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F: Fifth letter of a Nasdaq stock symbol specifying that the issue is a foreign company.

FI: The two-character ISO 3166 country code for FINLAND.

FIM: The ISO 4217 currency code for the Finnish Markka.

FJ : The two-character ISO 3166 country code for FIJI.

FJD: The ISO 4217 currency code for the Fijian Dollar.

FK: The two-character ISO 3166 country code for FALKLAND ISLANDS (MALVINAS).

FKP: The ISO 4217 currency code for the Falkland Islands Pound.

FO: The two-character ISO 3166 country code for FAROE ISLANDS.

FM: The two-character ISO 3166 country code for MICRONESIA, FEDERATED STATES OF.

FR: The two-character ISO 3166 country code for FRANCE.

FRA: See: Forward rate agreement

FRF: The ISO 4217 currency code for the French Franc.

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.

Factor: A financial institution that buys a firm's accounts receivable and collects the accounts.

Factor analysis: A statistical procedure that seeks to explain a certain phenomenon, such as the return on a common stock, in terms of the behavior of a set ofpredictive factors. Factor model: A way of decomposing the forces that influence a security's rate of return into common and firm-specific influences.

Factor portfolio: A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of zero on any other factors.

Factor Return: The return attributable to a particular common factor. We decompose asset returns into a common factor component, based on the asset's exposures to common factors times the factor returns, and a specific return.

Factoring: Sale of a firm's accounts receivable to a financial institution known as a factor.

Fade : Refers to over-the-counter trading. Fill another OTC dealer's bid for or offer of stock.

Fail: A deal is said to fail if on the settlement date either the seller does not deliver securities in proper form or the buyer does not to deliver funds in proper form.

Fair-and-equitable test: A set of requirements for a plan of reorganization to be approved by the bankruptcy court.

Fair game: An investment prospect that has a zero risk premium.

Fair market price: Amount at which an asset would change hands between two parties, that both have knowledge of the relevant facts. Also referred to as market price.

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 value:In the context of futures, 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).

Fairness opinion: An investment banker's professional opinion as to the price an acquiring firm is offering in a takeover or merger.

Fall Down: In the context of general equities, may not be able to produce as indicated in one's advertised market, due to less help (than anticipated) from other parties or due to changing market conditions.

Fall out of bed: A sudden drop in a stock's price resulting from failed or poor business deals gone bad or falling through.

Fallen angels: Bonds that at the time of issue were considered investment grade but that have dropped below that rating over time.

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 pipeline.

Family of funds: Different mutual funds offered by one investment company.

Far month: Used in the context of option or futures to refer to the trading month of the contract that is farthest away. Antithesis of nearest month.

Farther out; farther in: Used in the context of options to refer to the relative length of option contract maturities.

FASB No. 8: U.S. accounting standard that requires US 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 the most controversial accounting standard in the US It was replaced by FASB No. 52 in 1981.

FASB No. 52: The US accounting standard that replaced FASB No. 8. US companies are required to translate foreign accounts in terms of the current rate and report the changes from currency fluctuations in a cumulative translation adjustment account in the equity section of the balance sheet.

Fast market: 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. Favorable trade balance: Condition that total exports of a nation exceed total imports, creating a net export.

Feasible portfolio : A portfolio that an investor can construct, given the assets available.

Feasible set of portfolios: The collection of all feasible portfolios.

Feasible target payout ratios: Payout ratios that are consistent with the level of excess funds available to make cash dividend payments.

FED Pass: A Federal Reserve action adding more reserves to the banking system, increasing the money available for lending, and making credit easier to attain.

Federal agency bond : Fixed-income security issued by a government agency such as FNMA.

Federal agency securities: Securities issued by corporations and agencies created by the US government, such as the Federal Home Loan Bank Board and Ginnie Mae.

Federal Agricultural Mortgage Corporation (Farmer Mac): A federal agency chartered in 1988 to provide a secondary market for farm mortgage loans.

Federal credit agencies: Agencies of the federal government set up to supply credit to various classes of institutions and individuals, e.g., S&Ls, small business firms, students, farmers, and exporters.

Federal deficit (surplus): When federal government expenditures are exceeded by federal government revenue.

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. 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.

Federal Deposit Insurance Corporation (FDIC): A federal institution that insures bank deposits.

Federal Financing Bank: A federal institution that lends to a wide array of federal credit agencies funds it obtains by borrowing from the US Treasury.

Federal funds : Noninterest-bearing deposits held in reserve for depository institutions at their district Federal Reserve Bank. Also, excess reserves lent by banks to each other.

Federal funds market : The market in which banks can borrow or lend reserves, allowing banks temporarily short of their required reserves to borrow reserves from banks that have excess reserves.

Federal funds rate: The interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. The Fed funds rate, as it is called, often points to the direction of US interest rates. The most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate.

Federal gift tax: A federal tax imposed on assets conveyed as gifts to individuals.

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 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): US government agency chartered in 1989 to assume the responsibilities formerly held by the Federal Home Loan Bank system.

Federal Intermediate Credit Bank: A bank sponsored by the federal government to provide funds to institutions making loans to farmers.

Federal intrafund transactions: Intrabudgetary transactions in which payments and receipts both occur within the same Federal fund group.

Federal Land Bank: A bank administered under the US Farm Credit Administration that provides long-term mortgage credit to farmers for agriculture-related expenditures.

