Finance Business Investment Glossary

Adjustable Rate Mortgage (ARM) A loan which has a coupon or interest rate that is subject to change on predetermined reset dates. These loans use interest rate indices as the benchmark rate. Adjustable Rate Mortgages come in many variations. Typically, the reset dates recur every 1, 3, or 5 years; but there are other periods used as well. These loans may have cap and floor features which constrain each reset change in interest rates. There may also be lifetime cap and floor features.

AMEX The American Stock Exchange.

Amortization The periodic pay-down of principal, a common feature of most mortgages.

AMT (Alternative Minimum Tax) An IRS mechanism created to ensure that high-income individuals, corporations, trusts, and estates pay at least some minimum amount of tax, regardless of deductions, credits or exemptions.

Annuity An insurance investment product which pays out fixed or variable amounts to the holder over a specified period of time, based upon the amount of deposit into the annuity, and the terms of the annuity contract.

APR Annual Percentage Rate of Interest.

APY Annual Percentage Yield of Interest.

Assessed Value The taxable basis of a property. It is imposed by the municipality, and may or may not represent market value.

Assets Holdings in cash, property, or securities owned or are due to a person or organization. Assets are typically viewed in three categories. These three classifications are: Current, Fixed or Long-term, and Intangible.

At-Will Employment A type of employment relationship in which there is no contractual agreement and either party may end the employment relationship at any time, for any reason or for no reason at all, without incurring a penalty.

ATM An Automated Teller Machine.

Basis Original Cost plus any added costs of an asset or property, less any depreciation that has been taken. A capital gain is calculated by subtracting the cost basis from the sale price.

Bear Market A declining market, as opposed to a Bull Market, which is an advancing market. A “bear” believes a market will decline.

Beneficiary A person or entity one names in a life insurance policy to receive the death benefit.

Big Board Refers to the New York Stock Exchange.

Bridge Loan A type of temporary financing which is extended until permanent financing is secured. At that time, funds from the new permanent financing are used to pay off the bridge loan.

Bull Market An advancing market. A “bull” is a person who thinks a market is going to rise. The opposite term is “Bear Market” or “Bear.”

Call Option A contract whereby the purchaser, owner or holder is given the right but is not obligated to purchase the underlying security or commodity at a fixed strike price within a limited time frame.

Cash Value The amount available in cash upon cancellation of an insurance policy, usually a whole life policy, before it becomes payable upon death or maturity

CD (Certificate of Deposit) A time deposit issued by a commercial bank, savings bank, or credit union paying a specified rate of interest for a specified term, such as one year.

Collateral The underlying security, mortgage, or asset for the purposes of securing a loan or establishing a basis against which a loan can be made. Collateral is normally held in trust as security during the discharge of the loan. Stocks or bonds, when pledged to secure a loan, are examples of collateral.

CPA Certified Public Accountant.

CPI Consumer Price Index.

Credit Union This is a cooperative financial institution, owned and controlled by the people who use its services, called members. Credit unions are not-for-profit, and exist to provide a convenient place for members to save money and get loans at reasonable rates.

Debit Card An encoded plastic card that enables the holder to draw out cash from a checking or savings account through direct payment or use at an ATM machine.

Discount Rate The Interest rate which the Federal Reserve charges its member banks.

Dividend A distribution made by a corporation to its shareholders. The shareholders can hold common or preferred stock.

Electronic Funds Transfer (EFT) A computer system for transferring funds and payments between accounts. Employers sometimes use EFT instead of issuing payroll checks.

Escrow/Escrow Agent Documents, real estate, money, or securities deposited with a neutral third party (the Escrow Agent) to be delivered upon fulfillment of certain conditions, as established in a written agreement.

Executor/Executrix: The individual named by the maker of a will to carry out its provisions.

FDIC (Federal Deposit Insurance Corporation) An independent agency created by the Congress that maintains the stability and public confidence in the nation’s financial system by insuring deposits, examining and supervising financial institutions, and managing receiverships.

FED (Federal Reserve) The central bank which controls the money supply in the U.S. Federal Identification Number (FIN): A number assigned to a business for tax reporting purposes.

Federal Identification Number (FIN) A number assigned to a business for tax reporting purposes.

Fedwire A rapid electronic transmission of funds, such as between banks, through the Federal Reserve System.

FTC (Federal Trade Commission) The federal agency charged with both consumer protection and competition jurisdiction in broad sectors of the economy.

Ginnie Mae Government National Mortgage Association.

Growth Stocks or Funds Securities which are deemed to have growth potential, but may also carry higher P/E ratios reflecting the expectation of faster growth than other securities.

Hedge Funds Alternative investment vehicles whose trading styles are quite variable from one fund to another. Some take positions to benefit from movements in currencies and interest rates, while others focus on the movements of different types of instruments, such as Convertible Securities or Mortgage Backed Securities.

Income Stocks or Funds Investments that are purchased for their income stream, such as bonds or preferreds, or other security with a high cash distribution.

