Extrapolative statistical models Models that appl y a formula to historical data and pro j ect results for a future period. Such models include the simple linear trend model, the simple exponential model, and the simple autoregressive model. Extraordinary positive value A positive net present value. Extra or special dividends A dividend that is paid in addition to a firm's "re g ular" quarterl y dividend. Extinguish Retire or pay off debt. External market Also referred to as the international market, the offshore market, or, more popularl y , the Euromarket, the mechanism for trading securities that (1) at issuance are offered simultaneously to investors in a number of countries and (2) are issued outside the jurisdiction of any single country. Related: internal market External finance Finance that is not generated by the firm: new borrowing or a stock issue. External efficiency Related: pricing efficiency. Extension swap Extendin g maturit y throu g h a swap, e. g . sellin g a 2- y ear note and bu y in g one with a sli g htl y longer current maturity. Extension date The da y on which the first option either expires or is extended. Extension Voluntar y arran g ements to restructure a firm's debt, under which the pa y ment date is postponed. Extendable notes Note the maturit y of which can be extended b y mutual a g reement of the issuer and investors. Extendable bond Bond whose maturit y can be extended at the option of the lender or issuer. Expropriation The official seizure b y a g overnment of private propert y . An y g overnment has the ri g ht to seize such property, according to international law, if prompt and adequate compensation is given. Exposure netting Offsettin g exposures in one currenc y with exposures in the same or another currenc y , where exchan g e rates are expected to move in such a wa y that losses or g ains on the first exposed position should be offset b y gains or losses on the second currency exposure. Export-Import Bank (Ex-Im Bank) The U.S. federal government agency that extends trade credits to U.S. companies to facilitate the financing of U.S. exports. Expiration date The last da y (in the case of American-st y le) or the onl y da y (in the case of European-st y le) on which an option may be exercised. For stock options, this date is the Saturday immediately following the 3rd Friday of the expiration month; however, brokerage firms may set an earlier deadline for notification of an option holder's intention to exercise. If Friday is a holiday, the last trading day will be the preceding Thursday. Expiration cycle An expiration c y cle relates to the dates on which options on a particular securit y expire. A g iven option will be placed in 1 of 3 c y cles, the Januar y c y cle, the Februar y c y cle, or the March c y cle. At an y point in time, an option will have contracts with 4 expiration dates outstanding, 2 in near-term months and 2 in far-term months. Expiration The time when the option contract ceases to exist (expires). Expensed Charged to an expense account, fully reducing reported profit of that year, as is appropriate for expenditures for items with useful lives under one year. 51 Dictionary of Finantial and Business Terms Lico Reis - Consultoria & L?nguas licoreis@terra.com.br FASB No. 8 U.S. accountin g standard that requires U.S. firms to translate their forei g n affiliates' accounts b y 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 accountin g standard in the U.S. It was replaced b y FASB No. 52 in 1981. FASB Financial Accounting Standards Board. Sets accounting standards for U.S. firms. Fallout risk A t y pe of mort g a g e pipeline risk that is g enerall y 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. Fair-and-equitable test A set of requirements for a plan of reor g anization to be approved b y the bankruptc y court. Fair price provision See:appraisal rights. 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 market price Amount at which an asset would chan g e hands between two parties, both havin g knowledge of the relevant facts. Also referred to as market price. Fair game An investment prospect that has a zero risk premium. Fail A trade is said to fail if on settlement date either the seller fails to deliver securities in proper form or the bu y er fails to deliver funds in proper form. Factoring Sale of a firm's accounts receivable to a financial institution known as a factor. Factor portfolio A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of zero on any other factors. Factor model A way of decomposing the factors that influence a security's rate of return into common and firm-specific influences. Factor analysis A statistical procedure that seeks to explain a certain phenomenon, such as the return on a common stock, in terms of the behavior of a set of predictive factors. Factor A financial institution that bu y s a firm's accounts receivables and collects the debt. Face value See: Par value. Ex-rights date The date on which a share of common stock be g ins tradin g ex-ri g hts. Ex-rights In connection with a rights offering, shares of stock that are trading without the rights attached. Ex-dividend date The first day of trading when the seller, rather than the buyer, of a stock will be entitled to the most recently announced dividend payment. This date set by the NYSE (and generally followed on other US exchanges) is currently two business days before the record date. A stock that has gone ex-dividend is marked with an x in newspaper listings on that date. Ex-dividend This literall y means "without dividend." The bu y er of shares when the y are quoted ex-dividend is not entitled to receive a declared dividend. 