Federal National Mortgage Association (Fannie Mae): A publicly owned, government-sponsored corporation chartered in 1938 to purchase mortgages from lenders and resell them to investors. Known by the nickname Fannie Mae, it packages mortgages backed by the Federal Housing Administration, but also sells some nongovernment-backed mortgages.

Federal Open Market Committee (FOMC): The body that is responsible for setting the interest rates and credit policies of the Federal Reserve System.

Federal Reserve Bank: One of the 12 member banks constituting the Federal Reserve System that is responsible for overseeing the commercial and savings banks of its region to ensure their compliance with regulation.

Federal Reserve Board (FRB): The seven-member governing body of the Federal Reserve System, which is responsible for setting reserve requirements, and the discount rate, and making other key economic decisions.

Federal Reserve notes: Issues by the US government to the public through the Federal Reserve Banks and their member banks. They 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.

Federal Reserve System: The monetary authority of the US, established in 1913, and governed by the Federal Reserve Board located in Washington, D.C. The system includes 12 Federal Reserve Banks and is authorized to regulate monetary policy in the US as well as to supervise Federal Reserve member banks, bank holding companies, international operations of US banks, and US operations of foreign banks.

Federal Savings and Loan Association: An institution chartered by the federal government whose primary function is to collect savings deposits and to provide mortgage loans.

Federally related institutions : Arms of the federal government exempt from SEC registration whose securities are backed by the full faith and credit of the US government (with the exception of the Tennessee Valley Authority).

Fedwire: A wire transfer system for high-value payments operated by the Federal Reserve System.

Fee table: Schedule found in a mutual fund's prospectus that discloses and illustrates the expenses and fees a shareholder will incur.

Fee-based compensation: Payment to a financial adviser of a set hourly rate, or an agreed-upon percentage of assets under management, for a financial plan. When the plan is implemented, the adviser may also receive commission on some or all of the investment products purchased, which would be fee-and-commission compensation.

Fee-only compensation: Payment to a financial adviser of a set hourly rate, or an agreed-upon percentage of assets under management, for a financial plan.

Feedback Systems: An equation where the output becomes the input in the next iteration. This is much like a public address system where the microphone is placed next to the speakers generating feedback as the signal is looped through the PA system.

FHA prepayment experience: The percentage of loans in a pool of mortgages outstanding at the origination anniversary, based on annual statistical historic survival rates for FHA-insured mortgages.

Fiat money: Nonconvertible paper money.

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.

Fiduciary: One who must act for the benefit of another party.

Field warehouse: Warehouse rented by a company on another firm's premises.

Figure: Refers to details about price including the bid and ofter.

Figuring the tail: Calculating the yield at which a future money market (one available some period hence) is purchased when that future security is created by buying an existing instrument and financing the initial portion of its life with a term repo.

Fill : The price at which an order is executed.

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.

Filter : A rule that stipulates when a security should be bought or sold according to its price action.

Finance: A discipline concerned with determining value and making decisions. The finance function allocates resources, including the acquiring, investing, and managing of resources.

Finance charge: The total cost of credit a customer must pay on a consumer loan, including interest.

Finance company: A company whose business and primary function is to make loans to individuals, while not receiving deposits like a bank.

Financial Accounting Standards Board (FASB): Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP).

Financial adviser: A professional offering financial advice to clients for a fee and/or commission.

Financial analysis: Analysis of a company's financial statement, often by financial analysts.

Financial analysts: Also called securities analysts and investment analysts. Professionals who analyze financial statements, interview corporate executives, and attend trade shows, in order to write reports recommending either purchasing, selling, or holding various stocks.

Financial assets: Claims on real assets.

Financial control: The management of a firm's costs and expenses in relation to budgeted amounts.

Financial distress: Events preceding and including bankruptcy, such as violation of loan contracts.

Financial distress costs: Legal and administrative costs of liquidation or reorganization. Also includes implied costs associated with impaired ability to do business (indirect costs).

Financial engineering: Combining or carving up existing instruments to create new financial products.

Financial future: A contract entered into now that provides for the delivery of a specified asset in exchange for the selling price at some specified future date.

Financial guarantee insurance: Insurance created to cover losses from specified financial transactions.

Financial innovation: Design of any new financial product, such as exotic currency options and swaps.

Financial institution: An enterprise such as a bank whose primary business and function is to collect money from the public and invest it in financial assets such as stocks and bonds.

Financial institution buyer credit policy: Insurance coverage for loans by banks to foreign buyers of exports.

Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA): Legislation that established the Office of Thrift Supervision, which was created in the wake of the savings and loan crisis of the late 1980s.

Financial intermediaries: Institutions that provide the market function of matching borrowers and lenders or traders.

Financial lease: Long-term, noncancellable rental agreement.

Financial leverage: Use of debt to increase the expected return on equity. Financial leverage is measured by the ratio of debt to debt plus equity.

Financial leverage clientele: A group of investors who have a preference for investing in firms that adhere to a particular financial leverage policy.

Financial leverage ratios : Common ratios are debt divided by equity a debt divided by the sum of debt plus equity. Related: capitalization ratios.

Financial market: An organized institutional structure or mechanism for creating and exchanging financial assets.

Financial needs approach: A method of establishing the amount of life insurance required by an individual by estimating the financial needs of dependents in the event of the individual's death.

Financial objectives: Goals related to returns that a firm will strive to accomplish during the period covered by its financial plan.

