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Glossary of Financial Terms — F 






Face Value (Amount)

The par value of a bond that appears on the face. This is the amount that the issuer promises to pay at maturity as well as the amount on which interest is computed.


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The multiple or original face outstanding at the time of purchase or sale.


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A trade that does not settle properly, as the seller failed to deliver security as contracted or the buyer does not have money to pay.


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Fair-Value Pricing

The value of assets and liabilities is marked to immediate-liquidation value as far as this can be determined.


Benefits: impaired assets are explicitly recognized and the incorporated in to the value of the firm


Detriments: fair value can be difficult to determine for assets that do not trade frequently, and is subject to temporary inaccurate peaks and troughs during turbulent market environments


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Refers to a pass-through security with a relatively high rate of prepayment.


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Federal Funds

Deposit balances at the Federal Reserve, most of which represent legal reserves. Transactions that involve the sale of immediately available funds for one business day are “Federal Funds” transactions.


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Federal Funds Rate

The interest rate at which federal funds are traded. It is monitored by the Fed in the process of regulating the growth of bank reserves and money supply in the execution of its monetary policy. As such, it is closely watched by market participants.


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Federal Home Loan Bank

One of the federal agencies that guarantees mortgages for home loans.


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Federal Home Loan Mortgage Corporation

A corporate instrumentality of the United States, created by an act of Congress on July 24, 1970 in order to increase the availability of mortgage credit for the financing of housing. FHLMC raises funds by issuing securities backed by pools of conventional mortgages, either Participation Certificates (PCs) or Guaranteed Mortgage Certificates (GMCs). Freddie Mac.


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Federal National Mortgage Association

A government-sponsored corporation owned entirely by private stockholders. It is subject to regulation by the Secretary of Housing and Urban Development. It purchases and sells residential mortgages insured by FHA or guaranteed by VA, as well as conventional home mortgages. Purchases of mortgages are financed by the sale of corporate obligations to private investors. Fannie Mae.


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Federal Reserve Open Market Committee

The Fed’s arm for establishing and executing monetary policy. This committee is composed of the seven Governors of the Federal Reserve Board, the president of the Federal Reserve Bank of New York and four of the presidents of regional Federal Reserve Banks. It normally meets on the third Tuesday of each month to issue guidelines to its trading desk at the Federal Reserve Bank of New York. A summary report of each meeting is released the Friday after the subsequent meeting.


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Federal Reserve Open Market Operations

All of the Fed’s activities in the marketplace. When the Fed is a buyer of securities, the quantity of bank reserves is increased. When the Fed sells securities, banks lose reserves. The purpose of most open market operations is merely to offset changes in the quantity of bank reserves arising from other factors, most notably changes in the Treasury’s balance at the Federal Reserve.


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Federal Reserve System

Established in 1913, it is the central banking system of the U.S. There are 12 regional Federal Reserve Banks but virtually all the policy-making powers are lodged in the Board of Governors of the Federal Reserve System in Washington. This has seven members appointed by the President of the U.S. for 14-year terms. The president chooses one of these to be chairman for a 4-year term. All depository institutions must hold reserves at the Fed or in vault cash.


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A statistical study done by the Actuarial Division of the Department of Housing and Urban Development describing the probability of a mortgage prepaying or defaulting in a given year of its life. The data, which date back to 1957, are updated annually and are compiled for each state as well as for the nation as a whole.


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An individual, corporation, or association, to whom certain property is given to hold in trust, according to the trust agreement under which the property is held.


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Fill or Kill

A request to execute an order immediately at the specified price or cancel it.


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Financial Futures

Futures contracts are based on financial instruments such as U.S. Treasury bonds, CDs and other interest-sensitive issues, currencies and stock market indicators. We view futures contracts as substitutes for cash market securities: Treasury Bond futures, for instance, can be an attractive substitute for Treasury Bonds when priced “cheap.” That is we can earn a higher rate of return on the future with virtually no additional risk.


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Refers to an order to buy or sell a security that can be executed without confirmation for a stated period of time.


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First Mortgage Bond

A debt instrument secured by a first mortgage deed of trust containing a pledge of real property.


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Fiscal Policy

Fiscal policy is the deliberate and thought out change in government spending, government borrowing or taxes to stimulate or slow down the economy. Fiscal policy is described as being either neutral, expansionary, or contractionary. An expansionary fiscal policy occurs when the government lowers taxes and/or increases spending; thus expanding output (national income). An expansionary fiscal policy will expand the economy’s growth. A contractionary fiscal policy occurs when the government raises taxes and/or lowers spending; thus lowering output (national income).A contractionary fiscal policy will constrict the economy’s overall growth.


