Business and Economic Research Group Dictionary of Financial Words

F
F — The fifth letter of a NASDAQ stock symbol specifying that the issue is a foreign company.
F — The Commodity Futures Symbol which represents the January Delivery Month.
Face-Amount Certificate — A debt security issued by face amount. The holder makes payments periodically to the issues, and the
issuer promises to pay the purchaser the face value at maturity or the surrendered value if the security is presented by the maturity
specified in the certificate.
Face Value — (1) The amount of money printed on the face of the certificate of a security; the original dollar amount of indebtedness
incurred. (2) The same as Par Value; the principal of a security, insurance policy, or unit of currency; the amount of money
received by the holder of a security upon maturity and redemption. Face value is ordinarily the amount the issuing company
promises to pay at maturity. Face value is not an indication of market value. Typically, the face value and the market value will
be different, the difference representing the Premium (market value higher) or Discount (market value lower).
Face Rate of Interest — The stated interest rate of a promissory note. Also known as the contract rate or nominal interest rate, the
face rate of interest will be less than the Annual Percentage Rate (APR) if additional charges such as Origination Fees and
discount Points are charged by the lender.
Face Lift — Changes other than structural that result in an improved appearance of a building. Such things as repairs, paint, new
windows, and general cleaning all serve to improve the appearance of a building and, thus, give it a face lift.
Face Value — The value of a debt such as a mortgage as stated in the instrument itself. If current interest rates are greater than the
contract rate of interest, the market value of the debt instrument will be less than the face value since the instrument would have
to be discounted to generate the market rate of interest. Conversely, if the contract rate of interest is greater than current market
rates, the instrument, if sold, will sell for a premium and, thus, its market value will be greater than its face value.
Factor — Any number or symbol that when multiplied by another forms a product; the reciprocal of a rate.
Factors of Production — (1) Anything used as an input in the production process. In economics, usually grouped as land, labor,
capital, and (sometimes) the entrepreneur or management. (2) An economic principle which refers to the inputs necessary to
create goods or services. There are four factors of production: (a) capital, (b) labor, (c) entrepreneurship or management, and
(d) land. Each factor must be compensated in order for the owner(s) to be induced to part with the factor. For example, capital
is paid interest, labor is paid wages, entrepreneurship is paid profits, and land is paid rent. Since land is the only immobile factor
of production, it must attract the other three factors of production to it. As a result, land receives its payment only after the other
factors have been compensated. This means that real estate is “residual.” Thus, the value of real estate is dependent upon how
much compensation is left after the other three factors have been rewarded.
Factoring — A method of financing Accounts Receivable under which a firm sells its accounts receivable (generally without
Recourse) to a financial institution (the “factor”).
Factory Overhead — All manufacturing costs not considered direct materials or direct labor, including indirect materials, direct
labor, and factory depreciation, taxes, and insurance.
Fair Credit Reporting Act — A federal act which became effective April 1, 1971, and attempts to regulate the actions of credit
bureaus that give out erroneous credit information regarding consumers. First, banks and credit companies must make a
customer’s credit file available to the person in question. Further, the consumer, upon examining the file, has the right to correct
any errors that may appear in the credit reports. Secondly, if a creditor denies a loan to an applicant, the applicant must be given
the name and address of the credit bureau that supplied the credit information to the creditor. Upon request, the credit bureau
must supply the consumer with the pertinent information contained in the applicant’s credit file. Finally, the act limits the access
of the consumer’s credit records to people who: (a) evaluate an applicant for insurance, credit, or employment; (b) secure the
consumer’s permission; or (c) secure court permission.
Fair Employment Practice Acts — Statutes designed to eliminate discrimination in employment in terms of race, religion, natural
origin, or sex.
Fair Gamble — A gamble with an expected monetary value of zero, i.e., any expectation of gain being exactly offset by an
expectation of loss.
Fair Housing Amendment Act of 1988 — A federal act which amended the Federal Fair Housing Act of 1968 to include two new
protected classes, the handicapped and the “familial” status, or those with children under eighteen years of age. The amendment
became effective March 12, 1989.
Fair Insurance — An insurance policy with an expected monetary value of zero, i.e., any expectation of gain being exactly offset
by an expectation of loss.
Fair Market Value — (1) The price effecting exchange in the marketplace by willing buyers and sellers, each acting freely and
possessing all relevant information on market opportunities and alternative buying and selling opportunities. (2) An economic
concept denoting the price, in terms of money, at which a willing seller and willing buyer will agree when both parties are acting
prudently, knowledgeably, and under no compulsion.
Fair Labor Standards Acts — Collective statutes, particularly the federal statute designed to prevent excessive hours of

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employment and low pay, the employment of young children, and other unsound practices.
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 Rate of Return — The rate of return that state governments allow a public utility to earn on its investments and expenditures.
Utilities then use these profits to pay investors and provide service upgrades to their customers.
Fair Trade Acts — Collective statutes that authorize the making of resale price maintenance agreements as to trademark and brand
name articles, and generally provide that all persons in the industry are bound by such an agreement whether they have signed
it or not.
Fair-Trade Laws — Collective laws allowing manufacturers to fix minimum prices for their products and, if a single retailer agrees
to it, to bind all retailers to it.
Fair Value — (1) The fair value of a security is essentially synonymous with its Market Value. It is the price at which an asset or
service passes from a willing seller to a willing buyer. (2) Also regarded as the indifference point from a modeling perspective
as to whether to buy or sell a financial instrument. If the market price were higher than fair value it would suggest selling the
security. If the security was trading at less than fair value it would suggest buying it. When coupled with related derivative
instruments, the approach becomes one of Arbitrage. (3) (Futures Contracts) 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. More generally, fair value for any asset simply refers to the perception that it is neither underpriced (too cheap) nor
overpriced (too expensive).
Fair Value Difference — The disparity between a financial instrument’s trading price and its computed value.
Fair Value Pricing — A Mutual Funds valuation policy, generally sanctioned by the Securities and Exchange Commission (SEC),
in which mutual fund companies determine the value of their fund based on factors influencing stock prices other than closing
share prices, for example, the trading of futures tied to the securities in the portfolio. The procedure is intended to benefit long-
term investors from speculation and short-term market distortions.
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 the sale terms are established. The risk is that either of the two parties, borrower or investor, fails to close and the loan
“falls out” of the mortgage loan processing pipeline.
Family of Funds — A number of different Mutual Funds, each with its own investment objective, generally managed and distributed
by the same company. Shareholders in one fund can normally exchange shares for those of another fund within the family.
Fannie Mae — The acronym for the Federal National Mortgage Association (FNMA), which buys mortgages in the secondary
market, repackages them and sells off pieces to investors. The effect is to infuse the mortgage markets with fresh money.
Farmer’s Home Administration (FMHA) — An agency of the U. S. Department of Agriculture that provides credit to farmers,
rural residences, and certain communities. Currently, FMHA administers two loan programs for rural housing: (a) a direct loan
program, and (b) a guaranteed loan program. Properties securing such loans may not be located in urban areas and, like Federal
Housing Administration (FHA) and Department of Veterans Affairs (VA), FMHA requires that the property meet certain minimum
requirements. Although there is no statutory loan limit for such loans, the property must appraise for the contract sales price.
Information on both loan programs is available from any office of the Farmer’s Home Administration.
Farmland — A classification of land which denotes land primarily used for the raising of crops and or livestock.
Farm Mortgage — A loan secured by agricultural real estate. Such loans are normally used by farmers to raise capital for the
purchase and operation of their farms.
FASA Fellow, American Society of Appraisers — A professional designation awarded by the American Society of Appraisers to
individuals involved in the appraisal of both real and personal property.
FASB — The Financial Accounting Standards Board of the American Institute of Certified Public Accountants (CPAs). The FASB
is a nongovernmental group organized in 1973 to replace the Accounting Principles Board and to promulgate authoritative rules
for the general practice of financial accounting.
Fast Market — (1) A market trading condition when prices change quickly and volume is dramatic. At these times, the price reports
tend to lag tracing activity and a trading range of prices is substituted for price dissemination. Often special rules apply at such
times. (2) Excessively rapid trading in a specific security that causes a delay in the electronic updating of its last sale and market
conditions, particularly in Options.
FCM — See Futures Commission Merchant.
FDI — See Foreign Direct Investment.
FDIC — Federal Deposit Insurance Corporation, the federal agency that insures deposits of up to $100,000 in member banks.
Feasibility — The reasonable likelihood of satisfying certain investment objectives within the context of the market, finances, and
other resources or constraints.
Feasibility Study — A detailed analysis of a real estate project to determine the most profitable use and the likelihood of the
proposed use being a financial success. The study is often used by the promoter or developer to inure would-be investors to
participate in the venture and to assist lenders in making their decision whether or not to loan the necessary funds.
Featherbedding — (1) Labor practices which try to induce the employer to hire more labor than is needed to do the job. (2) Labor-
union practices that force employers to continue paying workers who are not really needed because their work is being done, or
could be done, by fewer workers or by machines.
Federal Advisory Council (FAC) [Federal Reserve System] — An advisory group consisting of one member elected annually by
the Board of Directors of each of the 12 Federal Reserve Banks who, as a group, meet with the Federal Reserve Board of
Governors at least four times each year to make recommendations on business and financial matters.
Federal Agency Security — Also referred to merely as agencies, a debt instrument issued by an agency of the federal government.

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While strictly not a debt obligation of the federal government, these are considered to carry the full faith and backing similar to
U.S. Treasury bills, notes, and bonds and therefore typically carry the highest debt ratings and lowest rates of interest.
Federal Agricultural Mortgage Corporation (“Farmer Mac”) — A federal agency chartered in 1988 to provide a secondary
market for farm mortgage loans.
Federal Debt — The total amount of government bonds and other securities which have been sold by the United States government
to private individuals and businesses and to the Federal Reserve banks.
Federal Debt Limit — The limit imposed by law as to the maximum allowed total face amount of outstanding obligations issued
or guaranteed as to principal and interest by the federal government. Guaranteed debt obligations held by the Secretary of the
Treasury are excluded.
Federal Deposit Insurance Corporation (FDIC) — (1) An agency of the U.S. government responsible for managing the bank
insurance funds insuring deposits at commercial banks and other qualifying financial institutions up to $100,000 per account in
interest and principal. FDIC insurance is mandatory for all nationally-chartered banks and all banks which are members of the
Federal Reserve System (Fed). The five-member board of directors of the FDIC consists of the chairman of the FDIC, the
Comptroller of the Currency, the director of the Office of Thrift Supervision, and two members appointed by the President and
confirmed by the Senate. (2) An independent agency functioning within the executive branch of the U.S. Government. FDIC
was established following the run on banks that occurred prior to the Great Depression and its purpose was to insure the deposits
of all banks who hold FDIC membership. As a result of the Financial Institutions Reform, Recovery, and Enforcement Act of
1989, FDIC currently insures both bank and thrift deposits. Thrift deposits are insured through the Savings Association Insurance
Fund (SAIF), while commercial bank deposits are covered through the Bank Insurance Fund (BIF). The FDIC insures deposits
up to a statutory limit for both banks and thrifts.
Federal Fair Housing Act of 1968 — A federal fair housing law which was passed as Title VIII of the Civil Rights Act of 1968.
As originally passed, the act prohibited discrimination in the sale or rental of residential dwelling units or vacant land intended
to be used as such on the basis of race, color, religion, or national origin. Discrimination on the basis of sex was prohibited by
an amendment in the Housing and Community Development Act of 1974. The Fair Housing Amendment Act of l988, which
became effective March l3, 1989, added two new protected classes, the handicapped and the “familial” status, or those with
children under eighteen.
Federal Farm Credit Bank — An institution created by the government with the purpose of uniting the financing activities of the
federal land banks, the federal intermediate credit banks, and the banks for cooperatives. Also see Federal Farm Credit System.
Federal Farm Credit System — A system chartered in 1971 through the farm credit act providing farmers with credit services
through a federal land bank, a federal intermediate credit bank, and a bank for cooperatives. Also see Federal Farm Credit Bank.
Federal Financial Assistance — For purposes of applying the provisions of the Single Audit Act of 1984 and Office of Management
and Budget (OMB) Circular A-128, audits of state and local governments, assistance provided by a federal agency in the form
of grants, contracts, loans, loan guarantees, property, cooperative agreements, interest subsidies, insurance, or direct
appropriations. Federal financial assistance does not include direct federal cash assistance to individuals.
Federal Funds — Also referred to simply as Fed funds, short-term, unsecured loans between member banks of the Federal Reserve
System (Fed) used to simultaneously satisfy banks’ needs to invest excess reserves and secure additional short-term funding.
Technically, fed funds are not borrowings, but represent the purchase of bank reserves through the Fed. Most dealings in fed
funds are overnight; however, longer arrangements are also supported under this mechanism.
Federal Funds Market — The market in which financial institutions with deficient reserves may borrow reserves from other
financial institutions or from nonfinancial corporations. The reserves are typically in the form of deposits at the Federal Reserve
System.
Federal Funds Rate — The rate charged on interbank, short-term (typically overnight) purchases of excess reserves (Federal
Funds). The fed funds rate also represents a key rate for Monetary Policy and is most often used by the Federal Reserve System
(Fed) and the Federal Open Market Committee (FOMC) as the target rate for monetary policy actions. In this respect, the fed
funds rate represents a key lending rate in the financial system and a rate of interest upon which other rates are based. By
“controlling” this interest rate through extensive sales and purchases of government securities (e.g., U.S. Treasury bills, notes,
and bonds), termed Open Market Operations, this rate can be “managed” or at least influenced and thereby serves to control,
within limits, other short-term and long-term interest rates throughout the financial markets.
Federal Home Loan Bank (FHLB) — One of eleven regional banks supervised by the Federal Home Loan Bank Board (FHLBB)
and supervising the activities of savings and loan associations.
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 Home Loan Bank Board (FHLBB) — A board established by the Federal Home Loan Bank Act of 1932 which chartered
and regulated federal savings and loan associations. The purpose of the board in regard to savings and loans was much the same
as that of the Federal Reserve System in regard to commercial banks. As part of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, the Office of Thrift Supervision (OTS) was established to replace the Federal Home Loan Bank Board
for the purpose of chartering, regulating, and supervising thrift institutions.
Federal Home Loan Mortgage Corporation (FHLMC) — (1) Commonly referred to as “Freddie Mac,” the FHLMC represents
a facilitator and conduit for the marketing of residential mortgages by purchasing mortgages from loan originators and then
issuing its own mortgage-backed bonds to private investors, typically institutional investors such as bank trust funds, insurance
companies, pension funds, and thrift institutions. The FHLMC’s participation certificates are collateralized by the underlying
pool of mortgage loans, with payment of interest and principal guaranteed by the FHLMC. (2) An affiliate of the Federal Home
Loan Bank which creates a secondary market in conventional residential loans and in FHA and VA loans by purchasing mortgage