Financial plan: A blueprint relating to the financial future of a firm.

Financial planner: An investment professional who assists individuals with long- and short-term financial goals.

Financial planning: Evaluating the investing and financing options available to a firm. 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/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 position: The account status of a firm's or individual's assets, liabilities, and equity positions as reflected on its financial statement.

Financial press: Media devoted to reporting financial news.

Financial price risk: The chance there will be unexpected changes in a financial price, including currency (foreign exchange) risk, interest rate risk, and commodity price risk.

Financial public relations: Public relations division of a company charged with cultivating positive investor relations and proper disclosure information.

Financial pyramid: A risk structure that spreads investor's risks across low-, medium-, 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.

Financial ratio: The result of dividing one financial statement item by another. Ratios help analysts interpret financial statements by focusing on specific relationships.

Financial risk : The risk that the cash flow of an issuer will not be adequate to meet its financial obligations. Also referred to as the additional risk that a firm's stockholder bears when the firm uses debt and equity.

Financial service income: Income from delivery of financial services such as banking, insurance, leasing, or financial service management fees.

Financial statement: A report of basic accounting data that helps investors understand a firm's financial history and activities.

Financial statement analysis: Evaluation of a firm's financial statements in order to assess the firm's worth and its ability to meet its financial obligations.

Financial strategy: Practices a firm adopts to pursue its financial objectives.

Financial structure: 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.

Financial tables: Tables found in newspapers listing prices, dividends, yields, price-earnings ratios, trading volume, and other important data on stocks, bonds, mutual funds, and futures contracts.

Financial Times (F-T)-Actuaries indexes : Share price indexes for U.K. companies The denominator in the index formula is the market capitalization at the base date, adjusted for all capital changes affecting the particular index since the base date. See: Footsie (FTSE) (pronounced footsie).

Financing Corporation (FICO): A government agency chartered in 1987 to bail out the Federal Savings and Loan Insurance Corporation (FSLIC) by issuing bonds.

Financing decisions: Decisions concerning the liabilities and stockholders' equity side of the firm's balance sheet, such as a decision to issue bonds.

Financing Intermediaries: Institutions that effect agreement terms between borrower and lender by reaching separate agreements with the borrower and the lender.

Financing Cost Savings: A source of competitive advantage that depends on access to low cost sources of capital.

Finder's fee: A fee a person or company charges for service as an intermediary in a transaction.

FINEX: The financial futures and options division of the New York Cotton Exchange (NYCE), with a trading floor in Dublin, FINEX Europe, creating a 24-hour market in most FINEX contracts.

Finish: Used in the context of general equities.

Finite-Life Real Estate Investment Trust (FREIT): A Real Estate Investment Trust whose priority is to sell its holdings within a specified period to realize capital gains.

Firewall: The legal barrier between banking and broker/dealer operations within a financial institution created to prevent the exchange of inside information.

Firm: Refers to an order to buy or sell that can be executed without confirmation for some fixed period. Also, a synonym for company.

Firm anomalies: Trading strategies that generate abnormal returns based on firm-specific characteristics.

Firm commitment underwriting: An underwriting in which an investment banking firm commits to buy and sell an entire issue of stock and assumes all financial responsibility for any unsold shares.

Firm market: In the context of general equities, prices at which a security can actually be bought or sold in decent sizes, as compared to an inside market with very little depth. See: Actual market.

Firm order: In the context of general equities, (1) order to buy or sell for the proprietary account of the broker-dealer firm; (2) buy or sell order not conditional upon the customer's confirmation.

Firm quote: A definite price on a round-lot bid or offer declared by a market maker on a given security and not identified as a nominal quotation (therefore is not negotiable).

Firm-specific news: News that affects only a specific firm. Market news by contrast affects many firms.

Firm's net value of debt: Total firm value minus total firm debt.

First board: The Chicago Board of Trade's established dates for delivery on futures contracts.

First call: With collateralized mortgage obligation (CMOs.), the start of the cash flow cycle for the cash flow window.

First call date: A date stated in an indenture, that is the first date on which the issuer may redeem a bond either partially or completely.

First In, First Out (FIFO): An accounting method for valuing the cost of goods sold that uses the cost of the oldest item in inventory first.

First market: Exchange-traded securities.

First mortgage: A type of mortgage that through a lien gives precedence to the lender of the first mortgage over all other lenders in case of default.

First notice day : The first day, varying by contracts and exchanges, on which notices of intent to deliver actual financial instruments or physical commodities against futures are authorized.

First-pass regression : A time series regression to estimate the betas of securities portfolios.

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 agreement: An alternative to a bond trust deed. Unlike the trustee, the fiscal agent acts as a representative of the borrower.

Fiscal policy: Government spending and taxing for the specific purpose of stabilizing the economy.

Fiscal year (FY): 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.

Fiscal year-end: The end of a 12-month accounting period.

Fisher effect: A theory that nominal interest rates in two or more countries should be equal to the required real rate of return to investors plus compensation for the expected amount of inflation in each country.

Fisher's separation theorem: The notion that a firm's choice of investments is separate from its owner's attitudes toward investments. Also referred to as portfolio separation theorem.

Fit: The matching of the investor's requirements and needs such as risk tolerance and growth potential preference with a specific investment.

Five Cs of credit: Five characteristics that are used to form a judgment about a customer's creditworthiness: character, capacity, capital, collateral, and 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.

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.

