the temporal method. Gains and losses from currency fluctuations were reported in current income. It was in
effect between 1975 and 1981 and became the most controversial accounting standard in the U.S. It was
replaced by FASB No. 52 in 1981.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
FASB No. 52 The U.S. accounting standard which was replaced by FASB No. 8. U.S. companies are required
to translate foreign accounts by the current rate and report the changes from currency fluctuations in a
cumulative translation adjustment account in the equity section of the balance sheet.

FCIA Foreign Credit Insurance Association. A private U.S. consortium of insurance companies that offers
trade credit insurance to U.S. exporters in conjunction with the U.S. Export-Import Bank.

FDIC Federal Deposit Insurance Corporation.

Feasible portfolio A portfolio that an investor can construct given the assets available.

Feasible set of portfolios The collection of all feasible portfolios.

Feasible target payout ratios Payout ratios that are consistent with the availability of excess funds to make
cash dividend payments.

Federal agency securities Securities issued by corporations and agencies created by the U.S. government,
such as the Federal Home Loan Bank Board and Ginnie Mae.

Federal credit agencies Agencies of the federal government set up to supply credit to various classes of
institutions and individuals, e.g. S&Ls, small business firms, students, farmers, and exporters.

Federal Deposit Insurance Corporation (FDIC) A federal institution that insures bank deposits.

Federal Financing Bank A federal institution that lends to a wide array of federal credit agencies funds it
obtains by borrowing from the U.S. Treasury.

Federal funds Non-interest bearing deposits held in reserve for depository institutions at their district Federal
Reserve Bank. Also, excess reserves lent by banks to each other.

Federal funds market The market where banks can borrow or lend reserves, allowing banks temporarily
short of their required reserves to borrow reserves from banks that have excess reserves.

Federal funds rate This is the interest rate that banks with excess reserves at a Federal Reserve district bank
charge other banks that need overnight loans. The Fed Funds rate, as it is called, often points to the direction
of U.S. interest rates.

Federal Home Loan Banks The institutions that regulate and lend to savings and loan associations. The
Federal Home Loan Banks play a role analogous to that played by the Federal Reserve Banks vis-à-vis
member commercial banks.

Federal Reserve System The central bank of the U.S., established in 1913, and governed by the Federal
Reserve Board located in Washington, D.C. The system includes 12 Federal Reserve Banks and is authorized
to regulate monetary policy in the U.S. as well as to supervise Federal Reserve member banks, bank holding
companies, international operations of U.S.banks, and U.S.operations of foreign banks.

Federally related institutions Arms of the federal government that are exempt from SEC registration and
whose securities are backed by the full faith and credit of the U.S. government (with the exception of the
Tennessee Valley Authority).

Fedwire A wire transfer system for high-value payments operated by the Federal Reserve System.

FHA prepayment experience The percentage of loans in a pool of mortgages outstanding at the origination
anniversary, based on annual statistical historic survival rates for FHA-insured mortgages.

Fiat money Nonconvertible paper money.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Field warehouse Warehouse rented by a warehouse company on another firm's premises.

Figuring the tail Calculating the yield at which a future money market (one available some period hence) is
purchased when that future security is created by buying an existing instrument and financing the initial
portion of its life with a term repo.

Fill The price at which an order is executed.

Fill or kill order A trading order that is canceled unless executed within a designated time period. Related:
open order.

Filter A rule that stipulates when a security should be bought or sold according to past price action.

Finance A discipline concerned with determining value and making decisions. The finance function allocates
resources, which includes acquiring, investing, and managing resources.

Financial analysts Also called securities analysts and investment analysts, professionals who analyze
financial statements, interview corporate executives, and attend trade shows, in order to write reports
recommending either purchasing, selling, or holding various stocks.

Financial assets Claims on real assets.

Financial control The management of a firm's costs and expenses in order to control them in relation to
budgeted amounts.

Financial distress Events preceding and including bankruptcy, such as violation of loan contracts.

Financial distress costs Legal and administrative costs of liquidation or reorganization. Also includes
implied costs associated with impaired ability to do business (indirect costs).

Financial engineering Combining or dividing existing instruments to create new financial products.

Financial future A contract entered into now that provides for the delivery of a specified asset in exchange
for the selling price at some specified future date.

Financial intermediaries Institutions that provide the market function of matching borrowers and lenders or

Financial lease Long-term, non-cancelable lease.

Financial leverage Use of debt to increase the expected return on equity. Financial leverage is measured by
the ratio of debt to debt plus equity.

Financial leverage clientele A group of investors who have a preference for investing in firms that adhere to
a particular financial leverage policy.

Financial leverage ratios Related: capitalization ratios.

Financial market An organized institutional structure or mechanism for creating and exchanging financial

Financial objectives Objectives of a financial nature that the firm will strive to accomplish during the period
covered by its financial plan.

Financial plan A financial blueprint for the financial future of a firm.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Financial planning The process of evaluating the investing and financing options available to a firm. It
includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in
the form of a financial plan, and then comparing future performance against that plan.