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loans from members of the Federal Reserve System and the Federal Home Loan Bank Systems. (3) In 1970 under the Emergency
Home Finance Act, the Federal Home Loan Mortgage Corporation was created as a wholly-owned subsidiary of the Federal
Home Loan Bank System. Freddie Mac was established as a secondary mortgage market for savings and loan associations who
are members of the FHLBS.
Federal Housing Administration (FHA) — Federally sponsored agency chartered in 1934 whose stock is currently owned by
savings institutions across the United States. The agency buys residential mortgages that meet certain requirements, sells these
mortgages in packages, and insures the lenders against loss.
Federal Housing Finance Board (FHFB) — A U.S. government agency chartered in 1989 to assume the responsibilities formerly
held by the Federal Home Loan Bank system.
Federal Margin Call — A broker’s demand upon a customer for cash, or securities needed to satisfy the requirements of the Federal
Reserve System’s Regulation T in terms of the downpayment for a purchase or Short Sale of securities.
Federal National Mortgage Association (FNMA) — Also referred to as “Fannie Mae,” the FNMA is a federally chartered,
stockholder owned corporation that purchases residential mortgages insured or guaranteed by federal agencies, as well as
conventional mortgages in the secondary market. Funding for such purchases is obtained from fees, stock sales, and the sale of
securities. Created in 1938 by Congress as part of the “New Deal,” it holds a federal charter and an implicit suggestion that the
government would bail it out if it could not meet its debt obligations, thereby tending to reduce funding costs. FNMA could be
considered as a large and highly successful corporation with 1997 revenues reaching $27 billion, profits at $3 billion, and a
workforce of 3,500 employees. The FNMA is the largest and best known buyer of existing mortgages. The Federal National
Mortgage Association was reorganized in 1968 as a quasi-private corporation whose entire ownership is private. Fannie Mae
raises capital by issuing corporate stock which is actively traded on the New York Stock Exchange (NYSE) and by selling
mortgages out of its portfolio to various investors.
Federal Open Market Committee (FOMC) — The decision-making body of the Federal Reserve System (“Fed”). Consists of
twelve members, seven of which are the Federal Reserve Board of Governors, one is the president of the Federal Reserve Bank
of New York, and four others are elected on a rotating basis from the remaining eleven Federal Reserve (District) Banks. The
other seven Federal Reserve Bank Presidents sit as non-voting members of the FOMC. The FOMC is the policy making arm
of the Federal Reserve System. The FOMC directs open market operations, i.e., the buying and selling of U.S. Government
securities in order to control the U.S. money supply. The FOMC also directs operations in Foreign Exchange Markets.
Federal Open Market Operations — The primary tool in the conduct of Monetary Policy by the Federal Reserve Board of
Governors and the Federal Open Market Committee (FOMC). Open market operations consists of the buying and selling of U.S.
Government securities, (U.S. Treasury bills, notes and bonds) with the intent to change the overall level of bank reserves and
liquidity in the financial system and thereby affect interest rates. When the Fed buys securities it increases bank reserves which
results in additional bank liquidity, lower interest rates, increased lending activity and greater economic activity. This condition
is termed Easy Monetary Policy. When the Fed sells securities it decreases bank reserves, constricts liquidity, forces interest rates
up and decreases lending and economic activity. This condition is termed Tight Monetary Policy. Also simply referred to as
Open Market Operations. Also see Federal Reserve System.
Federal Reserve (District) Bank — One of twelve regional banks, one for each of the twelve Federal Reserve Districts, making
up part of the Federal Reserve System. Each Federal Reserve Bank has a president, operations and research staff, and a board
of directors make up of nine members generally representing the region served. The twelve Federal Reserve Districts and the
location of their Federal Reserve Banks are listed below:
[1] District 1 – Boston, Massachusetts;
[2] District 2 – New York, New York;
[3] District 3 – Philadelphia, Pennsylvania;
[4] District 4 – Cleveland, Ohio;
[5] District 5 – Richmond, Virginia;
[6] District 6 – Atlanta, Georgia;
[7] District 7 – Chicago, Illinois;
[8] District 8 – St. Louis, Missouri;
[9] District 9 – Minneapolis, Minnesota;
[10] District 10 – Kansas City, Missouri;
[11] District 11 – Dallas, Texas;
[12] District 12 – San Francisco, California.
Federal Reserve Board (FRB) of Governors — The seven-member governing board of the Federal Reserve System (“Fed”) whose
members, appointed by the President of the United States and confirmed by the Senate, serve 14-year terms with appointments
coming in two-year intervals. The board supervises the activities of the Fed and, as the majority of the Federal Open Market
Committee (FOMC), is principally responsible for the conduct of the nation’s Monetary Policy consisting of setting Reserve
Requirements, the Discount Rate, Open Market Operations, and making other key economic and monetary decisions.
Federal Reserve Float — “Checkbook” money that for a period of time appears on the books of both the payor and payee due to
the lag in the collection process. Federal Reserve float often arises during the Federal Reserve System’s check collection process.
In order to promote an efficient payments mechanism with certainty as to the date funds become available, the Federal Reserve
has employed the policy of crediting the reserve accounts of depository institutions depositing checks according to an availability
schedule before the Federal Reserve is able to obtain payment from others.
Federal Reserve Notes — (1) Basically, the paper currency used by the United States consisting of issues by the U.S. government

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to the public through the Federal Reserve Banks and their member banks. Notes represent money owed by the government to
the public. Currently, the item “Federal Reserve notes amounts outstanding” consists of new series issues. The Federal Reserve
note is the only class of currency currently issued. (2) The paper money which makes up most of the currency in the United
States. Nearly all of the nation’s circulating paper currency consists of Federal Reserve notes printed by the Bureau of Engraving
and Printing and issued to the Federal Reserve Banks which put them into circulation through depository institutions. Federal
Reserve notes are obligations of the U.S. government.
Federal Reserve System (FRS or more commonly the “Fed”) — The central banking system for the United States, the “Fed” was
established by the Federal Reserve Act of 1913 and serves as the nation’s central bank, issuing the nation’s currency, conducting
Monetary Policy through the regulation of the Money Supply and the cost of credit, facilitating the clearing of checks, providing
short-term credit to member banks through the discount mechanism (Discount Rate), and sets bank reserve requirements which
regulates the amount of cash on hand held against deposit accounts. The Fed also regulated bank operations, approves interstate
bank mergers, supervises bank holding companies, and provides oversight to international banking operations. Its component
parts include a 7-member Federal Reserve Board of Governors located in Washington, D.C., 12 Federal Reserve Districts each
with a Federal Reserve Bank (and 24 branch offices), the decision-making Federal Open Market Committee (FOMC) consisting
of the seven Fed Board Governors and five Federal Reserve District Bank presidents elected on a rotating basis (as an exception,
the president of the New York Federal Reserve Bank is a permanent member), Federal Advisory Council consisting of an elected
member from each Federal Reserve District which, as a group, provides recommendations to the Board of Governors on business
and financial matters, Federal Reserve staff members and researchers, and member banks owning stock in one of the 12 Federal
Reserve Banks. The 7-member Board of Governors are appointed by the President of the United States, with Senate confirmation,
for 14-year terms in staggared 2-year intervals (meaning that during the maximum 8 years in office, no President could appoint
a majority (four) of the board, assuming all retained their office for the full term).
Federal Revenue Stamp — A U. S. revenue stamp which until January 1, 1968, was required to be placed on deeds prior to
recordation. The rate was $0.55 per $500 of consideration, and proof that the stamps had been purchased was evidenced by the
actual placement of the stamps on the instrument being recorded. Since the end of this requirement in 1968, some states have
passed their own requirements for revenue stamps.
Federal Savings and Loan Insurance Corporation (FSLIC) — A federal institution that insures deposits of federally chartered
savings and loan associations. It was established in 1934 as an agency of the federal government which insured the deposits of
member savings and loan associations. Federally chartered S also referred to as fee simple absolute or fee. The owner of the
fee simple has unlimited power to dispose of the interests during his or her lifetime and upon death the property is automatically
passed on to the owner’s heirs and devisees either by will or by descent. Ownership in this country is ordinarily in the fee simple
form. The only restrictions on use are those restrictions defined by the law of nuisance or those necessarily imposed by law in
order to protect the interests of society. A fee simple owner may convey lesser estates, sell easements, mortgage the property
or do whatever else he or she wishes with the property so long as others are not harmed by the improper use of the property. The
fee simple absolute is created by using the words “to (name) and his heirs and assigns forever.” Compare to Life Estate,
Reversion.
Federal Trade Commission (FTC) — An organization created by the Federal Trade Commission Act of 1914. It is responsible
for thwarting “unfair methods of competition” and preventing monopolies and activities in restraint of trade. It also investigates
cases of industry espionage, bribery for the purpose of obtaining trade secrets or gaining business, and boycotts. Also see
Antitrust Laws, Sherman Antitrust Act, and Clayton Antitrust Act.
Federal Trade Commission Act — See Federal Trade Commission (FTC).
Fee Simple Determinable — A qualified fee simple estate created to exist only until the occurrence or nonoccurrence of a particular
event. The words, “so long as” are ordinarily used to create the estate.
Fee Simple Subject to a Condition Subsequent — A qualified fee estate which is subject to a power in the original grantor or the
grantor’s heirs to terminate the estate upon the happening of an event. The termination is not automatic, since the party with the
future interest called the right of reentry or power of termination must take steps to either enter upon the property or to bring a
court action to recover the land.
Fee Simple Subject to an Executory Limitation — A qualified fee simple estate which will automatically pass on to a third person
upon the occurrence or nonoccurrence of a stated event.
Fee Tail — An estate in land which was designed to restrict the conveyance of title to the descendants of the grantee. This estate
is established by a grant whereby the following words of conveyance are used, “to ‘X’ and the heirs of his body.” Effectively
the fee tail has created a long series of successive life estates. This estate was originally intended to promote the landlord
aristocracy in England by keeping property in family.
Feedback Effect — The effect of secondary changes in other markets on the market in which an initial change in supply or demand
occurred.
Fedwire — The Federal Reserve System’s funds transfer system. Fedwire is used for transferring reserve account balances of
depository institutions and government securities. Fedwire is also used for the settlement of other clearing systems, such as the
Clearing House Interbank Payments System (CHIPS).
Fertility-Opportunity Hypothesis — A population fertility theory, in contrast to the more universally accepted demographic
transition theory, that hypothesizes that parents have a biological urge to have large families and that they will see them, resources
permitting. People who perceive expanding economic opportunity raise their family size target and desire and seek more
children. Therefore, contrary to the demographic transition theory, rising living standards in many underdeveloped nations might
cause population to grow faster, not slower, than predicted according to tradition population growth theories, thereby affective
resource use and shortages.