52 Dictionary of Finantial and Business Terms Lico Reis - Consultoria & L?nguas licoreis@terra.com.br Fiat money Nonconvertible paper money. 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. Fedwire A wire transfer system for high-value payments operated by the Federal Reserve System. 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). Federal Reserve System The central bank of the U.S., established in 1913, and g overned b y 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 holdin g companies, international operations of U.S.banks, and U.S.operations of foreign banks. Federal Home Loan Banks The institutions that re g ulate and lend to savin g s 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 funds rate This is the interest rate that banks with excess reserves at a Federal Reserve district ban k char g e 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 funds market The market where banks can borrow or lend reserves, allowin g banks temporaril y short of their required reserves to borrow reserves from banks that have excess reserves. Federal funds Non-interest bearin g deposits held in reserve for depositor y institutions at their district Federal Reserve Bank. Also, excess reserves lent by banks to each other. 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 Deposit Insurance Corporation (FDIC) A federal institution that insures bank deposits. Federal credit agencies A g encies of the federal g overnment set up to suppl y credit to various classes of institutions and individuals, e.g. S&Ls, small business firms, students, farmers, and exporters. Federal agency securities Securities issued b y corporations and a g encies created b y the U.S. g overnment, such as the Federal Home Loan Bank Board and Ginnie Mae. Feasible target payout ratios Payout ratios that are consistent with the availability of excess funds to make cash dividend payments. Feasible set of portfolios The collection of all feasible portfolios. Feasible portfolio A portfolio that an investor can construct given the assets available. FDIC Federal Deposit Insurance Corporation. FCIA Forei g n 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. FASB No. 52 The U.S. accountin g standard which was replaced b y 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. 53 Dictionary of Finantial and Business Terms Lico Reis - Consultoria & L?nguas licoreis@terra.com.br Financial plan A financial blueprint for the financial future of a firm. Financial objectives Ob j ectives of a financial nature that the firm will strive to accomplish durin g the period covered by its financial plan. Financial market An or g anized institutional structure or mechanism for creatin g and exchan g in g financial assets. Financial leverage ratios Related: capitalization ratios. Financial leverage clientele A g roup of investors who have a preference for investin g in firms that adhere to a particular financial leverage policy. 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 lease Long-term, non-cancelable lease. Financial intermediaries Institutions that provide the market function of matchin g borrowers and lenders or traders. 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 engineering Combinin g or dividin g existin g instruments to create new financial products. Financial distress costs Le g al and administrative costs of liquidation or reor g anization. Also includes implied costs associated with impaired ability to do business (indirect costs). Financial distress Events precedin g and includin g bankruptc y , such as violation of loan contracts. Financial control The mana g ement of a firm's costs and expenses in order to control them in relation to budgeted amounts. Financial assets Claims on real assets. 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. Finance A discipline concerned with determinin g value and makin g decisions. The finance function allocates resources, which includes acquiring, investing, and managing resources. Filter A rule that stipulates when a security should be bought or sold according to past price action. Fill or kill order A trading order that is canceled unless executed within a designated time period. Related: open order. Fill The price at which an order is executed. Figuring the tail Calculatin g the y ield at which a future mone y market (one available some period hence) is purchased when that future securit y is created b y bu y in g an existin g instrument and financin g the initial portion of its life with a term repo. 54 Dictionary of Finantial and Business Terms Lico Reis - Consultoria & L?nguas licoreis@terra.com.br Field warehouse Warehouse rented by a warehouse company on another firm's premises. Fixed cost A cost that is fixed in total for a given period of time and for given production levels. Fixed asset turnover ratio The ratio of sales to fixed assets. Fixed asset Lon g -lived propert y owned b y a firm that is used b y 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. Five Cs of credit Five characteristics that are used to form a j ud g ement about a customer's creditworthiness: character, capacity, capital, collateral, and conditions. Fiscal policy The use of government spending and taxing for the specific purpose of stabilizing the economy. 