Glossary of Financial Terms

The Federal Reserve Glossary

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  • 401(K) plan

A tax-deferred investment and savings plan that serves as a personal retirement fund for employees.

  • Absolute advantage

A person, company or country has an absolute advantage if its output per unit of input of all goods and services produced is higher than that of another person, company or country.

  • Acceleration clause

A stipulation in a loan contract stating that the entire balance becomes due immediately if other contract conditions are not met.

  • Account

A precise list or enumeration of monetary transactions.

  • Accrued Interest

Interest that has been earned but not received or recorded.

  • Acquisition

Something acquired or gained by purchase, exchange or gift.

  • Advisory

Of, or pertaining to giving advice; empowered to advise.

  • Agreement corporation

Corporation chartered by a state to engage in international banking: so named because the corporation enters into an “agreement” with the Fed’s Board of Governors that it will limit its activities to those permitted by an Edge Act Corporation.

  • Amortization

The process of fully paying off indebtedness by installments of principal and earned interest over a definite time.

  • Annual Percentage Rate (APR)

The cost of credit on a yearly basis expressed as a percentage.

  • Annuity

A series of equal payments made at regular intervals, with interest compounded at a specified rate.

  • Appraisal fee

The charge for estimating the value of property offered as security.

  • Appreciation

An increase in the value or price.

  • Asset

Anything an individual or a business owns that has commercial or exchange value.

  • Automated

To control or operate by automation.

  • Automated Clearinghouse (ACH)

Electronic clearing and settlement system for exchanging electronic transactions among participating depository institutions; such electronic transactions are substitutes for paper checks and are typically used to make recurring payments such as payroll or loan payments. The Federal Reserve Banks operate an automated clearinghouse, as do some private sector firms.

  • Automated Teller Machine (ATM)

Computer-controlled terminal located on the premises of financial institutions or elsewhere, through which customers may make deposits, withdrawals or other transactions as they would through a bank teller. Other terms sometimes used to describe such terminals are customer-bank communications terminal (CBCT) and remote service unit (RSU). Groups of banks sometimes share ATM networks located throughout a region of the country that may include portions of several states.

  • Automated Teller Machine (ATM) card

A debit card that automatically withdraws money from your account.

  • Automatic Transfer Service (ATS) account

A depositor’s savings account from which funds may be transferred automatically to the same depositor’s checking account to cover a check written or to maintain a minimum balance.

  • Balance

The amount owed on a loan or credit card or the amount in a savings or investment account.

  • Balance of payments

An accounting statement of the money value of international transactions between one nation and the rest of the world over a specific time period. The statement shows the sum of transactions of individuals, businesses and government agencies located in one nation, against those of all other nations.

  • Balance of trade

That part of a nation’s balance of payments dealing with imports and exports, which is trade in goods and services, over a given period. If exports of goods exceed imports, the trade balance is said to be favorable; if imports exceed exports, the trade balance if said to be unfavorable.

  • Balance sheet

A financial statement showing a “snapshot” of the assets, liabilities and net worth of an individual or organization on a given date.

  • Balloon payment

A large extra payment that may be charged at the end of a loan or lease.

  • Bank

a business establishment in which money is kept for saving or commercial purposes or is invested, supplied for loans, or exchanged.

  • Bank Holding Company (BHC)

Company that owns, or has controlling interest in, one or more banks. A company that owns more than one bank is known as a multibank holding company. The Board of Governors is responsible for regulating and supervising bank holding companies, even if the bank owned by the holding company is under the primary supervision of a different federal agency (the Comptroller of the Currency or the Federal Deposit Insurance Corporation).

  • Bank for International Settlements (BIS)

International organization established in 1930 and based in Basle, Switzerland, that serves as a forum for central banks collecting information, developing analyses and cooperating on a wide range of policy-related matters.

  • Bank holiday

The practice of closing banks on a given day to avoid “runs” by depositors seeking to liquidate their accounts during recessions or depressions.

  • Bank note

A term used synonymously with paper money or currency issued by a bank. Notes are, in effect, a promise to pay the bearer on demand the amount stated on the face of the note. Today, only the Federal Reserve Banks are authorized to issue bank notes, i.e., Federal Reserve notes, in the United States.

  • Bank regulation

The formulation and issuance by authorized agencies of specific rules or regulations, under governing law, for the conduct and structure of banking.

  • Bank run (bank panic)

A series of unexpected cash withdrawals caused by a sudden decline in depositor confidence or fear that the bank will be closed by the chartering agency, i.e. many depositors withdraw cash almost simultaneously. Since the cash reserve a bank keeps on hand is only a small fraction of its deposits, a large number of withdrawals in a short period of time can deplete available cash and force the bank to close and possibly go out of business.