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Feudal System — A system of land ownership established in England after the Norman of 1066, in which all property theoretically
resided in the king. In return for service or other duties the king would give a feud or fief, i.e., property, both real and personal,
to a lord.
FHA — See Federal Housing Administration (FHA).
FHA Insurance — An insurance fee charged the borrower on all FHA mortgages. The insurance payment is retained by FHA for
use in buying any mortgage in default that is held by a lender.
FHLMC — See Federal Home Loan Mortgage Corporation or Freddie Mac.
Fiat Money — Paper money issued by governments or central banks which is not backed by or convertible into anything, but is
money because the government declares it to be legal tender.
FICA — Federal Insurance Contribution Act under which the income of an individual is taxed to support a national social security
program providing retirement income, medical care, and death benefits. Employers pay a matching amount of tax on their
eligible employees.
Fictitious Credit — A Margin Account’s credit balance. Fictitious credit exists after the proceeds from a Short Sale are accounted
for with respect to the Margin Requirement. The proceeds from the short sale are reflected as a credit, but must stay in the
account to serve as security for the loan of securities made in a short sale, and are therefore inaccessible to the client for
withdrawal.
Fidelity Bond — A written promise to indemnify against losses from theft, defalcation, and misappropriation of public funds by
government officers and employees. Also see Surety Bond.
Fiduciary — (1) One who acts for another in financial matters. (2) A person in a position of trust or responsibility with specific
duties to act in the best interest of a client. (3) A person who essentially holds the character of a trustee. Real estate brokers and
salespersons are considered by law to be fiduciaries, thus they have a duty to act primarily for the principal’s (the person who
employed them) benefit and not their own. A fiduciary must act with the highest degree of care and good faith in relations with
the principal and on the principal’s business. The penalties for failing in fiduciary duties may be quite severe. Real estate brokers
and mortgage brokers are fiduciaries.
Fiduciary Relationship — A relationship of trust and confidence between principal and agent; lawyer and client; doctor and patient;
etc.
Fief — An interest in land given under a feudal system. The term “fee,” as used to denote the extent of one’s interest in land, is
derived from the term fief.
Field Warehousing — A method of financing inventories in which a “warehouse” is established at the place of business of the
borrowing firm.
FIFO (First-In, First-Out) Inventory Pricing — A valuation method that assumes that the oldest (earliest purchased) goods on
hand are sold first, resulting in an ending inventory priced at the most recent acquisition prices.
15-Year Mortgage — A loan with a less than traditional payback period, specifically one of fifteen years. During the past thirty
years, the vast majority of long-term residential loans have been made with twenty, twenty-five, and thirty year payouts.
However, in recent years more and more homebuyers have opted for loans with shorter maturity periods, such as fifteen-year
mortgages. The primary advantage of a early-payout mortgage is the fact that considerably less interest is paid over the life of
the mortgage since the principal is borrowed for a shorter period of time. However, offsetting this advantage is the fact that since
the principal is borrowed for a less than normal period of time, the principal repayment each period is greater than with twenty-
five and thirty-year mortgages. Thus, higher monthly payments eliminate many people from qualifying for fifteen-year
mortgages.
52-Week Trading History — Also referred to as a “candlestick” chart, it plots a stock’s opening, high, low, and closing prices.
Highs and lows are denoted by a vertical line, while the opening and closing prices appear as either hollow or filled boxes. If the
box is hollow, the closing price was higher than the opening price. If the box is filled, the closing price was lower. A string of
either solid or hollow boxes suggests a trend.
Fill or Kill Order (FOK) — A trading order that is canceled unless executed within a designated time period. A market or limited
price order that is to be executed in its entirety as soon as it is represented in the trading crowd, and, if not so executed, is to be
treated as canceled. For purposes of this definition, a stop is considered an execution. Equivalent to AON and IOC
simultaneously.
Filtering Down Process — The means by which housing once occupied by middle- and upper-income groups becomes available
to lower- income families. Normally the property has physically deteriorated and thus is less expensive than when originally
occupied.
Final Demand — The ultimate demand (consumption) by the final consumers of Commodities (goods and services). Within an
economic system such final demand is typically attributed to four (4) basic sources: (1) Households (Personal Consumption
Expenditures); (2) Businesses (investment spending, housing construction, inventory spending); (3) Governments (public
expenditures); and (4) Foreign (export demand).
Final Goods — Goods produced by domestic producers during a period and not used up by the same or other domestic producers
during the same period in the making of other goods.
Final Value Estimate — The estimate of value reached after the appraiser has analyzed the data, reconciled the value indications
provided by the application of the various approaches to value, and made a final judgment.
Finance Charges — The total of all costs paid to the lender by the borrower directly or indirectly as an incident to the extension of
credit. The Truth-in-lending Act requires that consumers be told of the following charges: interest, finder and origination fees,
discount points, service charges, credit report fees, and other such charges.
Financial Accounting — Those accounting activities leading primarily to publishable, general purpose financial statements such

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as the income statement, statement of financial position, and statement of changes in financial position.
Financial Accounting Standard 133 — A requirement established by the Financial Accounting Standards Board (FASB) which
requires that Derivatives used by corporations used for such things as Hedging operations be marked to market (prices) to reflect
the value at the date of the financial report. The charge is a transition adjustment, reflecting the difference between the cost at
which a company obtained its derivatives and their current fair market value. Fluctuations in value of such instruments would
be reflected in per-share earnings. Under the former treatment, companies record options on their balance sheets at historical
cost, and this cost is then amortized over the option’s life. Advocates of the new mehtod contend that the changing role and
increasing sophistication of derivatives justify changing the way companies report their use. Opponents claim that strict
imposition of the rule would result in too much unnecessary earnings volatility and are seeking a less volatile representation of
the effect of using certain derivatives like options, which play a significant role in some of the strategies that companies use for
hedging certain kinds of risk. Options are an increasingly popular way for corporations to hedge exposures to fluctuations in
interest rates, foreign currencies, or commodity prices. Ironically, the imposition of FAS 133 may force companies to use
alternate and less desirable hedging strategies and instruments, with possibly greater negative consequences. For example, in
lieu of an option, which carries only a risk paid for the option itself, forward contracts my be substituted, increasing a company’s
possible exposure to losses.
Financial Accounting Standards Board (FASB) — An independent self-regulating organization which is the primary source of
accounting rules followed by Certified Public Accountants (CPAs) and auditors. The purpose of the FASB is to develop
Generally Accepted Accounted Principles (GAAP) which are intended to establish uniformity in financial reporting and
statements. FASB provides guidelines for the recording, reporting and presentation of financial market transactions. Included
in this work are the requirements for listing off-balance sheet items and hedging transactions for currencies, physicals, and
financials.
Financial Accounting Standards Bulletin (FASB) No. 8 — A United States accounting standard that required U.S. firms to translate
their foreign affiliates’ accounts by the temporal method; that is, reporting gains and losses from currency fluctuations in current
income. It was in effect between 1975 and 1981 and became one of the most controversial accounting standard in the U.S. during
this time. It was subsequently replaced by FASB No. 52 in 1981.
Financial Accounting Standards Bulletin (FASB) No. 52 — The United States accounting standard that replaced FASB No. 8.
Under this standard, U.S. companies are required to translate foreign accounts in terms of the current rate of exchange and report
the changes from currency fluctuations in a cumulative translation adjustment account in the equity section of the balance sheet.
Financial Advisor — In the context of bond issuances, a consultant who advises the issuer on any of a variety of matters related to
the issuance. The financial advisor sometimes also is referred to as the fiscal consultant.
Financial Analysis Auditing Compliance Tracking System (FACTS) — The National Futures Association’s computerized system
of maintaining financial records of its member firms and monitoring their financial condition.
Financial 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. Also called Securities Analysts and
Investment Analysts.
Financial Capital — Claims (such as money, stocks, deeds, or bonds) against real resources.
Financial Depositor Institutions — Banks, savings and loans or credit unions.
Financial Feasibility — The likelihood that a proposed project will attain a cash flow of s quantity, quality, and duration to allow
investors to recover the capital invested and achieve the necessary and expected rate of return. Factors to be considered,
including the timing of inflows and outflows of cash, revenues, costs, debt service, and the sale of an asset or major re-financing.
Financial Future — A contract traded in commodities markets. Each specifies a future date of delivery or receipt of a certain
amount of a specific financial instrument, such as U.S. Treasury bonds, Certificates of Deposit (CDs) and other interest-sensitive
issues. See Futures Markets.
Financial Institution — (1) Establishments that handle monetary affairs, including insurance companies, commercial banks, savings
and loans, leasing companies, and institutional investors. (2) A government agency or private business whose primary business
it is to collect funds from the public through a variety of accounts and savings certificates and invest those funds in financial
assets such as securities, consumer loans, and mortgage lending. Commercial banks represent the most prominent and numerous
form of financial institution in the U.S. today. (3) An organization that attracts funds through some type of deposit mechanism,
and then lends those funds to individuals or corporations in order to make an acceptable return. (4) An institution that uses its
funds chiefly to purchase financial assets (deposits, loans, securities) as opposed to tangible property. Financial institutions can
be classified according to the nature of the principal claims they issue: nondeposit financial intermediaries include, among others,
life and property/casualty insurance companies and pension funds, whose claims are the policies they sell, or the promise to
provide income after retirement; depository intermediaries obtain funds mainly by accepting deposits from the public. The major
depository institutions are listed below. Although historically they have specialized in certain types of credit, the powers of
nonbank depository institutions have been broadened in recent years. For example, NOW accounts, credit union share drafts, and
other services similar to checking accounts may be offered by thrift institutions.
[1] Commercial Banks are allowed to engage in more varied lending activities and to offer more financial services than
are the other depository institutions. Commercial banks are owned by stockholders and operated for profit.
[2] Savings and Loan Associations (sometimes called building and loan associations, cooperative banks, or homestead
associations) accept deposits primarily from individuals, and channel their funds primarily into residential mortgage
loans. Most savings and loan associations are technically owned by the depositors who receive shares in the
association for their deposits.
[3] Mutual Savings Banks also accept deposits primarily from individuals, and place a large portion of their funds into

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mortgage loans. These institutions are prominent in many of the northeastern states. Savings banks generally have
broader asset and liability powers than savings and loan associations but narrower powers than commercial banks.
Savings banks are authorized to offer checking-type accounts.
[4] Credit Unions are financial cooperative organizations of individuals with a common affiliation (such as employment,
labor union membership, or place of residence). Credit unions accept deposits of members, pay interest (dividends)
on them out of earnings, and primarily provide consumer installment credit to members.
[5] Thrift Institutions is a general term often used for mutual savings banks, savings and loan associations, and credit
unions.
Also see Financial Intermediary.
Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) — Federal legislation enacted in 1989 that changed
the regulatory framework of financial institutions in the United States. Commonly referred to as the “savings and loan bailout
bill,” FIRREA was a direct result of the insolvency problems facing many savings and loan associations during the middle and
late 1980s. Included in the act was the creation of the Savings Association Insurance Fund (SAIF), which insures thrift deposits,
and the Bank Insurance Fund (BIF) which insures commercial bank deposits. Both funds are administered by the Federal
Deposit Insurance Corporation (FDIC). FIRREA also established the Resolution Trust Corporation (RTC), an agency created
to manage the assets and liabilities of savings and loan associations that became insolvent both before and after the enactment
of the act.
Financial Instrument — There are two basic types: (1) a debt instrument, which is a loan with an agreement to pay back funds with
interest; and (2) an equity security, which is share or stock in a company.
Financial Intermediary — (1) A financial institution such as a commercial bank which “intermediates” or serves as a go-between
or “middleman” for surplus units (i.e., current savings exceeds spending) and deficit units (i.e., current spending exceeds savings),
thereby facilitating the flow of funds through the economy for productive purposes. As such, financial intermediaries provide
valuable services by bringing savers and borrowers together, albeit indirectly, reducing search costs, lowering costs to borrowers
and increasing yields to savers, and absorbing the risk of savers. (2) A financial institution which takes savings deposits from
individuals and then invests the money in loans to homeowners and in government securities and other income-earning assets.
Commercial banks, savings and loan institutions, credit unions, consumer finance companies and several other financial
organizations accepting deposits and making loans and investments act as financial intermediaries.
Financial Lease — A lease that does not provide for maintenance services, cannot be canceled, and is fully amortized over the life
of the lease. Also see Capital Lease.
Financial Leverage — (1) The ratio of total debt to total assets. There are other measures of financial leverage, especially ones that
relate cash inflows to required cash outflows. Generally, the debt/total asset ratio is used to measure leverage. (2) The use of
debt to increase the expected return on equity. The degree of financial leverage is measured by the ratio of debt to debt plus
equity. (3) The use of borrowed money to complete an investment transaction. If the asset purchased with borrowed money
offers annual financial benefits at a rate in excess of the loan’s interest rate, leverage is said to be positive or favorable. The
investor makes money by borrowing. Conversely, if an asset purchased with borrowed money fails to increase in value or if it
fails to provide benefits in excess of the interest rate paid on the borrowed money, then leverage is negative. Leverage is neutral
when the property earns at the same rate as the interest rate on borrowed money. Also referred to as simply Leverage. Also see
Financial Ratios.
Financial Management Rate of Return (FMRR) — A modified Internal Rate of Return model designed to remedy some of the
deficiencies of the internal rate of return (IRR) technique. Two rates are considered by the FMRR: (a) a safe, liquid after-tax
rate, and (b) a run-of-the mill reinvestment rate.
Financial Planning — Evaluating the investing and financing options available to a firm. Financial planning 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 Policy — Criteria describing a corporation’s choices regarding its debt to equity mix, currencies of denomination, maturity
structure, method of financing investment projects, and hedging decisions with a goal of maximizing the value of the firm to some
set of stockholders.
Financial Pro Forma — See Pro Forma.
Financial Pyramid — A risk structure that spreads investor’s risks across low-risk, medium-risk, and high-risk vehicles. The bulk
of the assets are in safe, low-risk investments that provide a predictable return (base of the pyramid). At the top of the pyramid
are a few high-risk ventures that have a modest chance of success, but if successful will provide handsome returns.
Financial Ratio Analysis — A means by which an investor/lender detects facets of a business or investment that are within norms
as well as those that become unhealthy. An astute investor uses financial ratio analysis to compare potential acquisitions and
then select the most promising ones offering the greatest potential. By monitoring constantly changing ratios, it is possible to
detect areas of weakness for both management and capital employment in order to take steps necessary to bring ratios back to
the desired balance level of safety and risk. Also referred to as Ratio Analysis. See Financial Ratios.
Financial Ratios — As an integral part of corporate Financial Ratio Analysis, financial ratios provide a means to use financial data
to analyze a firm’s past performance and assess its current financial condition. In turn, understanding the past is a necessary
prelude to contemplating and planning for the future. Financial ratios represent a convenient way to summarize large quantities
of financial data and to compare firms’ performance. Typically, financial ratios fall into four categories: leverage ratios; liquidity
ratios; profitability or efficiency ratios; and market value ratios. Below are listed the most common measures of each financial
ratio category and how they are calculated:

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[1] Leverage Ratios – Debt Ratio (long-term debt plus the value of leases to long-term debt plus value of leases plus
equity); Debt-Equity Ratio (long-term debt plus value of leases to equity); Total Debt Ratio (total liabilities minus
equity to total liabilities); Times Interest Earned (earnings before income taxes, depreciation, and amortization to
total interest); Earnings Variability (percentage increase to percentage decrease, i.e., percent range).
[2] Liquidity Ratios – Net Working Capital to Total Assets (current assets minus current liabilities to total assets);
Current Ratio (current assets to current liabilities); Quick (or Acid-Test) Ratio (cash plus marketable securities plus
receivables to current liabilities); Cash Ratio (cash plus marketable securities to current liabilities); Interval Measure
(cash plus marketable securities plus receivables to average daily expenditures from operations, in days).
[3] Profitability, or Efficiency Ratios – Sales to Total Assets (sales to average total assets); Sales to Net Working
Capital (sales to average net working capital, i.e., average current assets minus average current liabilities); Net Profit
Margin (earnings before income taxes minus income taxes to total sales); Inventory Turnover (cost of goods sold
to average inventory); Average Collection Period (average receivables to average daily sales); Return on Total
Assets (earnings before income taxes minus income taxes to average total assets); Return on Total Equity (earnings
available for common shares to average equity); Payout Ratio (dividend payment to earnings per share); Proportion
of Earnings Reinvested (1 minus the payout ratio, or earnings minus dividend payments to earnings); Growth in
Equity from Reinvestment (earnings minus dividend payments to earnings times earnings to equity).
[4] Market Value Ratios – Price-Earnings Ratio (stock price to earnings per share); Dividend Yield (dividend per share
to stock price); Market-to-Book Ratio (stock price to book value per share); Tobin’s q Ratio (market value of assets
to estimated replacement cost).
Financial Resources — Cash and other assets that in the normal course of operations will become cash.
Financial Risk — (1) That portion of total corporate risk, over and above basic business risk, that results from using debt. (2) The
uncertainty resulting from the financing of an investment. (3) The risk that the cash flow of an issuer will not be adequate to meet
its financial obligations. (4) Also referred to as the additional risk that a firm’s stockholder bears when the firm uses debt and
equity.
Financial Solvency — The expected normal condition of a business when current assets exceed current liabilities.
Financial Statement — (1) A written statement of the financial position of a person or company, showing total assets and liabilities
as of a certain date. Many lenders require a financial statement as part of a loan application. (2) An accounting report
summarizing the financial condition of an individual or a business. Most commonly used financial statements include the balance
sheet, which is a presentation of assets, liabilities, and net worth at a particular point in time (stock concept), and the income
statement, which represents the flow of cash, i.e., income and expenses, through an organization over a period of time (flow
concept).
Financial Structure — (1) The mix of equity and debt used in the purchase price of an asset. (2) The entire right-hand side of the
balance sheet (the “sources of funds”) showing the way in which a firm is financed or receives its funding for its operations. The
way in which a company’s assets are financed, such as short-term borrowings, long-term debt, and ownership equity. Financial
structure differs from Capital Structure in that capital structure accounts for long-term debt and equity only.
Financial Supermarket — A company offering a wide variety of financial services such as a combination of banking services, stock,
and insurance brokerage.
Financially Feasible — A real estate project in which the economic objectives of the investor(s) are satisfied.
Financing Accounts — See Accommodating Accounts.
Financier — A person or financial institution engaged in the lending and management of money.
Financing — The difference between the purchase price and the down payment, commonly referred to as debt or the mortgage. One
of the features distinguishing real estate from some investments is the ability to finance all or a significant part of the purchase
price with borrowed dollars.
Financing Factor — One who lends money to manufacturers on the security of goods to be manufactured thereby.
Financing Gap — A term applied to the difference (gap) between corporate capital expenditures (investment) and internal cash flows
used to fund them. The financing gap represents an important indicator of a corporation’s ability to improve its competitive
position through investment in more modern plants and factories, acquisition of new business equipment and labor-saving
machinery and the purchase of state-of-the-art technology such as advanced computer systems. As the economy weakens, the
financing gap increases on reduced sales and cash flows, thereby forcing businesses to cut back on capital expenditures. To
counter this condition, businesses can either increase cash flows through, say, slashing operating costs (e.g., reducing employment
and salary costs), scale back new investment projects which may jeopardize future sales and the firm’s overall long-term
competitive position, or borrow in the capital markets, which in a weakening economy may prove difficult and/or expensive as
lenders become more leery in times of growing economic uncertainty.
Financing Package — The total of all loans used to develop and/or purchase a real estate project.
Financing Statement — A written notice filed in the public records by a creditor who has extended credit for the purchase of
personal property. Lenders record financing statements to evidence personal property, such as a new furnace, siding or windows,
is subject to a lien. The purpose of filing the statement is to establish the creditor’s interest in the personal property which is the
security for the debt but which may become a fixture when it is attached to real property.
Finder’s Fee — A payment made by one party to another for locating a prospect. This payment is often used in the financing of
real estate when a mortgage banker locates a lender willing to loan money to a borrower. In addition, in most states real estate
brokers may legally split a real estate sales commission with another broker who was partly responsible for bringing about the
sale. However, an unlicensed person may not legally accept a finder’s fee from a real estate broker since by doing so the
unlicensed person is brokering real estate without a license and is thus in violation of licensing law. The term is also known as

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a Referral Fee.
Fine Tuning — The idea that policy makers can use Monetary Policy and/or Fiscal Policy to reduce fluctuations in economic output
and employment.
FIR — Refers to the Futures Initial Requirement. It refers to the amount of the original margin or performance bond.
Fire and Extended Coverage Insurance — A basic fire insurance policy protecting the insured against losses suffered from fire
or lightning. In addition, the owner can receive extended coverage which insures against losses suffered due to windstorm, hail,
explosion, riot or civil commotion, aircraft, vehicles, smoke, theft, and vandalism and malicious mischief. Coverage of these
extra perils normally adds very little to the premium.
Fire Sale — Refers to the rapid disposition of positions. This often occurs at less than fair market value versus transactions
conducted under more favorable or orderly conditions.
Firm Commitment — An agreement by a financial institution to loan a specified sum of money for a specific time period and at
a certain interest rate, provided all conditions set by the lender are met by the borrower.
Firm Offer — An offer made by a potential buyer that will not be further negotiated.
Firm Price — A stated sales price that is fixed and, thus, nonnegotiable. While uncommon in real estate transactions, occasionally
an owner will put his or her property on the market at a firm price and will instruct the listing sales broker not to accept any offer
below the listed price.
FIRREA — See Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
First-Degree Price Discrimination — A situation in which a seller charges each buyer for each unit bought the maximum price the
buyer is willing to pay for that unit.
First In, First Out (FIFO) — An inventory accounting method for valuing the cost of goods sold that uses the cost of the oldest
item in inventory first.
First Lien — A legal claim with the highest priority against a certain property; also known as a Senior Lien.
First Mortgage — (1) Mortgage holding priority over the claims of subsequent lenders against the same property. (2) A mortgage
constituting the primary lien against real property and having prior claim to the property ahead of other claims (junior mortgages).
(3) A lien on property in which the lender’s claims are superior to the rights of subsequent lenders. Such a lien position means
less risk to the lender and thus normally results in a lower interest rate charged to the borrower than that charged on second or
junior mortgages. Certain lenders only make first mortgages due to regulatory requirements; others limit mortgages to these
senior instruments due to company policy. See Second Mortgage.
First Notice Day — According to Chicago Board of Trade (CBOT) rules, the first day on which a notice of intent to deliver a
commodity in fulfillment of a given month’s futures contract can be made by the clearinghouse to a buyer. The clearinghouse
also informs the sellers who they have been matched up with.
First Preferred Stock — A type of preferred stock that has priority over other preferred issues and common stock when claiming
dividends and assets.
Fiscal Agency Services — Services performed by the Federal Reserve Banks for the U.S. government. These include maintaining
deposit accounts for the U.S. Treasury Department, paying U.S. government checks drawn on the Treasury, and issuing and
redeeming savings bonds and other government securities.
Fiscal Agent — A fiduciary agent, usually a bank or county treasurer, who performs the function of paying debt principal and interest
when due.
Fiscal Drag — An automatic stabilization device originating from the Progressive Tax System. As nominal incomes expand,
individuals are pushed into higher tax brackets and their average tax liability increases. This has a dampening effect on spending.
Fiscal Federalism — The financial interrelationships between the federal, state, and local governments.
Fiscal Policy — (1) Federal government actions directed towards affecting economic activity through federal taxation and spending
policies. These actions, taken by the Administration and Congress, involve adjustments to government expenditures, tax rates
or tax rebates in an effort to stabilize the economy, decrease unemployment, and overcome the effects of inflation. (2) The
deliberate manipulation of taxes and government expenditures in order to affect the level of national income, employment, prices,
and other economic variables. Fiscal policies include all actions involving changes to federal government tax rates and tax
policies and changes in the level of federal expenditures. Also see Monetary Policy and Incomes Policy.
Fiscal Year — (1) Accounting period covering 12 consecutive months over which a company determines earnings and profits. The
fiscal year serves as a period of reference for the company and does not necessarily correspond to the calendar year. (2) A
business year used for accounting or tax purposes as compared to a calendar year. The fiscal year of many governmental units,
including the federal government runs from July 1 through June 30 of the following year. Whether or not a government operates
on a fiscal or calendar year is particularly important in prorating property taxes between buyer and seller. Entities are said to
be on a fiscal year when their accounting year ends on a date other than December 31.
Five “C’s” of Credit — Five characteristics that are used in a formal and rigorous Credit Rating system to form a judgment about
a customer’s creditworthiness:
[1] character
[2] capacity
[3] capital
[4] collateral, and
[5] conditions
Five Hundred Dollar Rule — A rule of the Federal Reserve that excludes deficiencies of $500 or less in margin requirements as
a necessary reason for the firm to liquidate the client’s account to cover a margin call.