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. Fisher effect A theor y that nominal interest rates in two or more countries should be equal to the required real rate o f return to investors plus compensation for the expected amount of inflation in each country. Fiscal agency agreement An alternative to a bond trust deed. Unlike the trustee, the fiscal agent acts as an a g ent of the borrower. First-pass regression A time series re g ression to estimate the betas of securities portfolios. 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-call With CMOs, the start of the cash flow cycle for the cash flow window. First notice day The first da y , var y in g b y contracts and exchan g es, on which notices of intent to deliver actual financial instruments or physical commodities against futures are authorized. Firm-specific risk See:diversifiable risk or unsystematic risk. Firm's net value of debt Total firm value minus total firm debt. 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 Refers to an order to bu y or sell that can be executed without confirmation for some fixed period. Also, a synonym for company. Financing decisions Decisions concernin g the liabilities and stockholders' equit y side of the firm's balance sheet, such as the decision to issue bonds. 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. Financial ratio The result of dividin g one financial statement item b y another. Ratios help anal y sts interpret financial statements by focussing on specific relationships. Financial press That portion of the media devoted to reporting financial news. Financial planning The process of evaluatin g the investin g and financin g options available to a firm. It includes attemptin g to make optimal decisions, pro j ectin g the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against that plan. 55 Dictionary of Finantial and Business Terms Lico Reis - Consultoria & L?nguas licoreis@terra.com.br Flip-flop note Note that allows investors to switch between two different types of debt. Flight to quality The tendenc y of investors to move towards safer, g overnment bonds durin g periods of hi g h economic uncertainty. 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. Flattening of the yield curve A chan g e in the y ield curve where the spread between the y ield on a lon g -term and short-term Treasury has decreased. Compare steepening of the yield curve and butterfly shift. Flat trades (1) A bond in default trades flat; that is, the price quoted covers both principal and unpaid, accrued interest. (2) An y securit y that trades without accrued interest or at a price that includes accrued interest is said to trade flat. Flat price risk Taking a position either long or short that does not involve spreading. 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. Fixed-rate payer In an interest rate swap the counterparty who pays a fixed rate, usually in exchange for a floating-rate payment. Fixed-rate loan A loan on which the rate paid by the borrower is fixed for the life of the loan. Fixed-price tender offer A one-time offer to purchase a stated number of shares at a stated fixed price, usuall y a premium to the current market price. Fixed price basis An offering of securities at a fixed price. Fixed-income market The market for trading bonds and preferred stock. Fixed-income instruments Assets that pa y a fixed-dollar amount, such as bonds and preferred stock. Fixed-income equivalent Also called a busted convertible, a convertible securit y that is tradin g like a strai g ht security because the optioned common stock is trading low. 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-dollar security A nonne g otiable debt securit y that can be redeemed at some fixed price or accordin g to some schedule of fixed values, e.g., bank deposits and government savings bonds. Fixed-dollar obligations Conventional bonds for which the coupon rate is set as a fixed percenta g e of the par value. Fixed-dates In the Euromarket the standard periods for which Euros are traded (1 month out to a y ear out) are referred to as the fixed dates. Fixed-charge coverage ratio A measure of a firm's abilit y to meet its fixed-char g e obli g ations: 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-annuities Annuit y contracts in which the insurance compan y or issuin g financial institution pa y s a fixed dollar amount of money per period. 