Common trait that causes many securities to trade together. For example, country risk, sector risk, economic growth rate.
See nominal value.
Price deemed to accurately reflect the price of a security, based on measurable valuation fundamentals. Considered to be an equitable valuation from the points of view of both buyer and seller. Removes the potential for a market participant making risk-free profits from arbitrage.
Highly rated investment grade bond that falls (or is downgraded/re-rated) below investment grade.
See Financial Accounting Standard 87.
Federal funds rate
Interest rate at which the Federal Reserve (the US Central Bank) lends funds from depository banks with excess reserves to depository banks seeking additional reserves overnight. Manipulation of the federal funds rate is the principal instrument for managing monetary policy in the US. Also known as fed funds rate.
Person or entity that acts for the benefit and on behalf of another person or group of persons. A fiduciary holds a legally enforceable position of trust.
Financial Accounting Standard 87 (FAS87)
US accounting standard which sets out the accounting treatment of retirement benefits such as pensions.
Financial Conduct Authority (FCA)
Independent body formed as one of the successors to the Financial Services
Authority (FSA), focusing on the regulation of conduct by the financial services industry in the UK.
Financial Reporting Standard 17 (FRS17)
UK accounting standard which sets out the accounting treatment of retirement benefits such as pensions and medical care during retirement. It has replaced SSAP24.
Collective term for decisions made by a government in relation to tax and spending. It is a tool by which a government influences its economy. Typically, spending will exceed income (taxation) when a government is trying to stimulate the economy, and vice versa when it is trying to temper inflationary growth.
Independent rating agency that assesses the creditworthiness of companies and their debt. The highest rating awarded is AAA, and the lowest is D. Other well- known agencies are Standard & Poor’s and Moody’s.
Fixed interest asset
Asset where the timing and amount of future interest or coupons are specified (and fixed) at the time of issue. (See also real asset.)
Flat yield curve
Where short, medium and long maturity bonds in the market all have similar yields.
Flight to quality
Passage of funds from riskier to safer investments during periods of market uncertainty — for example, investors seeking government rather than corporate bonds. Can also refer to foreign investors withdrawing capital from a country during times of political or currency instability.
Floating rate bond/floating rate note (FRN)
Bond with a variable coupon rate, periodically reset based on some predetermined benchmark interest rate. Floating rate bonds are generally issued by banks or companies whose earnings are closely tied to interest rate fluctuations as a way of more closely matching interest payments to earnings.
Interest rate contract where the purchaser receives from the seller, at the end of each period prior to expiry of the contract, the difference between the strike interest rate and current interest rate, should the interest rate fall below the strike. For example, agreement to receive money for each month during which LIBOR is less than 4%. (See also cap.)
First issue of shares by a company on a stock exchange. (See also initial public offering.)
Common abbreviation for “foreign exchange”.
Contract to buy or sell an asset at an agreed price at a specified date in the future. Forwards are similar to futures but are not exchange traded and need not be standardised.
Forward exchange rate
Exchange rate fixed today for the purchase or sale of a currency at a
specified future date. It is calculated on the basis of a spot exchange rate and the interest rate differential between the two relevant countries.
Forward interest rate
Interest rate fixed now on a loan that will occur at a specified future date.
Forward rate agreement (FRA)
Form of a forward contract between two parties to exchange an interest rate differential on a notional principal amount at a given future date. Settlement is through payment of the net differential only. A swap is a combination of FRAs.
Forward rate option
Contract giving the buyer the right, but not the obligation, to exchange an interest rate differential on a notional principal amount at a given future date.
See floating rate bond/floating rate note.
Free-standing additional voluntary contributions (FSAVC)
Contributions paid by individuals into investment vehicles administered independently of their occupational pension scheme. Accrue benefits on a
money purchase basis. (See also additional voluntary contributions.)
Initial payment, in the form of commission, paid to an intermediary or manager upon purchase of a security or unit in a pooled fund. (See also no-load.)
Dealing, research and marketing activity of an investment management company. (See also back office.)
Illegal practice in which a bank, aware of a large order, executes a trade in the market prior to the release of the order to profit from an anticipated favourable price move.
See Financial Reporting Standard 17.
See Financial Services Authority.
See free-standing additional voluntary contributions. (See also additional voluntary contributions.)