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Five Percent Rule — A rule of the National Association of Securities Dealers providing ethical guidelines for spreads created by
market makers and commissions charged by brokers.
Fixed Assets — (1) Sometimes called long-term assets, long-lived assets, or plant and equipment. (2) Tangible property used in the
operation of a business. Examples include land, plant, machinery and equipment, furniture and fixtures, and leasehold
improvements. Typically, these properties are not intended for sale or disposal within a year. Fixed assets are stated on the
balance sheet at their purchased price less accumulated Depreciation.
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 Charges — (1) Costs that do not vary with the level of output, especially fixed financial costs such as interest, lease payments,
and Sinking Fund payments. (2) Expenses the amount of which is set by agreement. Examples are interest, insurance, and
contributions to pension funds. Also referred to as Fixed Expenses.
Fixed Costs — (1) Those costs whose total remains constant within the relevant range even though the volume of activity may vary.
(2) Costs of providing goods or services that do not vary proportionately to the volume of goods or services provided (e.g.,
insurance and contributions to retirement systems).
Fixed-Coupon Repurchase/Reverse Repurchase Agreement — Agreements in which the parties agree that the securities returned
will have the same stated interest rate as, and maturities similar to, the securities transferred. See Repurchase Agreement and
Reverse Repurchase Agreement.
Fixed Currency — A currency whose official value relative to gold and other currencies is maintained by a central bank. The bank
intervenes to buy and to sell the currency when it deviates from the official value.
Fixed Expenses — Expenditures such as property taxes, license fees, and property insurance that typically do not vary directly given
changes in the occupancy rate. Fixed expenses are on items subtracted from effective gross income to determine the net operating
income of the property. Also referred to as Fixed Costs. Contrast with Variable Costs.
Fixed Exchange Rates — An exchange rate system in which currencies are pegged to one another at a specific rate of exchange or
pegged to a common currency or item of value like gold. Also referred to as pegged exchanged rates. Most currencies in today’s
markets vary in rates of exchange based upon demand and supply conditions; however, variations may exist in which
governments attempt to control rates of exchange (Dirty Float) or allow restricted exchange rate variations. Contrast with
Floating Exchange Rates.
Fixed-Income Investment — A catch-all description for investments in bonds, certificates of deposit, and other debt-based
instruments that pay a fixed amount of interest.
Fixed-Income Securities — Securities that offer a specified, measurable cash flow (e.g., most bonds). See Bond.
Fixed Inputs — Those factors of production whose quantity cannot be increased or decreased in the short run. For example, an
industrial plant.
Fixed Liabilities — See Long-Term Debt.
Fixed Rate Loan — A loan with a rate of interest fixed over its maturity. Contrast with Variable Rate Loan.
Fixed Rate Mortgage — A loan carrying a constant interest rate over the full life of the mortgage contract. Historically, fixed rate
mortgages have been the norm in permanent financing, particularly residential real estate. Thus, when a borrower secures a fixed
rate mortgage he or she knows that the lender cannot raise the interest rate regardless of what the market rate of interest is doing.
However, in recent years lenders have in some instances been reluctant to loan money for a long period of time, and therefore
have included in the loan provision a clause allowing them to vary the rate of interest according to an established index and when
market conditions change. These are referred to as Adjustable Rate Mortgages (ARMs) or Variable Rate Mortgages (VRMs).
Fixed Trust — A Unit Investment Trust consisting of securities that were agreed upon at the time of investment and do not change.
Fixing-Up Expenses — The money spent to repair and/or refurbish real estate so as to improve a property’s appearance, value, and
marketability.
Fixity of Location — A physical characteristic of land which makes it subject to the influence of surrounding land uses. Since real
estate space is fixed in location it cannot be moved. While it is true that the various elements within the space may be moved,
such as the topsoil or the minerals, the space itself remains in the same geographic location. This immobility leads to several
legal and economic results. From a legal standpoint only the legal rights and not the asset itself can be physically transferred
to a purchaser.
Fixtures — (1) An item of personal property attached to real property so that it can not be removed without damage to the real
property. A fixture becomes part of the real property. Personal property which for some reason, such as the manner of
attachment, has become realty. Such property is also referred to as chattel real. Examples of fixtures include built-in cabinets
in a kitchen, bathtubs, permanent bookcases, and other such objects. (2) Personal property that has become so attached to or
adapted to real estate that if has lost its character as personal property and is part of the real estate. (3) Attachments to buildings
which are not intended to be removed and which cannot be removed without damage to the latter. Note: those fixtures with a
useful life presumed to be as long as that of the building itself are considered a part of such a building; all others are classed as
equipment.
Flag Lot — A parcel of land that is shaped like a flagpole and a flag with the land being the “flag” and the only access being the
“pole.”
Flat — (1) A condition where a bond is traded without accrued interest. (2) A floor or part of a floor in a building designed for
occupancy by a single family for residential purposes.
Flat Lease — A type of lease requiring the tenant to pay an equal rent payment each period, whether the period is monthly or
annually.
Flat Market — A term structure whereby the various delivery months are basically trading at the same price level or yield.

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Flat Rate Tax — An income tax in which a uniform tax rate is applied to all businesses and individuals.
Flattening of the Yield Curve — A change in the yield curve when the spread between the yield on long-term and short-term U.S.
Treasuries has decreased. Compare Steepening of the Yield Curve and Butterfly Shift.
Flea Bag — An inexpensive, run-down rental property such as an apartment or hotel.
Flex Equity (E-Flex) Options — Similar to a normal Option which gives the holder of the option the right, but not the obligation,
to buy or sell the underlying stock at a predetermined Strike Price for a certain period of time. Most such options have
standardized strike prices and expiration periods. By contrast, flex equity options enable investors to customize features such
as the strike price, expiration date, and number of contracts held.
Flexible Budget — A financial plan formulated so that the assumed operating volume can be varied to agree with actual volume of
activities attained.
Flexible Exchange Rates — Exchange rates that are determined by the forces of supply and demand in the foreign exchange markets
and especially the absence of intervention by national governments and their central banks. See Floating Exchange Rates.
Flexible Loan Insurance Program (FLIP) — An innovative financing technique developed to overcome the negative amortization
aspects of the Graduated Payment Mortgage (GPM). The key to the flip mortgage is the use of the buyer’s down payment.
Instead of being used as a payment, the cash is deposited in a pledged, interest-bearing savings account where it serves as both
a cash collateral for the lender and as a source of supplemental payments for the borrower during the first few years of the loan.
“Flight to Quality” — A term used to describe an uncertain time in the financial markets during which investors are willing to accept
lower returns on investment for a lower risk of default. Such periods normally follow a major corporate failure or unusual
bankruptcy or unexpected default by a major borrower, e.g., major corporation or municipality.
Flip (Flipping) — (1) The near simultaneous buying and selling of a parcel of real estate at a price for the purpose of leveraging the
transaction. (2) The quick sale or “cash out” of shares acquired through an Initial Public Stock Offering (IPO). Such practices
can de-stabilize new stock issues and jeopardize the underwriting business of brokerage firms.
Flipper — A securities trader who takes quick advantage of a profit. It often refers to individuals – not financial institutions – who
quickly sell their Initial Public Offering (IPO) positions.
Float — (Finance) (1) The amount of funds tied up in checks that have been written but are still in process and have not yet been
collected. (2) The time period over which a person has free use of someone else’s money. (3) The time taken to “clear” a check
or draft for payment; the time from the submission of the draft and the time at which funds are debited from the issuer’s account.
See Availability Float or Payment Float. (4) The total number of outstanding shares available on the market. (5) (Currency)
Exchange rate policy that does not limit the range of the market rate. (6) (Equities) The number of shares of a corporation that
are outstanding and available for trading by the public, excluding insiders or restricted stock on a when-issued basis. A stock’s
volatility is inversely correlated to its float.
Floater — (1) A financial instrument whose cash flow varies according to stipulated factors. These instruments can also be leveraged
by a multiplier which alters the associated interest payment stream. (2) A bond whose interest rate varies with the interest rate
of another debt instrument, e.g., a bond that has the interest rate of the U.S. Treasury bill +.25%.
Floating Currency — A currency whose exchange rate relative to those of other currencies is allowed to fluctuate more or less
freely. Dirty Float occurs if the central bank intervenes in the Foreign Exchange Market to keep the currency from deviating
outside the country’s desired range. See Floating Exchange Rates.
Floating Debt — Liabilities other than bonded debt and time warrants which are payable on demand or at an early date. Examples
are accounts payable, notes, and bank loans. Also see Current Liabilities.
Floating Exchange Rates — (1) Exchange rates (between the currencies of different nations) which are allowed to move up or down
in response to supply and demand conditions in the Foreign Exchange Markets. (2) Exchange rates may be fixed by government
policy (“pegged”) or allowed to “float” up or down in accordance with supply and demand. When market forces are allowed
to function, exchange rates are said to be floating. (3) An exchange rate system in which the prices of various currencies with
respect to one another vary with fundamental economic and financial conditions such as demand and supply conditions, trade
balances, interest rate differentials, etc. In lieu of completely floating exchange rates, some governments attempt to stabilize their
currency’s value, particularly with their primary trading partners, within a broad range. Also referred to as Flexible Exchange
Rates. (4) A country’s decision to allow its currency value to change freely according to market demand and supply conditions
and underlying economic and financial considerations. 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.. Contrast with Fixed Exchange Rates.
Floating Lending Rate — A lending rate that is established at a fixed number of percentage points above a given rate, such as the
London Interbank Offer Rate (LIBOR), which is renegotiated periodically, often every six months. Negotiation occurs throughout
the life of the loan.
Floating Policy — An insurance policy that covers a class of goods located in a particular place that the insured had on hand at the
time the policy was issued, but which, at the time of loss, may not be the identical items that were on hand at the time the policy
was issued. A fire policy covering the inventory of a hardware store is an example.
Floating Rate — (1) Refers to the condition whereby exchange rates are relatively free to change. It can also refer to an interest
rate which changes relatively quickly or frequently. (2) A finance term used to explain the spread on a variable interest rate loan.
Developers and builders often borrow money at an interest rate tied to the prime rate, for example, “prime plus two.” (The
London Interbank Offered Rate, or LIBOR is also increasingly becoming an international index rate for such purposes.) This
means that if the prime rate is 10 percent the builder pays 12 percent on the money borrowed. However, if the prime increases
to 11 percent, then the interest rate charged by the lender automatically is adjusted upward, or “floats” to, in this case, 13 percent.
Floating-Rate Bond — A bond usually issued by large corporations and financial institutions whose rate of interest is pegged to

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another market rate, typically the rate on U.S. Treasury bills, and adjusted periodically by specified increments over this base
rate.
Floating-Rate Contract — An guaranteed investment instrument whose interest payment is tied to some variable (floating) interest
rate benchmark, such as a specific-maturity U.S. Treasury yield.
Floating-Rate Loan — A loan whose interest rate is adjusted periodically to a standard base interest rate in accordance with
specified terms of the loan document, i.e., a tied-to-prime (interest rate) loan.
Floating-Rate Note (FRN) — Note whose interest payment varies with short-term interest rates.
Flotation — The initial offering of stock to the public.
Flotation Cost — The cost of issuing new stocks or bonds.
Flood Insurance — Insurance that protects a property owner from damages resulting from flooding. Due to the high cost of flood
insurance when written through a private insurance company, Congress enacted the National Flood Insurance Program (NFIP)
in 1968. The intent of this legislation was to provide insurance coverage for those people suffering both real and personal
property losses as a result of floods. Due to the lack of public interest in the program and the public’s exposure to catastrophic
losses, Congress enacted the Flood Disaster Protection Act in 1975. Under this law, no real estate located in a Floodplain area
can be financed through a federally regulated lender unless flood insurance is purchased.
Floodplain — The land bordering or surrounding a river or stream that can be under water when the river or stream are at their high-
water mark.
Floor — (1) The lower limit price or interest rate. (2) The huge trading area of a stock exchange where stocks and bonds are bought
and sold.
Floor Area — The total of all the horizontal areas of all the floors in a building.
Floor Area Ratio (FAR) — The relationship between the floor area of a building and the total area of the land under the building.
Minimum and maximum floor area ratios are often established as part of a Zoning Ordinance.
Floor Broker (FB) — (1) A member of the stock exchange who executes orders on the floor of the exchange to buy or sell any listed
securities. (2) An individual who executes orders for the purchase or sale of any commodity Futures or Options contract on any
contract market for any other person. This compares to a Floor Trader.
Floor Loan — An initial extension of credit for a construction mortgage made by a lender without a requirement for sales or leasing
of the property being financed. The amount of the total funding that is held back, called the Holdback, that is set aside until such
time as the builder shows proof of sale or leasing all or a significant portion of the project.
Floor Plan — The layout of a building showing the exact specifications as to size and shape o each room.
Floor-to-Ceiling Loan — A financing technique in which the total amount of the loan is a function of the projected net operating
income of the project. The total amount of the loan is funded by the lender in two separate payments. The “floor loan” is made
upon satisfactory completion of the project and may be as high as 50 to 75 percent of the total loan. The remainder of the loan,
termed the “ceiling,” is funded only if certain predetermined occupancy and/or net income requirements are met.
Floor Trader (FT) — An individual who executes trades for the purchase or sale of any commodity futures or options contract on
any contract market for such individual’s own account. This compares to a Floor Broker.
Flow of Current Financial Resources — A measurement focus that recognizes the net effect of transactions on current financial
resources by recording accruals for those revenue and expenditure transactions which have occurred by year end that are normally
expected to result in cash receipt or disbursement early enough in the following year either (a) to provide financial resources to
liquidate liabilities recorded in the fund at year end or (b) to require the use of available expendable financial resources reported
at year end.
Flow of Economic Resources — The measurement focus used in the commercial model and in proprietary and similar trust funds
to measure economic resources, the claims to those economic resources and the effects of transactions, events and circumstances
that change economic resources and claims to those resources. This focus includes Depreciation of fixed assets, Deferral of
unearned revenues and prepaid expenses, and Amortization of the resulting liabilities and assets. Under this measurement focus,
all assets and liabilities are reported on the balance sheet, whether current or noncurrent. Also, the Accrual Basis of accounting
is used, with the result that operating statements report expenses rather than expenditures.
Flow of Funds — In the context of municipal bonds, refers to the statement displaying the priorities by which municipal revenue
will be applied to the debt. In the context of Mutual Funds, refers to the movement of money into or out of a mutual funds or
between or among various fund sectors.
Flow of Income — The total amount of income projected from a real estate investment as stated in either annual figures or the total
flow over the economic life of the investment.
Flow-Through Method — The practice of reporting to shareholders using Straight-Line Depreciation but using Accelerated
Depreciation for tax purposes and “flowing through” the lower income taxes actually paid to financial statements prepared for
shareholders.
FNMA — See Federal National Mortgage Association or Fannie Mae.
F.O.B. (“Free on Board”) — Term used in conjunction with the terms factory, shipping point, or destination to indicate the point
in the delivery of merchandise at which the purchaser begins to bear freight costs.
Focal-Point Price — A price that has a compelling prominence for reasons of aesthetics, precedent, or symmetry.
FOK — See Fill or Kill Order.
Folio — Latin word for “page.” When deeds, promissory notes, subdivision regulations, and other legal instruments dealing with
real estate are recorded in the public land records, they are assigned a liber (book) volume and a folio (page) number.
FOMC — See Federal Open Market Committee.
For Rent by Owner (FRBO) — Effort on the part of an owner of real estate to lease his or her space without employing the services

