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Floating lien General lien against a company's assets or against a particular class of assets.

Floating supply The amount of securities believed to be available for immediate purchase, that is, in the
hands of dealers and investors wanting to sell.

Floating-rate contract A guaranteed investment contract where the credit rating is tied to some variable
("floating") interest rate benchmark, such as a specific-maturity Treasury yield.

Floating-rate note (FRN) Note whose interest payment varies with short-term interest rates.

Floating-rate payer In an interest rate swap, the counterparty who pays a rate based on a reference rate,
usually in exchange for a fixed-rate payment

Floating-rate preferred Preferred stock paying dividends that vary with short-term interest rates.

Floor broker A member who is paid a fee for executing orders for clearing members or their customers. A
floor broker executing customer orders must be licensed by the CFTC.

Floor planning Arrangement used to finance inventory. A finance company buys the inventory, which is then
held in trust by the user.

Floor trader A member who generally trades only for his own account, for an account controlled by him or
who has such a trade made for him. Also referred to as a "local".

Flower bond Government bonds that are acceptable at par in payment of federal estate taxes when owned by
the decedent at the time of death.

Flow-through basis An account for the investment credit to show all income statement benefits of the credit
in the year of acquisition, rather than spreading them over the life of the asset acquired.

Flow-through method The practice of reporting to shareholders using straight-line depreciation and
accelerated depreciation for tax purposes and "flowing through" the lower income taxes actually paid to the
financial statement prepared for shareholders.

Force majeure risk The risk that there will be an interruption of operations for a prolonged period after a
project finance project has been completed due to fire, flood, storm, or some other factor beyond the control
of the project's sponsors.

Forced conversion Use of a firm's call option on a callable convertible bond when the firm knows that the
bondholders will exercise their option to convert.

Foreign banking market That portion of domestic bank loans supplied to foreigners for use abroad.

Foreign bond A bond issued on the domestic capital market of anther company.

Foreign bond market That portion of the domestic bond market that represents issues floated by foreign
companies to governments.
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Foreign currency Foreign money.

Foreign currency option An option that conveys the right to buy or sell a specified amount of foreign
currency at a specified price within a specified time period.

Foreign currency translation The process of restating foreign currency accounts of subsidiaries into the
reporting currency of the parent company in order to prepare consolidated financial statements.

Foreign direct investment (FDI) The acquisition abroad of physical assets such as plant and equipment, with
operating control residing in the parent corporation.

Foreign equity market That portion of the domestic equity market that represents issues floated by foreign
companies.

Foreign exchange Currency from another country.

Foreign exchange controls Various forms of controls imposed by a government on the purchase/sale of
foreign currencies by residents or on the purchase/sale of local currency by nonresidents.

Foreign exchange dealer A firm or individual that buys foreign exchange from one party and then sells it to
another party. The dealer makes the difference between the buying and selling prices, or spread.

Foreign exchange risk The risk that a long or short position in a foreign currency might have to be closed out
at a loss due to an adverse movement in the currency rates.

Foreign exchange swap An agreement to exchange stipulated amounts of one currency for another currency
at one or more future dates.

Foreign market Part of a nation's internal market, representing the mechanisms for issuing and trading
securities of entities domiciled outside that nation. Compare external market and domestic market.

Foreign market beta A measure of foreign market risk that is derived from the capital asset pricing model.

Foreign Sales Corporation (FSC) A special type of corporation created by the Tax Reform Act of 1984 that
is designed to provide a tax incentive for exporting U.S.-produced goods.

Foreign tax credit Home country credit against domestic income tax for foreign taxes paid on foreign
derived earnings.

Forex Foreign exchange.

Forfaiter Purchaser of promises to pay issued by importers.

Formula basis A method of selling a new issue of common stock in which the SEC declares the registration
statement effective on the basis of a price formula rather than on a specific range.

48-hour rule The requirement that all pool information, as specified under the PSA Uniform Practices, in a
TBA transaction be communicated by the seller to the buyer before 3 p.m. EST on the business day 48-hours
prior to the agreed upon trade date.

Forward contract A cash market transaction in which delivery of the commodity is deferred until after the
contract has been made. It is not standardized and is not traded on organized exchanges. Although the
delivery is made in the future, the price is determined at the initial trade date.

Forward cover Purchase or sale of forward foreign currency in order to offset a known future cash flow.
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Forward delivery A transaction in which the settlement will occur on a specified date in the future at a price
agreed upon on the trade date.

Forward differential Annualized percentage difference between spot and forward rates.

Forward discount A currency trades at a forward discount when its forward price is lower than its spot price.

Forward exchange rate Exchange rate fixed today for exchanging currency at some future date.

Forward Fed funds Fed funds traded for future delivery.

Forward forward contract In Eurocurrencies, a contract under which a deposit of fixed maturity is agreed to
at a fixed price for future delivery.

Forward interest rate Interest rate fixed today on a loan to be made at some future date.

Forward looking multiple A truncated expression for a P/E ratio that is based on forward (expected)
earnings rather than on trailing earnings.

Forward market A market in which participants agree to trade some commodity, security, or foreign
exchange at a fixed price for future delivery.

Forward premium A currency trades at a forward premium when its forward price is higher than its spot
price.

Forward rate A projection of future interest rates calculated from either the spot rates or the yield curve.