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Five Percent Policy

The NASD guide in establishment of mark-ups and commissions. As a practice, dealer mark-ups and commissions on a security should not exceed 5 % of the price of such security.


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Fixed Income

Securities/Investments in which the income during ownership is fixed or constant. Generally refers to any type of bond investment.


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1. Excluding any accrued interest (so that only the dollar price is figured in the settling contract). Preferred stock, income bonds and bonds in default are quoted and sold flat.

2. Describes transactions executed for no profit.


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To sell securities shortly after purchase for a trading profit.


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1. Credits on the Fed’s books to bank accounts during process of check clearing without corresponding debits to other banks’ accounts; a result of delays n the check clearing process. This is also called Federal Reserve Float.

2. The portion of an issue expected to trade actively in the secondary market.

3. Colloquially, to issue a security.

4. To allow the exchange rate of a foreign currency to be determined by supply and demand, free of official intervention.


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Floating Rate Bond

Bond having a coupon that changes periodically based upon changes in another, usually short-term, interest rate, such as Treasury bills or LIBOR (London Inter-dealer Broker Overnight Rate).


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Floating Rate Note

A fixed income security which has variable coupon rates, periodically changed according to the rise and fall of a certain interest rate index or a specific fixed income security which is used as a benchmark. Also known as a “floater.”


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The trading floor of the central marketplace where a security or a commodity is traded, such as the Bond Room of the New York Stock Exchange.


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Floor Broker

A member of the New York Stock Exchange who executes orders received from member firms or for his own account on the floor of the exchange.


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Flower Bonds

U.S. Treasury bonds that can be applied to the payment of federal estate taxes at par when held by and included in the estate of a deceased.


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Flow of Funds Accounts

A quarterly set of statistics compiled by the Federal Reserve estimating the sources and uses of funds for the major economic sectors and classes of financial institutions. They also show changes in holdings of various types of loans and securities they have bought or sold.


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An authorized procedure taken by a mortgage or lender, under the terms of a mortgage or deed of trust, for the purpose of having the property applied to the payment of a defaulted debt.


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Allotment letter: the issuer sends the buyer a letter representing ownership of the bond.

Bearer Form: the holder of the bond is the owner. Physical certificates exist.

Book Entry Form (or Inscribed Form): the issuer or agent records the ownership of the bond, usually in computerized records. There are no bond certificates.

Registered Form: the issuer or agent records bond ownership and occasionally bond certificates are allotted.


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(trade) a principal-to-principal non-transferable agreement which stipulates that delivery and payment for securities will take place on a date in the future at a price agreed to at the time of the transaction.

(market) current bids and offers maintained by GNMA dealers for various issues with monthly settlements in each of the next six months (or more).


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Fractional Reserve System

A reserve system similar to that of the United States in which reserves required by the Federal Reserve and only a fraction of deposits, allowing deposits to expand by several times any change in the quantity of reserves.


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Free Reserve System

Excess reserves minus depository institutions’ borrowings at the Fed.


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Front Months

Those futures contracts that are within twelve months of the current date.


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Event level used in describing the work flow at the highest level; detailed further by Processes.


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Fundamental Research

Analysis of industries and companies based on such factors as sales, assets, earnings, products or services, markets and management. As applied to the economy, fundamental research includes consideration of gross national product, interest rates, unemployment, inventories, savings, etc.


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In most cases, a fund is a collection of stocks that are pooled for specific purposes (although there are also bond funds). Mutual fund and Exchange-Traded Funds are common types of stock funds.


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Funnel Sinking Fund

A sinking fund in which the trustee may purchase bonds of any series outstanding under a mortgage in order to satisfy a sinking fund requirement. The requirement is stated as a percentage of the total debt outstanding in a year.


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A contract to buy or sell a specific amount of securities or commodities for a specific amount of securities or commodities for a specific price or yield on a specified future date. The commodities traded in futures markets include stock index futures; agricultural products like wheat, soybeans and pork bellies; metals; and financial instruments. Futures are used by business as a hedge against unfavorable price changes and by speculators who hope to profit from such changes.


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Future Value

The assumed amount of cash at a future point in time. a present value becomes a future value through the process of reinvestment.


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Futures Contract

Agreement to buy or sell a specific amount of a commodity or financial instrument at a particular price and a stipulated future date.


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Futures Delivery

The process of meeting an obligation to deliver or receive securities or commodities on a date, in a location as specified by the terms of the contract.


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Futures Long/Futures Short

Refers to aggregate market value positions in financial futures contracts either held for future delivery into account (Futures Long) or the future delivery of financial instruments from account (Futures Short).


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Information contained herein is believed to be reliable, but the accuracy and completeness of this material cannot be guaranteed.


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