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of a property management firm. Owners of both residential rental property as well as income-producing property often manage
the property themselves and thus they do not see the need for a professional management company.
For Sale by Owner (FSBO) — An attempt by the owner of real estate to sell his or her property without using the services of a real
estate broker. Quite often the owner believes that by selling the property without employing a real estate broker the commission
will be saved and therefore the owner will end up with more money.
Forbearance — Refraining from action by a creditor against the debt owed by a borrower after the debt has become due.
Forced Conversion — Occurs when a Convertible Security is called in by the issuer, usually when the underlying stock is selling
well above the conversion price. The issuer thus assures that the bonds will be retired without requiring any cash payment. Upon
conversion into common, the carrying value of the bonds becomes part of a corporation’s equity, thus strengthening the balance
sheet and enhancing future debt capability.
Forced Sale — The selling of an asset under less than favorable conditions in order to liquidate the asset, such as the selling of
mortgaged property through foreclosure by the lender.
Forecast — An estimate of the future based on the past, as opposed to (subjective) prediction. See Forecasting.
Forecasting — (1) An estimate of future events based on present knowledge, facts, theory, and judgment. Making projections about
future performance on the basis of historical and current conditions data. (2) A quantitative estimate (or set of estimates) about
the likelihood of a future event or events based on past and current information. This “past and current information” is
specifically embodied in the structure of the Econometric Forecast Model used to generate the forecasts. By extrapolating the
model out beyond the period over which it was estimated, we can use the information contained in it to make forecasts about
future events. It is useful to distinguish between two types of forecasting, ex Post and ex Ante. In an ex post forecast all values
of dependent and independent variables are known with certainty and therefore this method provides a means of evaluating a
forecasting model. Specifically, in an ex post forecast, a model will be estimated using observations excluding those in the ex
post period, and then comparisons of the forecasts will be made to these actual values. An ex ante forecast predicts values of
the dependent variable beyond the estimation period using values for the explanatory variables which may or may not be known
with certainty.
Forecasting Equation — A mathematical relationship that specifies how the forecast model coefficient values are to be combined
to produce a forecast.
Forecasting Horizon — The length of time into the future for which forecasts are prepared. Synonymous with Forecast Horizon.
Forecasting System — The collection and integration of subsystems, methods, and processes that facilitates the analysis of past
history, selection of a best modeling structure, model validation, calculation of a forecast, monitoring of the forecast, and the
application of technical and managerial judgement.
Foreclosure — (1) Legal proceedings initiated by a lender to acquire possession of the Collateral used to secure a loan currently
in default. The process for foreclosing on such assets may vary extensively among states, but the process generally results in
the property being disposed of by the lender or his agents to satisfy outstanding loans and related expenses. (2) Procedure for
enforcing a mortgage resulting in the public sale of the mortgaged property and less commonly in merely barring the right of the
Mortgagor (borrower) to redeem the property from the Mortgagee (lender). (3) The process by which a lender sells property
securing a loan in order to repay the loan. Under a Deed of Trust, foreclosure is by public auction after appropriate
advertisement. A mortgage may require the lender to obtain court approval prior to sale. (4) The seizure of property as payment
for delinquent tax or special assessment obligations. Ordinarily, property foreclosed is resold to liquidate delinquent tax or
special assessment obligations, but on occasion governments retain possession for their own needs. (4) A legal procedure by
which mortgaged property in which there has been default on the part of the mortgagor is sold to satisfy the mortgage debt. The
most common type of foreclosure in most states is foreclosure by sale. Foreclosure by sale takes two general forms: (a)
foreclosure by judicial sale, and (b) foreclosure by power of sale (also known as foreclosure by advertisement). While procedures
differ from state to state, under a foreclosure by judicial sale, a petition is usually filed with the court against the defaulting
mortgager and all persons having junior lien interests in the property. The petition states the nature of the default, the amount
due, and the property involved.
Foreign (International) Bill of Exchange — A Bill of Exchange made in one nation and payable in another.
Foreign Bond — Bond sold outside the country of the borrower but in the country of the currency in which the bond is denominated.
The bond is underwritten by local institutions and is issued under the regulations prevalent in that country.
Foreign Corporation — (1) A corporation incorporated under the laws of another state. (2) A corporation not incorporated or
chartered in a particular state yet conducting business in that state. Even though it is not chartered in states where it does
business, a foreign corporation must consent to certain requirements and stipulations before it may legally operate in the state.
Compare to Domestic Corporation.
Foreign Currency Futures Contract — A standardized and easily transferable obligation between two parties to exchange
currencies at a specified rate during a specified delivery month; standardized contract on specified underlying currencies, in
multiples of standard amounts. They are purchased and traded on a regulated exchange on which margins are posted.
Foreign Currency Operations — Purchase or sale of the currencies of other nations by a central bank for the purpose of influencing
foreign exchange rates or maintaining orderly foreign exchange markets. Also referred to as Foreign-Exchange Market
Intervention. Also see Dirty Float.
Foreign Exchange — (1) The money of any other country; currency other than the one used internally in a given country. Typically
refers to currencies other than the United States dollar. It also refers to transactions, activities, and operations for trading,
hedging, and investing in multiple currencies. (2) Foreign currency used to settle outstanding financial obligations between
countries. (3) A financial asset involving a cash claim held by a resident of one country against a resident of another country.
Abbreviated FOREX.

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Foreign Exchange Broker — Intermediaries in the foreign exchange market that do not put their own money at risk.
Foreign Exchange Controls — Various forms of controls imposed by a government on the purchase or sale of foreign currencies
by residents or on the purchase or 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 the spread.
Foreign Exchange Desk — The foreign exchange trading desk at the New York Federal Reserve Bank in New York City. The
foreign exchange desk undertakes operations in the Foreign Exchange Markets for the account of the Federal Open Market
Committee (FOMC), and as agent for the U.S. Treasury, and for foreign central banks.
Foreign Exchange Market — Largely banks that serve firms and consumers who may wish to buy or sell various currencies. See
FOREX Market.
Foreign Exchange Rate — Price of the currency of one nation in terms of the currency of another nation.
Foreign Exchange Reserves — Foreign money held by the government, or by the central bank. Also Special Drawing Rights
(SDRs) and gold may be held as foreign exchange reserve assets. Also referred to as Foreign Reserves.
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 exchange rates.
Foreign Exchange Swap — An agreement to exchange stipulated amounts of one currency for another currency at one or more
future dates.
Foreign Exchange Transactions — Purchase or sale of the currency of one nation with that of another. Foreign exchange rates refer
to the number of units of one currency needed to purchase one unit of another, or the value of one currency in terms of another.
Foreign Holdings — The percentage of a portfolio’s investments represented by stocks or American Depository Receipts (ADRs)
of companies based outside the United States.
Foreign Official Institutions — (1) Central governments of foreign countries, including all departments and agencies of national
governments. (2) Central banks, exchange authorities, and all fiscal agents of foreign national governments that undertake
activities similar to those of a treasury, central bank, or stabilization fund; diplomatic and consular establishments of foreign
national governments. (3) Any international or regional organization, including subordinate and affiliate agencies, created by
treaty or convention between sovereign states.
Foreign Public Borrower — Foreign official institutions; the corporations and agencies of foreign central governments, including
development banks and institutions, and other agencies that are majority owned by the central government or its departments;
and state, provincial and local governments of foreign countries and their departments and agencies.
Foreign Reserves — Central government holdings of gold, foreign exchange reserve positions in the International Monetary Fund
(IMF), and Special Drawing Rights (SDRs).
Foreign Tax Credit — Home country credit against domestic income tax. Received in return for foreign taxes paid on foreign
derived earnings.
Foreign-Trade Zone (FTZ) — A specially designated area, in or adjacent to a U.S. Customs Port of Entry, which is considered to
be outside the Customs Territory of the United States. A foreign-trade zone can also include subzones which may be removed
from the FTZ. A foreign-trade zone is designed to provide a duty-free area where foreign transactions may be conducted,
merchandise stored, re-exported, repackaged, manipulated, manufactured, destroyed or otherwise altered or changed and never
be subject to customs inspections or duties. Some of the more obvious benefits to importers and exporters include:
[1] No duty is ever paid on re-exported merchandise from a FTZ;
[2] If the merchandise is sold domestically, no duty is paid until it leaves the FTZ;
[3] Generally, no duty is paid on waste or yield loss in a FTZ;
[4] Duty on scrap is eliminated or reduced in a FTZ;
[5] Generally, if foreign merchandise is manufactured within a FTZ or subzone into a product with a lower duty rate,
then the lower duty rate applies on the foreign content when duty is paid; and
[6] Merchandise in a FTZ may be stored, repackaged, manipulated, manufactured, destroyed or otherwise altered or
changed without payment of duty until sold domestically.
Foreigner — All institutions and individuals living outside the United States, including U.S. citizens living abroad, and branches,
subsidiaries, and other affiliates abroad of U.S. banks and business concerns; also central governments, central banks, and other
official institutions of countries other than the United States, and international and regional organizations, wherever located. Also
refers to persons in the United States to the extent that they are known by reporting institutions to be acting for foreigners.
Foreshore — The part of a parcel of land lying between the high water mark and the low water mark.
FOREX Market — An over-the-counter market where buyers and sellers conduct foreign exchange business by telephone and other
means of communication. Also referred to as the Foreign Exchange Market.
Forfeiture — (1) Loss of property for some specified reason such as a nonperformance condition or outstanding legal obligation.
(2) The automatic loss of cash or other property as a punishment for not complying with legal provisions and as compensation
for the resulting damages or losses. Note: the term should not be confused with confiscation. The latter term designates the
actual taking over of the forfeited property by the government. Even after property has been forfeited, it cannot be said to be
confiscated until the governmental unit claims it.
Forgery — Altering a written document with the intent to injure or defraud someone.
Form 3 [SEC] — The form required by the Securities and Exchange Commission (SEC) of all holders of ten percent or more of a
company’s registered stock detailing information on the number of shares owned, rights, etc.
Form 4 [SEC] — A form required by the Securities and Exchange Commission (SEC) of publicly held corporations indicating any