56 Dictionary of Finantial and Business Terms Lico Reis - Consultoria & L?nguas licoreis@terra.com.br Foreign bond market That portion of the domestic bond market that represents issues floated b y forei g n companies to governments. Foreign bond A bond issued on the domestic capital market of anther compan y . Foreign banking market That portion of domestic bank loans supplied to foreigners for use abroad. 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. Force majeure risk The risk that there will be an interruption of operations for a prolon g ed period after a pro j ect finance project has been completed due to fire, flood, storm, or some other factor beyond the control of the project's sponsors. Flow-through method The practice of reportin g to shareholders usin g strai g ht-line depreciation and accelerated depreciation for tax purposes and "flowing through" the lower income taxes actually paid to the financial statement prepared for shareholders. 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. Flower bond Government bonds that are acceptable at par in pa y ment of federal estate taxes when owned b y the decedent at the time of death. 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". Floor planning Arran g ement used to finance inventor y . A finance compan y bu y s the inventor y , which is then held in trust by the user. 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. Floating-rate preferred Preferred stock pa y in g dividends that var y with short-term interest rates. Floating-rate payer In an interest rate swap, the counterpart y who pa y s a rate based on a reference rate, usuall y in exchange for a fixed-rate payment Floating-rate note (FRN) Note whose interest payment varies with short-term interest rates. Floating-rate contract A g uaranteed investment contract where the credit ratin g is tied to some variable ("floating") interest rate benchmark, such as a specific-maturity Treasury yield. 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 lien General lien against a company's assets or against a particular class of assets. Floating exchange rate A countr y 's decision to allow its currenc y value to freel y chan g e. The currenc y 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. Floater Floatin g rate bond. Float The number of shares that are activel y tradable in the market, excludin g shares that are held b y officers and major stakeholders that have agreements not to sell until someone else is offered the stock. 57 Dictionary of Finantial and Business Terms Lico Reis - Consultoria & L?nguas licoreis@terra.com.br Forward cover Purchase or sale of forward foreign currency in order to offset a known future cash flow. Forward contract A cash market transaction in which deliver y of the commodit y 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. 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. 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. Forfaiter Purchaser of promises to pa y issued b y importers. Forex Foreign exchange. Foreign tax credit Home countr y credit a g ainst domestic income tax for forei g n taxes paid on forei g n derived earnings. 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 market beta A measure of foreign market risk that is derived from the capital asset pricing model. Foreign market Part of a nation's internal market, representin g the mechanisms for issuin g and tradin g securities of entities domiciled outside that nation. Compare external market and domestic market. Foreign exchange swap An a g reement to exchan g e stipulated amounts of one currenc y for another currenc y at one or more future dates. Foreign exchange risk The risk that a lon g or short position in a forei g n currenc y mi g ht have to be closed out at a loss due to an adverse movement in the currency rates. Foreign exchange dealer A firm or individual that bu y s forei g n exchan g e from one part y and then sells it to another party. The dealer makes the difference between the buying and selling prices, or spread. Foreign exchange controls Various forms of controls imposed b y a g overnment on the purchase/sale of foreign currencies by residents or on the purchase/sale of local currency by nonresidents. Foreign exchange Currency from another country. Foreign equity market That portion of the domestic equity market that represents issues floated by foreign companies. Foreign direct investment (FDI) The acquisition abroad of ph y sical assets such as plant and equipment, with operating control residing in the parent corporation. Foreign currency translation The process of restatin g forei g n currenc y accounts of subsidiaries into the reporting currency of the parent company in order to prepare consolidated financial statements. Foreign currency option An option that conve y s the ri g ht to bu y or sell a specified amount of forei g n currency at a specified price within a specified time period. Foreign currency Foreign money. 58 Dictionary of Finantial and Business Terms Lico Reis - Consultoria & L?nguas licoreis@terra.com.br 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. Free reserves Excess reserves minus member bank borrowin g s at the Fed. 