Index Funds Investment vehicles such as mutual funds which are based on a specified benchmark or index. Among the more popular indices are the S&P 500 and S&P 100. This type of investing avoids the need to select individual stocks, and gives a return more reflective of the market as a whole.

IPO (Initial Public Offering) An offering of stock in a company to the public for the first time. An IPO is accompanied by a registration statement explaining the offering in great detail.

IRA (Individual Retirement Account) A tax-deferred retirement account for an individual that permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later.

IRS (Internal Revenue Service) The Federal agency charged with the collection and enforcement of taxes.

Junk Bonds Non-investment grade debt securities. Sometimes, these issues are called high yield securities. These securities have credit ratings below Baa/BBB-, and are very speculative.

Keogh Plan A retirement plan that can be established by a self-employed person, with a maximum annual contribution. This type of plan provides tax-free growth or compounding until the time of withdrawal. It should be noted that other provisions apply.

LIBOR London Interbank Offered Rate. Certain loans are pegged to one-month, three-month, or one-year LIBOR, and are re-set at the end of the time interval.

Liquidity A characteristic of a market where size and speed of executions are sufficient to absorb many orders with little disturbance in price and in a timely manner. The term also refers to cash availability in other contexts.

Money Market Funds Mutual funds which invest in short-term instruments such as treasury bills, commercial paper, and asset backed securities. These funds try to maintain a net asset value (NAV) of $1 per share.

Mortgage A pledge of real property in order to obtain a loan:, not the note itself. The loan instrument is called a note or bond. However, these two terms are frequently used synonymously.

Mutual Fund An open-ended fund which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives. Mutual funds may specialize in different sectors, industries, or regions.

NASDAQ The acronym for the National Association of Securities Dealers Automated Quotations or Quote system. U.S. stocks are normally listed on the New York Stock Exchange, the American Stock Exchange or NASDAQ.

Net Worth The financial worth of a person or entity after liabilities are subtracted from assets.

No Load A transaction, particularly for a mutual fund, in which no fee is charged for either the purchase or redemption of the fund shares.

NYSE The New York Stock Exchange.

On-Line Trading Investment activity which takes place over the Internet without the physical inclusion of a broker.

Over the Counter (OTC) The marketplace where securities are not listed on an exchange, such as the New York Stock Exchange. Many derivatives, fixed income securities, and very small capitalization stocks belong in this group.

P/E Ratio (Price to Earnings Ratio) The relationship between the current price of a security and its earnings stream. Conservative investments tend to have lower P/E Ratios, while more speculative growth stocks have higher P/E’s, reflecting the expectation of rapid growth.

Portfolio A collection of investments that are owned by an individual or entity.

Preferreds (Preferred Stock) An equity security which has a priority relative to ordinary common shares for dividends and return of par amount in the event of a corporate dissolution. Preferreds often have attractive yields, although their underlying price will vary according to market interest rates.

Prime Rate The interest rate that commercial banks charge their most creditworthy borrowers, such as large corporations. In recent years, many loans are set below prime.

Prospectus A formal document which presents financial condition, key employees and management, and the purpose of the organization. It accompanies an Initial Public Offering.

Proxy The written authorization by the shareholder of record to another party to vote the shares as the shareholder designates or to vote the shares as the proxy holder deems fit.

REIT (Real Estate Investment Trust) An investment entity which holds real properties, such as apartments, shopping malls, or office buildings. REITS are popular investment vehicles.

Roth IRA A type of IRA which allows taxpayers to save for retirement while allowing the savings to grow tax-free. Taxes are paid on contributions, but withdrawals, subject to rules, are not taxed at all.

S&P 500 A common index to the performance of the stock market, representing the aggregate performance of 500 separate stocks listed by Standard & Poors.

SEC: (Securities & Exchange Commission) The agency responsible for administering federal securities laws in the US.

Security Deposit Money paid at the commencement of a lease to protect a landlord against damage or non-payment.

Tax Exempt Income or property which is not subject to tax. Interest on Municipal bonds issued by cities and states is not subject to federal income tax. Similarly, interest on a treasury bond is not subject to state or local income taxes.

Ten-Ninety-Nine (1099 Form) The IRS form for the annual reporting of dividend and interest payments made to investors. Companies, mutual funds, banks and other financial institutions report an investor’s dividend and interest directly to the IRS with this form.

Title Insurance Insurance against loss due to defects in the title to real property, such as a home. Lenders require title insurance when closing on a mortgage.

Treasury Bills, Notes, & Bonds Debt instruments of the U.S. Treasury of different durations. Treasury Bills have a duration as short as one month, while Treasury Bonds have terms of many years.

Universal Life Insurance Life insurance which combines the low-cost protection of term insurance with a savings component that is invested in a tax-deferred account, the cash value of which may be available for a loan to the policyholder.

Value Stocks or Funds Securities which are regarded as undervalued companies. These entities often exhibit lower-than-average ratios, such as price/earnings, price/sales, or book value.

Yield The rate of return on an asset. It is frequently expressed as a percent of the current market price.