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significant events which might alter the company’s financial condition or the value of its stock.
Form 8-K [SEC] — A report required by the Securities and Exchange Commission (SEC) to disclose significant events which may
potentially affect a company’s financial condition or the market value of its stock. The form is required to be filed within 30 days
of the event.
Form 10-K [SEC] — An audited financial report required to be filed annually with the Securities and Exchange Commission (SEC)
and is due within 90 days of the end of the company’s fiscal year by companies with registered securities, or companies with 500
or more shareholders, assets of $2 million, and shares listed on a major exchange. Once filed, the report becomes public
information and constitutes the most comprehensive financial and operational picture of a company available on a periodic basis.
Information contained in the Form 10-K is summarized in the company’s annual report to shareholders.
Form 10-Q [SEC] — A financial report required to be filed quarterly with the Securities and Exchange Commission (SEC) and is
due within 45 days of the end of the company’s quarter by companies with registered securities. Once filed, the report becomes
public information and constitutes an important source of financial information of a company on a more frequent basis. Unlike
the Form 10-K, the Form 10-Q does not have to be audited.
Form 1099 [IRS] — An official disclosure filing for Internal Revenue Service (IRS) income tax reporting of money payments made
to individuals or corporations such as bank interest earned, stock dividends, bond interest, pension payments, and royalties
earned.
Form Report — A specific format established for use in presenting the results of an Appraisal. Lenders, government agencies, and
certain investors often require the use of a form report by appraisers in rendering an opinion as to the value of certain types of
property such as single-family residential homes or condominiums.
Form S-16 [SEC] — Referred to as a registered secondary offering, a form filed with the Securities and Exchange Commission
(SEC) showing an investment banker’s offering of a significant block of stock that was previously issued to the public.
Form T [NASD] — The form required by the the National Association of Securities Dealers (NASD) to report equity transactions
after the market’s regular hours.
Formal Contract — A written contract under seal that is enforceable because of the way it is written and does not depend upon
sufficiency of the consideration.
Forward (Market) — A market similar to Futures in terms of deferred deliveries. However, notable differences include the lack
of contract standardization, the lack of a central clearinghouse, the potential for substantial counter-party risk, but it allows
contractual term customization and deliveries at times, points and grades other than those listed for futures contracts. It is also
used to refer to the bank currency market.
Forward Commitment — An agreement by a lender to make a loan at a given rate of interest at some future date, or purchase a loan
from another lender, or sell a loan to a purchaser; an agreement by a lender or investor to either make or purchase a loan within
a certain period of time into the future.
Forward (Cash) Contract — (1) An obligation, set to take effect at some future date, to buy or sell some commodity or security
at a specified price. Forward contracts tend not to be speculative and usually result in the transfer of the underlying commodity
or security. (2) A cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime in the future.
Forward contracts, in contrast to Futures Contracts, are privately negotiated and are not standardized.
Forward Cover — The purchase in the cash market of the difference between what you are obligated to deliver in a Forward
Contract and the amount of the asset you own. For example, if you agreed to sell 100,000 bushels of corn in September in a
forward contract, but you only have 60,000 bushels, then you will need to purchase 40,000 to (forward) cover your obligation.
Forward Exchange Rate — An agreed upon price at which two currencies are to be exchanged at some future date.
Forward Integration — Part of a corporate vertical integration process in which a firm attempts to control its distributors, sales
outlets and other contacts with the ultimate consumer. Contrast with Backward Integration.
Forward Rate — Foreign Exchange Rate for currency to be delivered at a future date.
Forward Rate Agreement (FRA) — Agreement to borrow or lend at a specified future date at an interest rate that is fixed today.
Founders’ Shares — Classified stock that has sole voting rights and restricted dividends. Owned by the firm’s founders.
4-3-2-1 Rule — A rule of thumb used by appraisers in estimating the value of land. The rule states that in a standard sized lot, 40
percent (the “4”) of the total value is allocated to the front (street frontage) quarter of the lot, 30 percent (the “3”) of the value
to the second quarter, 20 percent (the “2”) of the value to the third quarter and 10 percent (the “1”) of the value to the back
quarter. Such an approach is nothing more than an approximation and should not be used if a more definitive estimate is desired.
401(k) Plan — An employer sponsored salary deferral and savings plan which permits employees to contribute a portion of their
gross salary (before taxes) to a savings plan or profit-sharing plan. Employee contributions and income earned on the plan are
tax-deferred until withdrawn at age 59-1/2, or when the employee retires or otherwise leaves the company. Money directed to
the plan may be partially matched by the employer, and investment earnings within the plan accumulate tax-free until they are
withdrawn. The 401(k) is named for the section of the federal tax code that authorizes it.
403(b) Plan — Similar to 401(k) plans, but set up for public employees and employees of nonprofit organizations.
Fractal Market Hypothesis — The fractal market hypothesis states that (1) a financial market consists of many investors with
different investment horizons, and (2) the information set that is important to each investment horizon is different. As long as
the market maintains this fractal structure, with no characteristic time scale, the market remains stable. When the market’s
investment horizon becomes uniform, the market becomes unstable because everyone is trading based upon the same information
set.
Fractional Appraisal — An appraisal of one component or legal interest of the whole property.
Fractional Interest — A partial interest in real estate, such as an easement.
Fractional Reserve System — A monetary system in which financial institutions keep only a fraction of their deposits in the form

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of reserves and are able to lend or invest the remainder. See Reserve Requirement.
Fractional Reserves — The proportion of bank deposits that must be retained as legal reserves against deposits. The remainder may
be loaned out or invested. The level of legal reserves are determined by the reserve requirements, which are set by the Federal
Reserve Board of Governors. Fractional reserves and the fractional reserve system under which depository institutions operate
constitutes the foundation for the nation’s expansion of its money supply. As only a certain percentage of deposits need be kept
on hand by the institution, the remainder of the funds can be loaned out, creating new deposits, which in turn create new loans,
etc., resulting in a multiplicative effect on the total money supply based on the initial deposit.
Fractions — A stock trading system which places prices in terms of halves, quarters, eighths and sixteenths, e.g., 10-½, 10-¼, etc.
In late January 2001, in a government-mandated move, the New York Stock Exchange (NYSE) converted its trading to Decimals,
e.g., 10.5, 10.25, etc. Nearly 3,400 stocks that had until been traded in fractions were switched to a decimal system. The
American Stock Exchange also converted to a decimal system at the same time. The NASDAQ Stock Market, home to more than
4,600 companies, was to begin converting its trading to decimals in March 2001 and finish by April 9, the deadline set by the
Securities and Exchange Commission (SEC). The SEC ordered the shift to decimalization on the theory it would make stock
prices easier for investors to understand, and potentially open stock bidding and selling to more competition. Fractions had been
used to trade stocks for more than 200 years, a legacy of Spanish traders, whose currency was in increments of eighths. In a
decimal system, a stock selling for $16-3/8 a share is priced at $16.38. Shares that were priced at $10-11/16 would be listed at
$10.69.
Franchise — (1) A special privilege granted by a government permitting the continuing use of public property, such as city streets,
and usually involving the elements of monopoly, regulation, and the payment of a Franchise Fee. (2) A business arrangement
undertaken for the purpose of marketing a product or service. One party (the franchiser) provides marketing and selling expertise
for a fee to another party (the franchisee) who in turn sells the product or service in the marketplace.
Franchise Fee — (1) A fee paid to a corporation for the sale of their product with the franchiser handling things like supplying
materials, training, and advertising. (2) A payment to a governmental entity for the use of property or right-of-way, as when a
public utility pays a local government for using streets for underground facilities or overhead telephone or power lines.
Fraud — A misrepresentation of a material fact which is made with knowledge of its falsity and with intent to deceive a party who
in fact relies on the misrepresentation to his or her detriment and injury. Fraud can result from words spoken or written, acts,
or nondisclosure where there is a duty to inform. Fraud is a defense against the enforcement of a contract.
Freddie Mac — The acronym for the Federal Home Loan Mortgage Corporation (FHLMC); it operates similarly to the Federal
National Mortgage Association (FNMA) or Fannie Mae.
Free and Clear — Title to property which is unencumbered by any mortgages or other liens.
Free Good — Anything which is available in sufficient quantity that everyone can have all they want without having to pay for it.
Free Market System Auction — An auction process used by the Federal National Mortgage Association (FNMA) in which the
FNMA accepts bids from approved lenders as to the amount, price, and terms of existing mortgages that these lenders wish to
sell to “Fannie Mae.” Upon deciding how much money it will spend during a given time period, Fannie Mae notifies the
successful bidders (determined by which mortgages offered for sale will generate the highest yield to FNMA), and these bidders
have a certain period in which they can choose to deliver the mortgages. Once the mortgages have been delivered to Fannie Mae,
the originator of the mortgage continues to service the loan (collect monthly payments, escrow property taxes, etc.) and for this
service the originator receives a servicing fee.
Free on Board (FOB) — Implies that distribution services like transport and handling performed on goods up to the customs frontier
(of the economy from which the goods are classed as merchandise.) are included in the price.
Free Reserves — Funds available to a bank for lending or investing; reserves over and above Required Reserves, to include
borrowings from the Federal Reserve System. As these reserves are excess to all obligations and may be loaned out to create
new credit and deposits, they constitute and important economic indicator of future potential loan activity and stimulation to
economic growth.
Free-Rider Problem — The unwillingness of individuals voluntarily to help cover the cost of a pure public good and their eagerness
to let others produce the good so they can enjoy its benefits at a zero cost.
Free-Standing Building — A building which contains only one business. Fast-food franchises and retail stores are often free-
standing buildings.
Free Trade — Refers to the unrestricted or unimpeded process of conducting business or transactions. Under such conditions there
exist no tariffs, quotas, or other restrictions imposed on trade between nations.
Freed Up — A term used to indicate that an underwriting syndicate’s members are no longer restricted to the fixed price agreed upon
in the agreement among underwriters and are permitted to trade the security on a free market basis.
Freehold — An estate in real property which continues for an indefinite period of time. Freehold estates may be inheritable or non-
inheritable. Inheritable estates include the fee simple absolute, the qualified fee, and the fee tail. Noninheritable estates include
various life estates which are created by acts of parties, such as an ordinary life estate, or by operation of law, such as Dower and
Curtsy.
Freeholder — One who owns a freehold interest in real property.
Freely Floating Exchange Rate System — Monetary system in Which Foreign Exchange Rates are allowed to move due to market
forces without intervention by country governments.
Frictional Unemployment — The temporary unemployment which occurs in the labor market when workers are changing jobs.
Contrast with Structural Unemployment.
Friedman-Phelps Alternative — An explanation of the Phillips Curve in terms of workers’ incorrect price expectations. According
to this theory, the short-run Phillips curve presents a tradeoff between unemployment and inflation only as long as workers

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maintain the same price expectations. When expectations change, the short-run Phillips curve shifts. In the long run, the Phillips
curve is vertical at the Natural Rate of Unemployment.
FRN — See Floating-Rate Note.
Front-End Load — The sales commission charged at the time of purchase of a mutual fund, insurance policy, or other product.
Frontage — The linear distance of a parcel of land abutting a road or river.
Frontage Assessment — An assessment made by local governments to pay for improvements to sidewalks and roads. Improvements
such as roads or sidewalks can be paid for by assessing property facing or abutting the road based on the proportion of a particular
property’s frontage to the total distance being improved.
Front-End Fee — Charges made by a lender to a borrower for expenses incurred in determining whether or not a loan will be made.
Such expenses would include credit report appraisal, survey, structural inspection, and various legal fees. The fee may be stated
as a set amount or as a percentage of the requested loan. Such fees are not payments for the use of money and thus are not
considered to be interest.
Front-End Load — Refers to charges which are imposed upon the purchase or acquisition of an investment position. Many times
these charges are on a sliding scale. Sometimes, the charges are viewed as impediments for early withdrawals of funds. They
are called front-end because they occur at the beginning of the investment process.
Front Foot — A property measurement for purposes of valuation that is measured by the footage on the street line. When the
dimensions of a lot are given, such as 200 by 600, the first measurement, 200, normally refers to the front footage.
Front Money — Money that must be raised by a builder or developer before obtaining financing in order to start a project. Front
money is needed to pay for such options on the land, legal fees, feasibility studies, engineering studies, and drawings. The
money, also known as seed money, is normally provided by the equity investor(s) since at this stage in the development of a
project financing has not been finalized.
Front Office — The area or function which relates to trading, investing, or sales activities for a financial firm. Orders start here,
flow through the middle office, if any, and get processed by the back office. See Back Office and Middle Office for related terms.
Frozen Account — An accounted barred from further withdrawals by judicial ruling of other legal process. Occurs when a client
fails to pay for securities within the allotted time. Subsequent transactions can only occur if the account has sufficient funds or
securities on deposit to complete the transactions. The frozen status or freeze can be removed only after the account complies
with existing rules and regulations for an established time frame.
FSLIC — Federal Savings and Loan Insurance Corporation; the federal agency that insures deposits of up to $100,000 in member
savings and loan associations.
Full-Bodied Money — Any piece of money which is made from material which is as valuable as the face value of the money.
Example: a $50 gold piece which contains $50 worth of gold.
Full Carrying Charge Market — A futures market where the price difference between delivery months reflects the total costs of
interest, insurance, and storage.
Full Disclosure — (1) Revealing all known facts which may affect the decision of a buyer or tenant. (2) An accounting principle
stipulating that all facts necessary to make financial statements not misleading must be disclosed. (3) The obligation to reveal
all material facts. Under agency law a real estate broker or salesperson acting as an agent is required to fully disclose all material
facts to a third party. Failing to do so may result in legal action against the agent. In addition, federal and state acts such as the
Truth-in-Lending Act and the Interstate Land Sales Full Disclosure Act require that certain information be made available to the
consumer. (4) As mandated by the Securities and Exchange Act of 1934, every company with stock listed on an exchange must
register with the Securities and Exchange Commission (SEC) and provide annual and other reports to the public disclosing
financial and other important information for use by the investing public.
Full Faith and Credit — (1) A term used to describe the financial backing attached to a municipal bond or other government
security indicating the pledge by the issuing entity to use the full taxing authority, plus other revenue sources, to repay both
principal and interest. (2) A pledge of the general taxing power for the payment of debt obligations. Note: Bonds carrying such
pledges are usually referred to as General Obligation (GO) bonds, full faith and credit bonds, or tax-supported bonds. By
contrast, some municipal securities are based solely on the revenues from the project which they are funding, i.e., a revenue bond.
Full Membership (CBOT) — A Chicago Board of Trade (CBOT) membership that allows an individual to trade all futures and
options contracts listed by the exchange.
Full-Price Offer — An offer to purchase real estate at the exact price and with the exact conditions stated by the owner. Most real
estate offers are not full-price offers, although in some isolated markets offers are made above the listing price due to the high
demand and short supply of available property.
Full Recourse — The condition under which loans are sold to a financial institution with an unconditional guarantee by the seller
as to repayment of principal and interest.
Full Recourse Loan — A loan sold by a dealer, such as an automobile dealer, to a buyer under the condition of repurchase should
the loan go into default status. As the dealer or loan originator retains the default risk on the paper sold, such loans are sold at
a discount relative to a nonrecourse loan.
Full Service Bank — Designating a banking institution offering the public most, if not all, of the services traditionally expected of
such an institution. Such services typically include checking and savings deposit accounts, consumer loans, real estate mortgages,
and commercial lending, money transfers, among other services.
Full Service Broker — A brokerage firm offering its clients a full spectrum of brokerage services to include buying and selling
securities, asset management, and investment advice. Such firms typically have access to research facilities for their customers.
Contrast with Discount Broker.
Fully Amortized Mortgage — A mortgage loan that is fully repaid at maturity by periodic reduction of the principal. The first part