Fixation: The process of setting a price of a commodity, whether in the present or the future.

Fixed asset: Long-lived property owned by a firm that is used by a firm in the production of its income. Tangible fixed assets include real estate, plant, and equipment. Intangible fixed assets include patents, trademarks, and customer recognition.

Fixed asset turnover ratio: The ratio of sales to fixed assets.

Fixed annuities: Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period.

Fixed benefits: Payments to a beneficiary that are paid in fixed preset amounts and are not variable.

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 cost: A cost that is fixed in total for a given period of time and for given production levels.

Fixed dates: In the Euromarket, the standard periods for which Euros are traded (one month out to a year out) are referred to as the fixed dates.

Fixed-dollar obligations: Conventional bonds for which the coupon rate is set at a fixed percentage of the par value.

Fixed-dollar security: A nonnegotiable debt security that can be redeemed at some fixed price or according to some schedule of fixed values, e.g., bank deposits and government savings bonds.

Fixed exchange rate: A country's decision to tie the value of its currency to another country's currency, gold (or another commodity), or a basket of currencies.

Fixed for floating swap: An interest rate swap in which the fixed rate payments are traded for a floating rate.

Fixed income equivalent : Also called a busted convertible. Convertible security that is trading like a straight security because the optioned common stock is trading well below the conversion price.

Fixed income instruments : Assets that pay a fixed dollar amount, such as bonds and preferred stock.

Fixed income market: The market for trading bonds and preferred stock.

Fixed-income securities: Investments that have specific interest rates, such as bonds.

Fixed premium: Payments of a fixed, equal amounts paid to an insurance company for insurance or an annuity.

Fixed price basis: An offering of securities at a fixed price.

Fixed-price tender offer: A one-time offer to purchase a stated number of shares at a stated fixed price, usually at a premium over the current market price.

Fixed-rate loan: A loan whose rate is fixed for the life of the loan.

Fixed-rate payer : In an interest rate swap, the counterparty who pays a fixed rate, usually in exchange for a floating-rate payment.

Fixed-term reverse mortgage: A mortgage in which the lending institution provides payments to a homeowner for a fixed number of years.

Fixed trust: A unit investment trust consisting of securities that were agreed upon at the time of investment and do not change.

Flag: A pattern reflecting price fluctuations within a narrow range, generating a rectangular area on a graph both prior to and after sharp rises or declines.

Flash: Value of a security displayed, or flashed across the tape, when the tape display cannot keep up with volume on an exchange and lags the current price is lagged more than approximately five minutes.

Flat: Convertibles: Earning interest on the date of payment only. General: Having neither a short nor a long position in a stock. Clean. Market: Characterized by horizontal price movement, usually the result of low activity. Equities: To execute without commission or markup.

Flat benefit formula: Method used to determine a participant's benefits in a defined benefit plan by multiplying months of service by a flat monthly benefit.

Flat price (also clean price): The quoted newspaper price of a bond that does not include accrued interest. The price paid by the purchaser is the full price.

Flat price risk: Taking a position either long or short that does not involve spreading.

Flat scale: The pattern for new issues where shorter- and longer-term yields display very little difference over the bond's maturity range.

Flat tax: A tax which is levied at the same rate on all levels of income. Antithesis of progressive tax.

Flat trades: A bond in default trades flat; that is, the price quoted covers both principal and unpaid accrued interest. Any security that trades without accrued interest or at a price that includes accrued interest is said to trade flat.

Flattening of the yield curve: A change in the yield curve when the spread between the yield on long-term and short-term Treasuries has decreased. Compare steepening of the yield curve and butterfly shift.

Flexible budget: A budget that shows how costs vary with different rates of output or at different levels of sales volume and projects revenue based on these different output levels.

Flexible expenses: Expenses for an individual or corporation that can be adjusted or completely dispessed with, e.g., luxury goods.

Flexible mutual fund: Fund that invests in a variety of securities in varying proportions in order to maximize shareholder returns while maintaining a low level of risk.

Flight to quality: The tendency of investors to move toward safer investments (often government bonds) during periods of high economic uncertainty.

Flip-flop note: Note that allows investors to switch between two different types of debt.

Flip side: In the context of general equities, opposite side to a proposition or position (buy, if sell is the proposition and vice versa).

Flipping: Buying shares in an initial public offering (IPO), and then selling the shares immediately after the start of public trading to turn an immediate profit.

Float:Currency: Exchange rate policy that does not limit the range of the market rate. Equities: 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: 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 Treasury bill +.25%.

Floating debt: Short-term debt that is renewed and refinanced constantly to fund capital needs of a firm or institution.

Floating exchange rate: A country's decision to allow its currency value to change freely. 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.

Floating lien: General attachment against a company's assets or against a particular class of assets.

Floating-rate contract : An guaranteed investment instrument whose interest payment is tied to some variable (floating) interest rate benchmark, such as a specific-maturity Treasury yield.

Floating-rate note (FRN): Note whose interest payment varies with short-term interest rates.

Floating-rate payer : In an interest rate swap, the counterparty who pays a rate based on a reference rate, usually in exchange for a fixed-rate payment.

Floating-rate preferred: Preferred stock paying dividends that vary with short-term interest rates.

Floating securities: Securities bought in a broker's name and resold quickly to attain a profit in a short amount of time.

Floating supply: The aggregate of securities believed to be available for immediate purchase, that is, in the hands of dealers and investors wanting to sell.