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 float An exchan g e rate s y stem characterized b y the absence of g overnment intervention. Also known as clean float. Free cash flows Cash not required for operations or for reinvestment. Often defined as earnin g s before interest (often obtained from operating income line on the income statement) less capital expenditures less the chan g e in working capital. Freddie Mac (Federal Home Loan Mortgage Corporation) A Con g ressionall y 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. Fourth market Direct trading in exchange-listed securities between investors without the use of a broker. 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. Forward sale A method for hed g in g price risk which involves an a g reement between a lender and an investor to sell particular kinds of loans at a specified price and future time. Forward rate agreement (FRA) Agreement to borrow or lend at a specified future date at an interest rate that is fixed today. Forward rate A pro j ection of future interest rates calculated from either the spot rates or the y ield curve. Forward premium A currency trades at a forward premium when its forward price is higher than its spot price. Forward market A market in which participants a g ree to trade some commodit y , securit y , or forei g n exchange at a fixed price for future delivery. Forward looking multiple A truncated expression for a P/E ratio that is based on forward (expected) earnings rather than on trailing earnings. Forward interest rate Interest rate fixed toda y on a loan to be made at some future date. Forward forward contract In Eurocurrencies, a contract under which a deposit of fixed maturit y is a g reed to at a fixed price for future delivery. Forward Fed funds Fed funds traded for future delivery. Forward exchange rate Exchange rate fixed today for exchanging currency at some future date. Forward discount A currency trades at a forward discount when its forward price is lower than its spot price. Forward differential Annualized percenta g e difference between spot and forward rates. 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. 59 Dictionary of Finantial and Business Terms Lico Reis - Consultoria & L?nguas licoreis@terra.com.br 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. Funding risk Related: interest rate risk Funding ratio The ratio of a pension plan's assets to its liabilities. Funded debt Debt maturing after more than one year. Fundamental descriptors In the model for calculatin g fundamental beta, ratios in risk indexes other than market variability, which rely on financial data other than price data. 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 analysis Securit y anal y sis that seeks to detect misvalued securities b y an anal y sis 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. Fund family Set of funds with different investment ob j ectives offered b y one mana g ement compan y . In man y cases, investors may move their assets from one fund to another within the family at little or no cost. Functional currency As defined b y FASB No. 52, an affiliate's functional currenc y is the currenc y of the primary economic environment in which the affiliate generates and expends cash. Fully modified pass-throughs A g enc y pass-throu g hs that g uarantee the timel y pa y ment of both interest and principal. Related: modified pass-throughs Fully diluted earnings per shares Earnings per share expressed as if all outstanding convertible securities and warrants have been exercised. Full-service lease Also called rental lease. Lease in which the lessor promises to maintain and insure the equipment leased. Full-payout lease See: financial lease. Full price Also called dirty price, the price of a bond including accrued interest. Related: flat price. Full coupon bond A bond with a coupon equal to the going market rate, thereby, the bond is selling at par. Full faith-and-credit obligations The security pledges for larger municipal bond issuers, such as states and lar g e cities which have diverse funding sources. Front fee The fee initially paid by the buyer upon entering a split-fee option contract. Frictions The "stickiness" in makin g transactions; the total hassle includin g time, effort, mone y , and tax effects of gathering information and making a transaction such as buying a stock or borrowing money. 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. 60 Dictionary of Finantial and Business Terms Lico Reis - Consultoria & L?nguas licoreis@terra.com.br Frequency distribution The organization of data to show how often certain values or ranges of values occur. . costs include time, effort, money, and associated tax effects of gathering information and making a transaction. 60 Dictionary of Finantial and Business Terms Lico Reis - Consultoria &. dollar amount of money per period. 56 Dictionary of Finantial and Business Terms Lico Reis - Consultoria & L?nguas licoreis@terra.com.br Foreign bond market That portion of the domestic. consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against that plan. 55 Dictionary of Finantial and Business Terms Lico Reis