Financial press That portion of the media devoted to reporting financial news.

Financial ratio The result of dividing one financial statement item by another. Ratios help analysts interpret
financial statements by focussing on specific relationships.

Financial risk The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
Also referred to as the additional risk that a firm's stockholder bears when the firm utilizes debt and equity.

Financing decisions Decisions concerning the liabilities and stockholders' equity side of the firm's balance
sheet, such as the decision to issue bonds.

Firm Refers to an order to buy or sell that can be executed without confirmation for some fixed period. Also,
a synonym for company.

Firm commitment underwriting An undewriting in which an investment banking firm commits to buy the
entire issue and assumes all financial responsibility for any unsold shares.

Firm's net value of debt Total firm value minus total firm debt.

Firm-specific risk See:diversifiable risk or unsystematic risk.

First notice day The first day, varying by contracts and exchanges, on which notices of intent to deliver
actual financial instruments or physical commodities against futures are authorized.

First-call With CMOs, the start of the cash flow cycle for the cash flow window.

First-In-First-Out (FIFO) A method of valuing the cost of goods sold that uses the cost of the oldest item in
inventory first.

First-pass regression A time series regression to estimate the betas of securities portfolios.

Fiscal agency agreement An alternative to a bond trust deed. Unlike the trustee, the fiscal agent acts as an
agent of the borrower.

Fisher effect A theory that nominal interest rates in two or more countries should be equal to the required real
rate of return to investors plus compensation for the expected amount of inflation in each country.

Fisher's separation theorem The firm's choice of investments is separate from its owner's attitudes towards
investments. Also refered to as portfolio separation theorem.

Fiscal policy The use of government spending and taxing for the specific purpose of stabilizing the economy.

Five Cs of credit Five characteristics that are used to form a judgement about a customer's creditworthiness:
character, capacity, capital, collateral, and conditions.

Fixed asset Long-lived property owned by a firm that is used by a firm in the production of its income.
Tangible fixed assets include real estate, plant, and equipment. Intangible fixed assets include patents,
trademarks, and customer recognition.

Fixed asset turnover ratio The ratio of sales to fixed assets.

Fixed cost A cost that is fixed in total for a given period of time and for given production levels.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Fixed-annuities Annuity contracts in which the insurance company or issuing financial institution pays a
fixed dollar amount of money per period.

Fixed-charge coverage ratio A measure of a firm's ability to meet its fixed-charge obligations: the ratio of
(net earnings before taxes plus interest charges paid plus long-term lease payments) to (interest charges paid
plus long-term lease payments).

Fixed-dates In the Euromarket the standard periods for which Euros are traded (1 month out to a year out) are
referred to as the fixed dates.

Fixed-dollar obligations Conventional bonds for which the coupon rate is set as a fixed percentage of the par

Fixed-dollar security A nonnegotiable debt security that can be redeemed at some fixed price or according to
some schedule of fixed values, e.g., bank deposits and government savings bonds.

Fixed-exchange rate A country's decision to tie the value of its currency to another country's currency, gold
(or another commodity), or a basket of currencies.

Fixed-income equivalent Also called a busted convertible, a convertible security that is trading like a straight
security because the optioned common stock is trading low.

Fixed-income instruments Assets that pay a fixed-dollar amount, such as bonds and preferred stock.

Fixed-income market The market for trading bonds and preferred stock.

Fixed price basis An offering of securities at a fixed price.

Fixed-price tender offer A one-time offer to purchase a stated number of shares at a stated fixed price,
usually a premium to the current market price.

Fixed-rate loan A loan on which the rate paid by the borrower is fixed for the life of the loan.

Fixed-rate payer In an interest rate swap the counterparty who pays a fixed rate, usually in exchange for a
floating-rate payment.

Flat benefit formula Method used to determine a participant's benefits in a defined benefit plan by
multiplying months of service by a flat monthly benefit.

Flat price risk Taking a position either long or short that does not involve spreading.

Flat trades (1) A bond in default trades flat; that is, the price quoted covers both principal and unpaid,
accrued interest. (2) Any security that trades without accrued interest or at a price that includes accrued
interest is said to trade flat.

Flattening of the yield curve A change in the yield curve where the spread between the yield on a long-term
and short-term Treasury has decreased. Compare steepening of the yield curve and butterfly shift.

Flat price (also clean price) The quoted newspaper price of a bond that does not include accrued interest.
The price paid by purchaser is the full price.

Flight to quality The tendency of investors to move towards safer, government bonds during periods of high
economic uncertainty.

Flip-flop note Note that allows investors to switch between two different types of debt.
Dictionary of Finantial and Business Terms
Lico Reis “ Consultoria & Línguas
Float The number of shares that are actively tradable in the market, excluding shares that are held by officers
and major stakeholders that have agreements not to sell until someone else is offered the stock.

Floater Floating rate bond.

Floating exchange rate A country's decision to allow its currency value to freely change. The currency is not
constrained by central bank intervention and does not have to maintain its relationship with another currency
in a narrow band. The currency value is determined by trading in the foreign exchange market.


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