  • Bank supervision

Oversight of individual banks to ensure that they are operated prudently and in accordance with applicable statutes and regulations.

  • Banker’s acceptances

Banker’s acceptances are negotiable time drafts, or bills of exchange, that have been accepted by a bank which, by accepting, assumes the obligation to pay the holder of the draft the face amount of the instrument on the maturity date specified. They are used primarily to finance the export, import, shipment or storage of goods.

  • Bankruptcy

A legal proceeding declaring that an individual is unable to pay debts. Chapters 7 and 13 of the federal bankruptcy code govern personal bankruptcy.

  • Barter

The direct exchange of goods and services among people. No money is used in the exchange.

  • Beige Book

Eight times a year, prior to FOMC meetings, each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key businesses, economists, market experts and other sources. The Beige Book summarizes this information by District and sector.

  • Board of Governors

Central, governmental agency of the Federal Reserve System, located in Washington, D.C., and composed of seven members who are appointed by the President and confirmed by the Senate. The Board of Governors is responsible for domestic and international economic analysis; with other components of the System, for the conduct of monetary policy; for supervision and regulation of certain banking organizations; for operation of much of the nation’s payments system; and for administration of most of the nation’s laws that protect consumers in credit transactions.

  • Book-entry securities

Securities that are recorded in electronic records, called book entries, rather than as paper certificates. Ownership of U.S. government book-entry securities is transferred over Fedwire.

  • Bretton Woods Conference

The name commonly given to the United Nations Monetary and Financial Conference, held (July 1-22, 1944) at Bretton Woods, N.H. The conference resulted in the creation of the International Monetary Fund, to promote international monetary cooperation, and of the International Bank for Reconstruction and Development. By December 1945, the required number of governments had ratified the treaties creating the two organizations, and by the summer of 1946 they had begun operation.

  • Broker-dealer

Any person, other than a bank, engaged in the business of buying or selling securities on its own behalf or for others.

  • Brokers’ loans

Money borrowed by brokers from banks for uses such as financing specialists’ inventories of stock, financing the underwriting of new issues of corporate and municipal securities, and financing customer margin accounts.

  • Budget

An itemized summary of probable income and expenses for a given period.

  • Bureau of Engraving and Printing (BEP)

Bureau of the U.S. Treasury Department responsible for printing U.S. currency.

  • Bureau of Labor Statistics (BLS)

A research agency of the U.S. Department of Labor; it compiles statistics on hours of work, average hourly earnings, employment and unemployment, consumer prices and many other variables.

  • Buydown

A lump sum payment made to the creditor by the borrower or by a third party to reduce the amount of some or all of the consumer’s periodic payments to repay the indebtedness.

  • Capacity

A person’s ability (present and future) to meet financial obligations.

  • Capacity utilization rate

The percentage of the economy’s total plant and equipment that is currently in production. Usually, a decrease in this percentage signals an economic slowdown, while an increase signals economic expansion.

  • Capital

A person’s savings and other assets, which can be used as collateral for loans.

  • Capital Assets Management Earnings Liquidity Sensitivity (CAMELS)

Rating system used by Federal Reserve examiners to help measure the safety and soundness of a bank.

  • Capital market

The market in which corporate equity and longer-term debt securities (those maturing in more than one year) are issued and traded.

  • Cash

Payment for goods or services in the form of coin or currency.

  • Cash flow

Money coming to an individual or business less money being paid out during a given period.

  • Cease-and-desist order

An order issued after notice and opportunity for hearing, requiring a depository institution, a holding company or a depository institution official to terminate unlawful, unsafe or unsound banking practices. Cease-and-desist orders are issued by the appropriate federal regulatory agencies under the Financial Institutions Supervisory Act and can be enforced directly by the courts.

  • Central bank

The principal monetary authority of a nation, which performs several key functions, including issuing currency and regulating the supply of credit in the economy. The Federal Reserve is the central bank of the United States.

  • Central bank intervention

The buying or selling of currency, foreign or domestic, by central banks in order to influence market conditions or exchange rate movements.

  • Centralized

To bring under a single, central authority.

  • Certificate of Deposit (CD)

A form of time deposit at a bank or savings institution; a time deposit cannot be withdrawn before a specified maturity date without being subject to an interest penalty for early withdrawal. Small-denomination CDs are often purchased by individuals. Large CDs of $100,000 or more are often in negotiable form, meaning they can be sold or transferred among holders before maturity.

  • Certified check

A check for which a bank guarantees payment. When the check is certified, it legally becomes an obligation of the banks, and the funds to cover it are immediately from the depositor’s account.