Floor: The area of a stock exchange where active trading occurs. Also the price at which a stop order is activated (when the price drops low enough to activate such an order).

Floor broker: Member of an exchange who is an employee of a member firm and executes orders, as agent, on the floor of the exchange for clients.

Floor official: An employee of a stock exchange who settles disputes related to the auction process on the floor of the stock exchange.

Floor picture : Details of the trading crowd for a stock, such as the major players, their sizes, and the outside market +/- an eighth.

Floor planning: Arrangement used to finance inventory. A finance company buys the inventory, which is then held in trust for the user.

Floor ticket: Summary of a stock or commodities exchange order ticket by the registered representative on receipt of a buy or sell order from a client; gives the floor broker the information needed to execute a securities transaction.

Floor trader: A stock exchange member who generally trades only for his own account or for an account controlled by him, or who has such a trade made for him. Also referred to as a "local."

Flotation (rotation) cost: The costs associated with creating capital through the issue of new stocks or bonds, including the compensation earned by the investment banker plus legal, accounting and printing expenses.

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-through basis: An account for an investment credit to show all income statement benefits of the credit in the year of acquisition, rather than spreading them over the life of the asset.

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.

Flower bond: Government bonds that when owned at the time of death are acceptable at par in payment of federal estate taxes.

Fluctuation: A price or interest rate change.

Fluctuation limit: The limit created by the commodity exchange that halts trading on a future if the price of the future changes, in either direction, more than a previously set amount.

Flurry: A drastic volume increase in a specific security.

Focus list: Used in the context of general equities. Investment banks published list of buy and sell recommendations from its research department; signified by a flashing "F" on Quotron.

Footsie (FTSE): Financial Times (FT)-Actuaries 100 index: "Dow average" of London.

For/At: Used in the context of general equities. Conjunctions used in an order, market summary, or trade recap that signify a bid or an offer, respectively.

For a number: Used in the context of general equities. Implies that the quantity mentioned is not his total but instead is only approximate, and to open him up more will obligate one to participate.

For your information (FYI): A prefix to a security price indicating that the quote is for information purposes only, and not an offer to trade.

Forbes 500: Forbes magazine's list of the largest publicly owned corporations in the United States according to sales, assets, profits, and market value.

Force majeure risk: The risk that there will be prolonged interruption of operations for a project finance enterprise due to fire, flood, storm, or some other factor beyond the control of the project's sponsors.

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 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.

Forecasting: Making projections about future performance on the basis of historical and current conditions data.

Foreclosure: Process by which the holder of a mortgage seizes the property of a homeowner who has not made interest and/or principal payments on time as stipulated in the mortgage contract.

Foreign banking market: That portion of domestic bank loans supplied to foreigners for use abroad.

Foreign base company income: A category of Subpart F income that includes foreign holding company income and foreign base company sales and service income.

Foreign bond: A bond issued on the domestic capital market of another company.

Foreign bond market: In the domestic bond market Issues floated by foreign companies or government.

Foreign branch: A foreign affiliate that is legally a part of the parent firm. According to the U.S. tax code, foreign branch income is taxed as it is earned in the foreign country.

Foreign corporation: A corporation conducting business in another country from the one it is chartered in and that abides by the laws of another country.

Foreign Corrupt Practices Act: An amendment to the Securities Exchange Act created to sanction bribery of foreign officials by publicly held US companies.

Foreign Credit Insurance Association (FCIA) : A private consortium of US insurance companies that offers trade credit insurance to US exporters in conjunction with the US Export-Import Bank.

Foreign crowd: NYSE members who trade in foreign bonds on the floor.

Foreign currency: Money of another country from one's own.

Foreign currency forward contract: Agreement that obligates its parties to exchange given quantities of currencies at a prespecified exchange rate on a certain future date.

Foreign currency futures contract: 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. Purchased and traded on a regulated exchange on which margins are posted.

Foreign currency option: An option that conveys the right (but not the obligation) to buy or sell a specified amount of foreign currency at a specified price within a specified time period.

Foreign currency translation: The process of restating foreign currency accounts of subsidiaries into the reporting currency of the parent company in order to prepare consolidated financial statements.

Foreign direct investment (FDI): The acquisition abroad of physical assets such as plant and equipment, with operating control residing in the parent corporation.

Foreign equity market: Issues floated by foreign companies in the domestic equity market.

Foreign exchange: Currency of another country. Abbreviated Forex.

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/sale of foreign currencies by residents or on the purchase/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 market: Largely banks that serve firms and consumers who may wish to buy or sell various currencies.

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 holdings: The percentage of a portfolio's investments represented by stocks or American Depository Receipts (ADRs) of companies based outside the United States.

Foreign investment risk matrix (FIRM): Graph that displays financial and political risk by intervals on which countries may be compared according to risk ratings.

Foreign official institutions: Central governments of foreign countries, including all departments and agencies of national governments; 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; and any international or regional organization, including subordinate and affiliate agencies, created by treaty or convention between sovereign states.

Foreign market: Part of a nation's internal market, representing the mechanisms for issuing and trading securities of entities domiciled outside that nation. Compare external market and domestic market.

Foreign market beta: A measure of foreign market risk that is derived from the capital asset pricing model.

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 Sales Corporation (FSC): A special type of corporation created by the Tax Reform Act of 1984 that is designed to provide a tax incentive for exporting U.S.-produced goods.