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of each payment covers interest on the outstanding debt as of the payment due date and the remainder of the payment reduces
the outstanding debt.
Fully Amortizing Loan — A loan in which the regular periodic payments are sufficient to fully pay off both principal and interest
within a specified maturity date. See Balloon Payment.
Fully Diluted Earnings per (Common) Share — Adjusted earnings per share (EPS) on common stock after allowing for the
exercise of Warrants and Stock Options, and the conversion of Convertible Bonds and Preferred Stocks.
Fully Indexed Note Rate — As related to adjustable rate mortgages, the index value at the time of application plus the gross margin
stated in the note.
Fully Managed Fund — A mutual fund whose investment policy gives its management complete flexibility as to the types of
investments made and the proportions of each. Management is restricted only to the extent that federal regulation or Blue Sky
Laws require.
Functional Distribution of Income — The apportionment of national income among the owners of human, natural, and capital
resources.
Functional Obsolescence —(1) Impairment of functional capacity or efficiency. For example, homes without indoor plumbing
(while they may contain working outdoor plumbing facilities) are considered functionally obsolete. (2) A loss in value within
a structure due to changes in tastes, preferences, technical innovations, or market standards. The item in question may be curable,
such as lack of air conditioning in Florida, or incurable, such as exceptionally low ceilings in a warehouse, depending on the costs
of correcting the item as compared to the benefits expected if the correction is made.
Functional Relationship — (Data Analysis and Forecasting) A hypothetical relationship that describes the effect of one or more
Independent Variables on a Dependent Variable, of the general form:
Y = f(X1, X2, ... , Xn)
where:
Y represents the dependent variable, or variable to be explained, whose behavior is some function of, or dependent upon,
the behavior of certain explanatory variables;
f( ) represents some, as yet undefined, functional relationship between the explanatory variables and the variable to be
explained; and
X1, X2, ..., Xn represent a set of independent or explanatory variables to be used to explain the variations of the dependent
variable, Y.
A fundamental assumption of a functional relationship is that changes in the independent variables, also referred to as the
Exogenous Variables, prescribe or determine changes in the dependent, or Endogenous Variable, consequently leading to a flow
of causation from the independent variables to the dependent variable. As such, a functional relationship is not exactly
comparable to a mathematical equation in which variables may be moved from one side of the equation to the other without
changing the validity of the equation’s overall equality. In a functional relationship by contrast, once the flow of causation has
been prescribed (the Specification), the equation’s (i.e., the Econometric Forecast Model’s) structure is fixed.
Fund — A fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together
with all related liabilities, and residual equities or balances, and changes therein, which are segregated for the purpose of carrying
on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.
Fund Accounts — All accounts necessary to set forth the financial operations and financial position of a fund.
Fund Balance — The excess of the assets of a fund over its liabilities and reserves except in the case of funds subject to budgetary
accounting where, prior to the end of a fiscal period, it represents the excess of the fund’s assets and estimated revenues for the
period over its liabilities, reserves, and available appropriations for the period.
Fund Manager — The person whose responsibility it is to oversee the allocation of the pool of money invested in a particular Mutual
Fund. The fund manager is charged with investing the money to attain the returns and level of risk of the mutual fund investors.
Fund Type (Governmental Accounting) — Any one of seven categories into which all funds are classified in governmental
accounting. The seven fund types are: (1) general; (2) special revenue; (3) debt service; (4) capital projects; (5) enterprise; (6)
internal service; and (7) trust and agency.
Fundamental Analysis — (1) The market research approach which considers economic and monetary factors. For securities it
evaluates the company as well as the industry and economy. For commodities, it looks at supply and demand in terms of actual
usage, production, and inventories, among other things. (2) An analysis for investing purposes of the fundamental performance
indicators of a company based on generally readily available public data such as sales performance, management, competitive
environment, and the like. Such analysis is rejected by the Semi-Strong Form of the Efficient Market Hypothesis which purports
that an investor’s rate of return cannot be improved by analysis of such fundamental information readily available to the public.
(3) Study of the balance sheet, earnings history, management, product lines and other elements of a company in an attempt to
discern reasonable expectations for the price of its stock. (4) Security analysis that seeks to detect mis-valued securities through
an analysis of the firm’s business prospects. Research often focuses on earnings, dividend prospects, expectations for future
interest rates, and risk evaluation of the firm. In macroeconomic analysis, information such as interest rates, Gross Domestic
Product (GDP), inflation, unemployment, and inventories is used to predict the direction of the economy, and therefore the stock
market. In microeconomic analysis, information such as balance sheet, income statement, products, management, and other
market items is used to forecast a company’s imminent success or failure, and hence the future price action of the stock. Contrast
with Technical Analysis.
Fundamentalist — An individual who bases investment decisions on information about a company, its sales performance, its

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management, its industry and the competitive environment, and the general economy rather than an examination of investment
cycles.
Fundamentals — A stock market prediction technique based on important information about a stock, the firm’s management,
earnings behavior, product lines, the market in which it operates, and other relevant information.
Funded Debt — (1) Long-term debt. (2) Same as Bonded Debt, which is the preferred term.
Funded Deficit — A deficit eliminated through the sale of bonds issued for that purpose.
Funding — The process of replacing short-term debt with long-term securities (stocks or bonds).
Funds — Defined most narrowly as cash, more widely considered to be the amount of Net Working Capital or Current Assets less
Current Liabilities.
Funds from Operations (FFO) — Used by Real Estate Investment Trusts (REITs) to define the cash flow from their operations.
It is calculated by adding Depreciation and Amortization expenses to earnings, and can be represented as funds from operations
per share (FFO/S). FFO/S should be used in lieu of Earnings per Share (EPS) when evaluating REITs and other similar
investment trusts. 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.
“Funds-of-Funds” — A term applied to Mutual Funds that invest in a portfolio of mutual funds. Such funds are particularly
attractive for amateur first-time investors as they allow investment diversity among a dozen or more funds with a single minimum
investment. One drawback, however, is that the increased diversity is typically accompanied by lower returns, which holders
appear willing to assume given the inherent greater Diversification and reduced risk.
Fungibility — The substitutability of listed Options, which is dependent upon their common expiration dates and Strike Prices. The
congruence of expiration dates and strike prices lets investors close positions by offsetting transactions through the options
clearing corporation.
Future Advance Mortgage — A mortgage given to secure additional loans to be made in the future as well as an original loan.
Future Advances — Money loaned by a Mortgagee (lender) to a Mortgagor (borrower) after the mortgage has been placed on the
property and secured by the original security agreement. A construction loan often calls for future advances in which dollars
are dispersed to the developer as various stages of construction are completed.
Future Benefits — The positive cash flows and/or increases in the value of property anticipated by an investor. Such anticipation
is the foundation on which the income approach to value is based.
Future Interest — A present ownership interest or the possibility of ownership in land with the right of possession postponed into
the future. Essentially a future interest is a present non-possessory right which will or may become a possessory right at some
future date. Future interest may be classified as follows: (a) possibility of reverter, (b) right of reentry or power of termination,
(c) reversions, and (d) remainders.
Future Worth of One — A factor used to calculate how much a present sum will be worth in the future if it is held for a certain
period of time and earns an interest rate that is compounded periodically.
Future Worth of One per Period — A factor used to calculate how much a series of equal sums deposited at the end of periodic
compounding time intervals will be worth at the end of the total term.
(Commodity or Security) Futures — A contract to buy a commodity or security at some future date at a price that is fixed today.
Unlike Forward Contracts, futures are typically traded on organized exchanges and are marked-to-market on a daily basis.
Futures — (1) Contracts that require delivery of a commodity of specified quality and quantity, at a specified price, on a specified
future date. Commodity futures are traded on a commodity exchange and are used for both speculation and hedging. (2) An
arrangement allowing the holder of the contract the right to exercise some transaction at a specified future date. Futures
Contracts, also referred to as Hedging, do not normally result in the actual exercise of the contract, that is, normally no transfers
are made. The purpose of the contract is merely to attempt to mitigate or off-set a risk normally associated with an economic
or financial transaction. For example, a U.S. importer of Japanese products who must pay his suppliers in Japanese Yen will
purchase a futures contract to purchase Japanese Yen with U.S. dollars at some specified price (rate of exchange). In this way,
if the U.S. dollar depreciates with respect to the Yen before the importer has been repaid, he is still guaranteed a set rate for
repayment on his obligation to his supplier.
Futures Commission Merchant (FCM) — (1) An individual or organization that solicits or accepts orders to buy or sell futures
contracts or options on futures and accepts money or other assets from customers to support such orders. Also referred to as
Commission House or Wire House. (2) 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 provide margin for any resulting trades or contracts. The FCM must be licensed
by the Commodities Futures Trading Commission (CFTC).
Futures Contract — (1) A legally binding agreement to buy or sell a commodity or financial instrument in a designated future
month at a price agreed upon today by the buyer and seller. Futures contracts are standardized according to the quality, quantity,
and delivery time and location for each commodity. A futures contract differs from an Option because an option is the right to
buy or sell, while 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. (2) An agreement
to buy or sell a certain amount of a commodity (such as wheat, soybeans, or gold) or a financial instrument (such as U.S. Treasury
bills or German Deutsche marks) at a stipulated price in a specified future month, which may be as much as nine months away.
As the actual price moves closer to or farther away from the contract price, the price of the contract fluctuates up and down, thus
creating profits and losses for its holders, who may never actually take or make delivery of the underlying commodity. (3) A
legally binding agreement, made on the trading floor of a Futures Exchange, to buy or sell a commodity or financial instrument
sometime in the future. Futures contracts are standardized according to the quality, quantity, and delivery time and location for

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each commodity. The only variable is price, which is discovered on an exchange trading floor. (4) Agreements to buy or sell
a commodity at a particular price on a stipulated date. Futures contracts also can be written on other financial instruments, such
as the underlying securities in certain indexes. The price of a contract is established between the buyer and seller on the floor
of a commodity exchange, using the open outcry system in which traders shout out their buy or sell offers. (5) Financial
instruments predicated on a cash commodity or currency, a financial instrument, or an index. These are standardized contracts
which are traded on organized exchanges. Also, these contracts are subject to industry and exchange regulations and government
regulatory bodies and laws. The standardization is one of the key factors which differentiates these instruments from Forward
Contracts. Other factors are the standardization of margin or performance bond procedures and the high degree of anonymous
offset. Futures contracts can be offset by a trade opposite to the initial transaction, and Exchange for Physicals (EFP), or a good
delivery. Good deliveries can be satisfied by either the delivery of the actual commodity or financial instrument or by a final
cash payment for Cash Settlement markets.
Futures Initial Requirement (FIR) — Refers to the amount of the original margin or performance bond.
Futures Exchange — A central marketplace with established rules and regulations where buyers and sellers meet to trade Futures
and Options on Futures Contracts.
Futures Market — (1) The market in which Futures Contracts are traded. (2) Markets where you can make a contract today to buy
something at a specified future date for a price which is agreed on today. If the price of what you bought goes up between now
and the delivery date, you’ll make a profit. If it goes down, you’ll lose.
FV — Abbreviation for Future Value.
FVIF — Abbreviation for Future Value Interest Factor. See Interest Factor (IF).

©2001-2002 Great Basin Research

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