Forward rate agreement (FRA) Agreement to borrow or lend at a specified future date at an interest rate
that is fixed today.

Forward sale A method for hedging price risk which involves an agreement between a lender and an investor
to sell particular kinds of loans at a specified price and future time.

Forward trade A transaction in which the settlement will occur on a specified date in the future at a price
agreed upon the trade date.

Fourth market Direct trading in exchange-listed securities between investors without the use of a broker.

Freddie Mac (Federal Home Loan Mortgage Corporation) A Congressionally chartered corporation that
purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and
securitizes these mortgages for sale into the capital markets.

Free cash flows Cash not required for operations or for reinvestment. Often defined as earnings before
interest (often obtained from operating income line on the income statement) less capital expenditures less the
change in working capital.

Free float An exchange rate system characterized by the absence of government intervention. Also known as
clean float.

Free on board Implies that distributive services like transport and handling performed on goods up to the
customs frontier of the economy from which the goods are classed as merchandise.

Free reserves Excess reserves minus member bank borrowings at the Fed.

Free rider A follower who avoids the cost and expense of finding the best course of action and by simply
mimicking the behavior of a leader who made these investments.
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Dictionary of Finantial and Business Terms
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Frequency distribution The organization of data to show how often certain values or ranges of values occur.

Friction costs Costs, both implied and direct, associated with a transaction. Such costs include time, effort,
money, and associated tax effects of gathering information and making a transaction.

Frictions The "stickiness" in making transactions; the total hassle including time, effort, money, and tax
effects of gathering information and making a transaction such as buying a stock or borrowing money.

Front fee The fee initially paid by the buyer upon entering a split-fee option contract.

Full faith-and-credit obligations The security pledges for larger municipal bond issuers, such as states and
large cities which have diverse funding sources.

Full coupon bond A bond with a coupon equal to the going market rate, thereby, the bond is selling at par.

Full price Also called dirty price, the price of a bond including accrued interest. Related: flat price.

Full-payout lease See: financial lease.

Full-service lease Also called rental lease. Lease in which the lessor promises to maintain and insure the
equipment leased.

Fully diluted earnings per shares Earnings per share expressed as if all outstanding convertible securities
and warrants have been exercised.

Fully modified pass-throughs Agency pass-throughs that guarantee the timely payment of both interest and
principal. Related: modified pass-throughs

Functional currency As defined by FASB No. 52, an affiliate's functional currency is the currency of the
primary economic environment in which the affiliate generates and expends cash.

Fund family Set of funds with different investment objectives offered by one management company. In many
cases, investors may move their assets from one fund to another within the family at little or no cost.

Fundamental analysis Security analysis that seeks to detect misvalued securities by an analysis of the firm's
business prospects. Research analysis often focuses on earnings, dividend prospects, expectations for future
interest rates, and risk evaluation of the firm.

Fundamental beta The product of a statistical model to predict the fundamental risk of a security using not
only price data but other market-related and financial data.

Fundamental descriptors In the model for calculating fundamental beta, ratios in risk indexes other than
market variability, which rely on financial data other than price data.

Funded debt Debt maturing after more than one year.

Funding ratio The ratio of a pension plan's assets to its liabilities.

Funding risk Related: interest rate risk

Funds From Operations (FFO) Used by real estate and other investment trusts to define the cash flow from
trust operations. It is earnings with depreciation and amortization added back. A similar term increasingly
used is Funds Available for Distribution (FAD), which is FFO less capital investments in trust property and
the amortization of mortgages.
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Future A term used to designate all contracts covering the sale of financial instruments or physical
commodities for future delivery on a commodity exchange.

Future investment opportunities The options to identify additional, more valuable investment opportunities
in the future that result from a current opportunity or operation.

Future value The amount of cash at a specified date in the future that is equivalent in value to a specified
sum today.

Futures A term used to designate all contracts covering the sale of financial instruments or physical
commodities for future delivery on a commodity exchange.

Futures commission merchant A firm or person engaged in soliciting or accepting and handling orders for
the purchase or sale of futures contracts, subject to the rules of a futures exchange and, who, in connection
with such solicitation or acceptance of orders, accepts any money or securities to margin any resulting trades
or contracts. The FCM must be licensed by the CFTC. Related: commission house , omnibus account

Futures contract Agreement to buy or sell a set number of shares of a specific stock in a designated future
month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures
market. A futures contract differs from an option because an option is the right to buy or sell, whereas a
futures contract is the promise to actually make a transaction. A future is part of a class of securities called
derivatives, so named because such securities derive their value from the worth of an underlying investment.

Futures contract multiple A constant, set by an exchange, which when multiplied by the futures price gives
the dollar value of a stock index futures contract.

Futures market A market in which contracts for future delivery of a commodity or a security are bought or
sold.

Futures option An option on a futures contract. Related: options on physicals.

Futures price The price at which the parties to a futures contract agree to transact on the settlement date.

Gamma The ratio of a change in the option delta to a small change in the price of the asset on which the
option is written.

Garmen-Kohlhagen option pricing model A widely used model for pricing foreign currency options.

Gearing Financial leverage.

GEMs (growing-equity mortgages) Mortgages in which annual increases in monthly payments are used to
reduce outstanding principal and to shorten the term of the loan.

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