Foreign-source income: Income earned from international operations.

Foreign-targeted issue: Notes sold between October 1984 and February 1986 to foreign institutions, foreign branches of US institutions, foreign central banks or monetary authorities, and to international organizations in which the United States held membership. Sold as companion issues, they could be converted to domestic (normal) Treasury notes with the same maturity and interest rates. Interest was paid annually.

Foreign tax credit: Home country credit against domestic income tax. Received in return for foreign taxes paid on foreign derived earnings.

Foreigner: All institutions and individuals living outside the United States, including US citizens living abroad, and branches, subsidiaries, and other affiliates abroad of US 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.

Forfaiter: Purchaser of promises to pay issued by importers.

Forfaiting: A form of factoring that involves selling large, medium to long-term receivables to buyers (forfaiters) who are willing and able to bear the costs and risks of credit and collections.

Forfeiting: Method of financing international trade of capital goods.

Forfeiture: The loss of rights to an asset outlined in a legal contract if a party fails to fulfill obligations of the contract.

Form 8-K: the form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock.

Form 4: The form required by the SEC for a change in the holdings of an individual owning 10% or more of the outstanding stock or in the holdings of a company officer.

Form T : The form required by the NASD to report equity transactions after the market's regular hours.

Form 10-K: A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information.

Form 3: A form required by the SEC and the stock exchange from all holders of 10% or more of a company's stock and all directors and officers, which details securities owned.

Formula basis: A method of selling a new issue of common stock in which the SEC declares the registration statement effective on the basis of a price formula rather than on a specific range.

Formula investing: A formula-based investment technique in which investment decisions are made using predetermined timing or asset allocation models, e.g., dollar cost averaging.

Fortune 500: Fortune magazine's listing of the top 500 US corporations determined by an index of 12 variables.

Forward averaging: A method of calculating taxes on a lump-sum distribution from a qualified retirement plan that enables the tax payer to pay less than the current tax rate.

Forward contract: A contract that specifies the price and quantity of an asset to be delivered on in the future. Forward contracts are not standardized and are not traded on organized exchanges

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, you need to purchase 40,000 to cover your obligation.

Forward currency contract: An agreement to buy or sell a country's currency at a specific price, usually 30, 60, or 90 days in the future. This guarantees an exchange rate on a given date.

Forward delivery: A transaction in which the settlement will occur on a specified date in the future at a price agreed upon on the trade date.

Forward differential: Annualized percentage difference between spot and forward rates.

Forward discount: A currency trades at a forward discount when its forward price is lower than its spot price.

Forward exchange rate: Exchange rate fixed today for exchanging currency at some future date.

Forward exchange transaction: Foreign currency purchase or sale at the current exchange rate but with payment or delivery of the foreign currency at a future date.

Forward Fed funds: Fed funds traded for future delivery.

Forward foreign exchange contract: Agreement that obligates an investor to deliver a specified quantity of one currency in return for a specified amount of another currency.

Forward foreign exchange rate: The exchange rate available today to exchange currency at some specified date in the future.

Forward forward contract: In Eurocurrencies, a contract under which a deposit of fixed maturity is agreed to at a fixed price for future delivery.

Forward interest rate: Interest rate fixed today on a loan to be made at some future date.

Forward-looking multiple: A truncated expression for a P/E ratio that is based on forward (expected) earnings rather than on trailing earnings.

Forward market: A market in which participants agree to trade some commodity, security, or foreign exchange at a fixed price for future delivery.

Forward parity: Notion that the forward rate is an unbiased predictor of future spot exchange rates.

Forward premium: A currency trades at a forward premium when its forward price is higher than its spot price.

Forward pricing: Practice mandated by the SEC that open-end investment companies establish all incoming buy and sell orders on the next net asset valuation of fund shares.

Forward rate: A projection of future interest rates calculated from either spot rates or the yield curve.

Forward rate agreement (FRA): Agreement to borrow or lend at a specified future date at an interest rate that is fixed today.

Forward sale: A method for hedging price risk that involves an agreement between a lender and an investor to sell particular kinds of loans at a specified price and future time.

Forward trade: A transaction for which settlement will occur on a specified date in the future at a price agreed upon on the trade date.

Fourth market: Refers to the practice of institutional investors trading large blocks of securities directly to avoid brokerage commissions.

Fractal: An object in which the parts are in some way related to the whole. That is, the individual components are "self-similar." An example is the branching network in a tree. While each branch, and each successive smaller branching is different, they are qualitatively similar to the structure of the whole tree.

Fractal Dimension: A number that quantitatively describes how an object fills its space. In Euclidean, or Plane geometry, objects are solid and continuous. That is, they have no holes or gaps. As such, they have integer dimensions. Fractals are rough and often discontinuous, like a wiffle ball, and so have fractional, or fractal dimensions.

Fractal Distribution: A probability density function that is statistically self-similar. That is, in different increments of time, the statistical characteristics remain the same.

Fractal Market Hypothesis: The fractal market hypothesis states that (1) a 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. Theory due to Ed Peters.

Fractional Brownian Motion: A biased random walk. Unlike standard Brownian motion, the odds are biased in one direction or the other. It is like playing with loaded dice.

Fractional coins: Metal currency minted in denominations of 50, 25, and 10 cents, and minor coins (5 cents and 1 cent).

Fractional discretion order: A type of order that gives the broker discretion to alter the price, up or down, within a specific fractional range in order to guarantee an execution.