FTSE 100 index
FTSE international index of the top 100 companies in the UK by market capitalisation. It is the most frequently quoted measure of the UK market and is also known as the “Footsie”. (The FTSE 250 measures the next 250 largest companies. The FTSE 350 measures the top 350 companies).
FTSE All-Share Index
FTSE index for the main UK stock exchange. The index covers approximately 800 companies.
Family of indices compiled and promoted by FTSE International, covering most major stock markets and regions worldwide.
Organisation that produces financial market indices with the involvement of the Faculty and Institute of Actuaries. It is co-owned by the Financial Times and the London Stock Exchange.
Relates to a situation where a scheme’s assets are sufficient to meet its liabilities (i.e. the scheme’s assets are sufficient to meet its current and future benefit obligations).
Usually a member of an investment management team who is responsible for ensuring that client portfolios are invested in accordance with agreed mandates and are kept in line with the asset mix specified by the investment team. The fund manager may also be responsible for client reporting and relationship management. (See also investment manager.)
Fund of funds
Pooled fund which invests in other funds rather than directly in underlying securities. Differs from a manager of managers in that it is a combination of funds, each of which is separately available. A manager of managers appoints underlying managers to invest separate portions of a single fund. (See also manager of managers.)
Assessment of a company’s share value and potential for future cash flows, profit and dividends based on accounting, economic and business information (hence fundamental factors). (See also technical analysis.)
For a pension fund, the ratio of the fund’s assets to its liabilities. Normally relates
to defined benefit pension funds and used as a measure of the fund’s ability to meet its future liabilities.
Possibility that a defined benefit plan fails to accrue sufficient assets to meet the liabilities as and when they fall due (or more generally the likelihood that funding deteriorates).
Forward contract that is traded on an organised exchange and subject to the guidelines and rules applied by that exchange. The features distinguishing the futures market from the forwards market are that the futures market uses a clearing house facility, margin payments are required and the terms of futures contracts are standardised. Establishes an obligation to the buyer and seller (or subsequent holders of the contract) to settle the contract through purchase or sale of the underlying asset at the exercise date.
Market in which futures contracts are transacted.
When a futures contract is initiated, a deposit (the initial margin) is paid to the future exchange. This normally represents a small percentage of the value of the contract and helps in protecting the exchange against defaults. As the value of the contract changes, additional payments may be requested (the variation margin).
The amount of money printed on the face of the certificate of a security; the original dollar amount of indebtedness incurred.
The theoretical price at which a futures contract would be expected to trade.
Member bank deposits at the Federal Reserve; these funds are loaned by member banks to other member banks.
Federal Funds Rate
The rate of interest charged for the use of federal funds.
Federal Reserve System
A central banking system in the United States, created by the Federal Reserve Act in 1913, designed to assist the nation in attaining its economic and financial goals. The structure of the Federal Reserve System includes a Board of Governors, the Federal Open Market Committee, and 12 Federal Reserve Banks.
A ratio used to express the relationship of feeding costs to the dollar value of livestock. See Hog/Corn Ratio and Steer/Corn Ratio.
A customer order that is a price limit order that must be filled immediately or canceled.
Financial Services Commission(FSC)
An independent government body responsible for the licensing, oversight and operations of organizations and entities classified as financial services companies/corporations/firms such as banks/ brokers/dealers/insurance companies/investment firms/exchanges etc.
A financial contract designed around a particular financial asset(physical or paper based) with pre defined terms and conditions governing its use and associated rights and obligations for those parties entering into such a contract by utlising the financial instrument for self serving purpose(s).
First Notice Day
According to exchange 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.
When a market participant has a neutral/zero exposure to any financial instrument/market based on closing out of an earlier position.
Float / flotation
The first public offering of a company’s shares or securities on a regulated exchange.
Floor Broker (FB)
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.
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.
Foreign Exchange Market
See Forex Market.
An over-the-counter market where buyers and sellers conduct foreign exchange business by telephone and other means of communication such as electronic/interbank trading networks. Also referred to as foreign exchange market.
Forward (Cash) Contract
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.
Full Carrying Charge Market
A futures market where the price difference between delivery months reflects the total costs of interest, insurance, and storage.
A method of anticipating future price movement using supply and demand information.
Futures Commission Merchant (FCM)
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.
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 each commodity. The only variable is price, which is discovered on an exchange trading floor.
A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options on futures contracts.