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Investments Dictionary

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Face Value
The maturity value of a bond.
Factor Beta
Sensitivity of security returns to changes in a systematic factor. Alternatively, factor loading; factor sensitivity.
Factor Loading
See factor beta.
Factor Model
A way of decomposing the factors that influence a security's rate of return into common and firmspecific influences.
Factor Portfolio
A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of 0 on any other factor
Factor Sensitivity
See factor beta.
Fair Game
An investment prospect that has a zero risk premium.
Fair Value Accounting
Use of current values rather than historic cost in historic firm's financial statements.
Federal Funds
Funds in a bank's reserve account.
Of, relating to, or involving a confidence or trust as (1) held or founded in trust or confidence, (2) holding in trust, (3) depending on public confidence for value or currency.
The first‐in first‐out accounting method of inventory valuation.
Financial Assets
Financial assets such as stocks and bonds are claims to the income generated by real assets or claims on income from the government.
Financial Engineering
Creating and designing securities with custom‐tailored characteristics.
Financial Intermediary
An institution such as a bank, mutual fund, investment company, or insurance company that serves to connect the household and business sectors so households can invest and businesses can finance production.
Firm-specific Risk
See diversifiable risk
First-pass Regression
A time series regression to estimate the betas of securities or portfolios.
Fiscal Policy
The use of government spending and taxing for the specific purpose of stabilizing the economy.
Fixed Annuities
Annuity contracts in which the insurance company pays a fixed dollar amount of money per period.
Fixed-charged Coverage Ratio
Ratio of earnings to all fixed cash obligations, including lease payments and sinking fund payments. fixed‐income
Fixed-income Security
A security such as a bond that pays a specified cash flow over a specific period.
Flight to Quality
Describes the tendency of investors to require larger default premiums on investments under uncertain economic conditions.
Floating-rate Bond
A bond whose interest rate is reset periodically according to a specified market rate.
Forced Conversion
Use of a firm's call option on a callable convertible bond when the firm knows that bondholders will exercise their option to convert.
Forecasting Records
The historical record of the forecasting errors of a security analyst.
Forecasting Records
The historical record of the forecasting errors of a security analyst.
Foreign Exchange Market
An informal network of banks and brokers that allows customers to enter forward contracts to purchase or sell currencies in the future at a rate of exchange agreed upon now.
Foreign Exchange Swap
An agreement to exchange stipulated amounts of one currency for another at one or more future dates.
Forward Contract
An agreement calling for future delivery of an asset at an agreed‐upon price. Also see futures contract.
Forward Interest Rate
Rate of interest for a future period that would equate the total return of a long‐term bond with that of a strategy of rolling over shorter‐term bonds. The forward rate is inferred from the term structure.
Decisions are affected by how choices are described, for example, whether uncertainty is posed as potential gains from a low baseline level, or as losses from a higher baseline value.
Fully Diluted Earnings per Share
Earnings per share expressed as if all outstanding convertible securities and warrants have been exercised.
Fundamental Analysis
Research to predict stock value that focuses on such determinants as earnings and dividends prospects, expectations for future interest rates, and risk evaluation of the firm.
Fundamental Risk
Risk that even if an asset is mispriced, there is still no arbitrage opportunity, because the mispricing can widen before price eventually converges to intrinsic value.
Funded Status
The actuarial value of assets divided by the actuarial Liability. The funded status represents the percentage of assets In the plan compared to the actuarial liability. The funded status Can also be calculated using the market value of assets.
Funds of Funds
Hedge funds that invest in several other hedge funds.
Futures Contract
Obliges traders to purchase or sell an asset at an agreed-upon price on a specified future date. The long position is held by the trader who commits to purchase, The short position is held by the trader who commits to sell. Futures differ from forward contracts in their standardization, exchange trading, margin requirements, and daily settling (marking to market).
Futures Option
The right to enter a specified futures contract at a futures price equal to the stipulated exercise price.
Futures Price
The price at which a futures trader commits to make or take delivery of the underlying asset.

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