Fractional Noise: A noise which is not completely independent of previous values. See Fractional Brownian Motion, 1/f Noise, White Noise.

Fractional share: Stocks amounting to less than one full share, usually resulting from splits, acquisitions, exchanges, or dividend reinvestment programs.

Franchise agreement: Contract by which a domestic company (franchisor) licenses its trade name and/or business system and practices for a fee to an independent company (franchisee) in a foreign market.

Franchising: Provision of a specialized sales or service strategy, support assistance, and possibly an initial investment in the franchise in exchange for periodic fees.

Frankfurt Stock Exchange: The largest of Germany's eight securities exchanges, operated by Deutsche Borse AS.

Freddie Mac (Federal Home Loan Mortgage Corporation): A Congressionally chartered corporation that purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and securities these mortgages for sale in the capital markets.

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 box: A bank vault or other suitable storage place for the securities of a firm's customer.

Free cash flows: Cash not required for operations or for reinvestment. Often defined as earnings before interest (often obtained from the operating income line on the income statement) less capital expenditures less the change in working capital. In terms of a formula:

Free cash flows = Sales (Revenues from operations)

- COGS (Cost of goods sold-labor, material, book depreciation)

- SG&A (Selling, general administrative costs)

EBIT (Earnings before interest and taxes or Operating Earnings)

- Taxes (Cash taxes) EBIAT (Earnings before interest after taxes)

- DEP (Book depreciation)

- CAPX (Capital expenditures)

- ChgWC (Change in working capital)

C (Free cash flows)

There is an issue as to whether you want to define the FCFs to the firm as a whole (the cash flow to all of its security holders), or the FCFs only to the firm's equity holders. For firm valuation, you want the former; for stock valuation you want the latter.

To value the firm, calculate the stream of FCFs to the firm and discount this stream by the firm's WACC (Weighted average cost of capital). This will give you the value of a levered firm, including the tax benefits of debt financing. Alternatively, you can discount the firm's FCFs by its unlevered cost of capital and add separately the present value of the tax benefits.

To value the firm's equity, you can either take the above number and subtract the market value of all outstanding debt (liabilities) or you can calculate the FCFs to the firm's equity holders and discount this stream by the firm's levered equity cost of capital.

Notice that changes in working capital have the same effect on free cash flows as do changes in physical capital, i.e., capital expenditures. For example, suppose you had to spend $XX to increase the capacity of your plant. This expenditure would be a reduction in free cash flow in the year it was made. Likewise, if you had to increase the level of your cash balance, inventory or receivables by $XX to accommodate greater sales, then this too would result in a like reduction in free cashflows in the year the level of working capital was increased. [Definition and discussion courtesy of Professor Michael Bradley.]

Free delivery: Securities industry procedure whereby delivery of securities sold is made to the buying customer's bank without requiring immediate payment; thus a credit agreement of sorts. Antithesis of delivery vs. payment.

Free float: An exchange rate system characterized by the absence of government intervention. Also known as clean float.

Free reserves: Excess reserves minus member bank borrowings at the Fed.

Free rider: A follower who avoids the cost and expense of finding the best course of action simply by mimicking the behavior of a leader who made these investments.

Free-riding: A forbidden practice in which the member of an underwriting syndicate retains a portion of an initial public offering (IPO) and resells the securities at a higher price determined by the market at a later time. Also forbidden is a brokerage customer's rapid buying and selling of a security without putting up money for the purchase.

Free right of exchange: An investor's right to transfer securities from one name to another name without paying charges that accompany a sales transaction.

Free stock: A stock that is paid for in full and is not pledged in any way as collateral.

Free to trade : Used in the context of general equities. Not subject to any internal (restricted list) or external restrictions on trading; hence, the trader is free to solicit interest.

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.

Freely floating exchange rate system: Monetary system in which exchange rates are allowed to move due to market forces without intervention by country governments.

Freeze out : The action of pressurizing shareholders with relatively minor amounts of stock to sell their shares after a takeover.

Freight shippers: Agents who coordinate the logistics of transportation.

Frequency distribution: The organization of data to show how often certain values or ranges of values occur.

Fresh picture: Updated estimation of a stock or market, usually following recent trading activity or news that has changed the previous look.

Fresh signal: Piece of information (fundamental or technical) leading one to believe a stock will move in a certain manner.

Friction costs: Costs, both implied and direct, associated with a transaction. Such costs include time, effort, money, and associated tax effects of gathering information and making a transaction.

Frictional cost: The difference between an index fund return and the index it represents. The typically lower rate of return from the fund results from transactions costs.

Frictionless market: Ideal trading environment that imposes no costs or restraints on transactions.

Frictions: The "stickiness" involved in making transactions; the total process including time, effort, money, and tax effects of gathering information and making a transaction such as buying a stock or borrowing money.

Friendly Merger: A business combination that the management of both firms believes will be beneficial to stockholders.

Friendly takeover: Merger when the target firm's management and board of directors is in favor of the takeover. Antithesis of hostile takeover.

Front-end load: The fee applied to an investment at the time of initial purchase, e.g., on a mutual fund purchased from a broker or mutual fund company.

Front fee: The fee initially paid by the buyer upon entering a split-fee option contract.

Front office: Refers to revenue generating sales personnel in a brokerage, insurance, or other financial services operation.

Front running: Entering into options or futures contracts with advance knowledge of a block transaction that will influence the price of the underlying security to capitalize on the trade. This practice is expressly forbidden by the SEC.

Frozen account: A disciplinary action taken by the Federal Reserve Board for some violation of Regulation T, an individual investor cannot sell securities until they are paid for in full and certificates delivered.

Fry a bigger fish: Used in the context of general equities. Work on a trade of larger size than a trade just disclosed.

Full: Handle.

Full compensation: Payment for delivery of goods to one party by buying back more than 100 % of the value that was originally sold.

Full coupon bond: A bond with a coupon equal to the going market rate; the bond is therefore selling at par.

Full disclosure: Describes exchange and government regulations providing for the release and free exchange of all information pertinent to a given security.

Full faith-and-credit obligations: The security pledges for larger municipal bond issuers, such as states and large cities that have diverse funding sources.

Full price: Also called dirty price; the price of a bond including accrued interest. Related: Flat price.

Full-service broker: A broker who provides clients an all-inclusive selection of services such as advice on security selection and financial planning.

Full-service lease : Also called rental lease. Arrangement in which lessor promises to maintain and insure the equipment leased.

Full trading authorization: Indication that a broker with a discretionary account can operate free of all trading guidelines from the client.

Fully depreciated: An asset that has already been charged with the maximum amount of depreciation allowed by the IRS for accounting purposes.

Fully diluted earnings per shares: Earnings per share expressed as if all outstanding convertible securities and warrants have been exercised.

Fully distributed: A new stock issue that has been completely resold to the investing public and is no longer held by dealers.

Fully invested: Used to describe an investor whose assets are totally committed to investments, typically stock.

Fully modified pass-throughs: Agency pass-throughs that guarantee the timely payment of both interest and principal. Related: Modified pass-throughs.

Fully valued: Used in the context of general equities. Said of a stock that has reached a price at which analysts think the underlying company's fundamental earnings power has been fully recognized by the market.

Functional currency: As defined by FASB No. 52, an affiliate's functional currency is the currency of the primary economic environment in which the affiliate generates and expends cash.

Fund assets: The total value of a portfolio's securities, cash, and other holdings, minus any outstanding debts.

Fund family: Set of funds with different investment objectives offered by one management company. In many cases, investors may move their assets from one fund to another within the family at little or no cost.

Fund of funds: A mutual fund or hedge fund that invests in other funds.

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 switching: Moving money within a mutual fund family from one mutual fund to another.

Fun money: Money that can be used to invest in risky investments with high potential return.

Fundamental analysis: Security analysis that seeks to detect misvalued 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. Antithesis of technical analysis. In macroeconomic analysis, information such as interest rates, GNP, 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.

Fundamental beta : The product of a statistical model to predict the fundamental risk of a security using not only price data but also other market-related and financial data.

Fundamental descriptors: In the model for calculating fundamental beta, ratios in risk indexes other than market variability, which rely on financial data other than price data.

Fundamental forecasting: Analyzing the future on the basis of fundamental relationships between economic variables and exchange rates.

Fundamental Information: Information relating to the economic state of a company or economy. In market analysis, fundamental information is related to the earnings prospects of the firm only.

Funded debt: Debt maturing after more than one year.

Funded Liability: A source of funds that a firm must take overt action to arrange and that carries an interest cost.

Funded pension plan: A pension plan in which all liabilities, including payments to be made to pensioners in the immediate future, are completely funded.

Funding: Used to describe the refinancing of a debt prior to its maturity (the same as refunding). In corporate finance refers to the floating of bonds to raise finance and levels of capital. See also: refunding.

Funding ratio: The ratio of a pension plan's assets to its liabilities.

Funds From Operations (FFO): Used by real estate and other investment trusts to define the cash flow from trust operations; earnings with depreciation and amortization added back. A similar term increasingly used is funds available for distribution (FAD), which is FFO less capital investments in trust property and the amortization of mortgages.

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.

Furthest month: Used in the context of commodities or options trading to refer to the month that is away from the contract's date of settlement.

FUTOP: The Danish derivatives market, merged with the Copenhagen Stock Exchange in 1997.

Future: A term used to designate all contracts covering the sale of financial instruments or physical commodities for future delivery on a commodity exchange.

Future investment opportunities: The identification of additional, more valuable, investment opportunities in the future that result from a current opportunity or operation.

Futures: A term used to designate all contracts covering the sale of financial instruments or physical commodities for future delivery on a commodity exchange.

Futures commission merchant (FCM): 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 CFTC.

Futures contract : A legally binding agreement 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.

Futures contract multiple: A constant set by an exchange, which when multiplied by the futures price gives the dollar value of a stock index futures contract.

Futures market: A market where contracts for future delivery of a commodity or a security are bought or sold.

Futures option : An option on a futures contract.

Futures price : The price at which parties to a futures contract agree to transact upon the settlement date.

Future value: The amount of cash at a specified date in the future that is equivalent in value to a specified sum today.

Fuzzy Logic: A system which mathematically models complex relationships which are usually handled in a vague manner by language. Under the title of "Fuzzy Logic" falls formal fuzzy logic (a multi-valued form of logic), and fuzzy sets. Fuzzy sets measure the similarity between an object and a group of objects. A member of a fuzzy set can belong to both the set, and its compliment. Fuzzy sets can more closely approximate human reasoning than traditional "crisp" sets. See: Crisp sets.

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