  • Chapter 13

Adjustments of debts of an individual with regular income under the Federal Bankruptcy Code. Chapter 13 enables a debtor who is an individual to develop and perform a plan for the repayment of creditors over an extended period. The plan might provide for full or partial repayment. Chapter 13 allows the debtor to retain his or her property, unless he or she agrees otherwise in the plan. See Bankruptcy.

  • Chapter 7

A provision of bankruptcy laws wherein a company is required to liquidate its assets to pay of its creditors. See Bankruptcy.

  • Character

A borrower’s trustworthiness.

  • Check

A written order to a bank to pay the amount specified from funds on deposit.

  • Check clearing

The movement of a check from the depository institution at which it was deposited back to the institution on which it was written; the movement of funds in the opposite direction and the corresponding credit and debit to the involved accounts. The Federal Reserve operates a nationwide check-clearing system.

  • Clearinghouse

An institution where mutual claims are settled between accounts of member depository institutions. Clearinghouses among banks have traditionally been organized for check-clearing purposes, but more recently have cleared other types of settlements, including electronic fund transfers.

  • Clearinghouse Interbank Payments System (CHIPS)

An automated clearing system used primarily for international payments. This system is owned and operated by the New York Clearinghouse banks and engages Fedwire for settlement.

  • Closed-end credit

An agreement in which advanced credit plus any finance charges are expected to be repaid in full over a definite time. Most real estate and automobile loans are closed-end agreements.

  • Collateral

Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. Also called security.

  • Commercial bank

Bank that offers a broad range of deposit accounts, including checking, savings and time deposits and extends loans to individuals and businesses. Commercial banks can be contrasted with investment banking firms, such as brokerage firms, which generally are involved in arranging for the sale of corporate or municipal securities.

  • Committee

A group of people officially delegated to perform a function.

  • Common stock

A kind of ownership in a corporation that entitles the investor to share any profits remaining after all other obligations have been met.

  • Community Reinvestment Act (CRA)

Enacted by Congress in 1977, the CRA encourages banks to help meet the credit needs of their communities for housing and other purposes, particularly in neighborhoods with low or moderate incomes, while maintaining safe and sound operations.

  • Comparative advantage

Describes the ability of a person, company or country to produce a good or service at a lower cost relative to other goods and services. Even though a country may have an absolute advantage over another country, it still will be better off specializing in the good or service in which it has a comparative advantage and trading for goods and services it doesn’t produce as efficiently.

  • Competitive bidders

One of two categories of bidders on Treasury securities: competitive and noncompetitive. Competitive bidders are usually financial institutions.

  • Compound interest

Interest that is calculated on the original principal plus all interest accrued to that point in time. Since interest is paid on interest as well as the amount borrowed, the effective interest rate is greater than the nominal interest rate. The compound interest rate method is often used by banks and savings institutions in determining interest they pay on savings deposits “loaned” to the institutions by the depositors.

  • Comptroller of the Currency (OCC)

See Office of the Comptroller of the Currency.

  • Consumer

People whose wants are satisfied by using goods and services.

  • Consumer Advisory Council (CAC)

A statutory body established by Congress in 1976. The Council, with 30 members who represent a broad range of consumer and creditor interests, advises the Federal Reserve Board on the exercise of its responsibilities under the Consumer Credit Protection Act and on other matters on which the Board seeks its advice.

  • Consumer Credit Protection Act

In 1968 Congress passed the first in a series of laws, under the Consumer Credit Protection Act, designed to shield consumers from unfair lending practices. Understanding these laws can help you avoid unnecessary worries and may even save you money.

  • Consumer Price Index (CPI)

A measure of the average price level of a fixed basket of goods and services purchased by consumers as determined by the Bureau of Labor Statistics. Monthly changes in the CPI represent the rate of inflation. Core CPI excludes volatile components, i.e., food and energy prices.

  • Consumer credit

Loan extended to individuals. Consumer credit includes secured and unsecured installment and revolving credit.

  • Continental

A piece of paper money issued by the Continental Congress during the Revolutionary war.

  • Continental dollar

Paper currency issued by the Continental Congress to finance the Revolutionary War. The currency was not redeemable on demand for gold or silver. Congress issued so much of this currency during the war that inflation became rampant and destroyed its value, which led people to use the phrase: “Note worth a Continental.”

  • Correspondent bank

Bank that accepts deposits of, and performs services for, another bank (called a respondent bank); in most cases, the two banks are in different cities.

  • Cosigner

A term referring to a person, other than the principal borrower, who signs for a loan. The cosigner(s) assumes equal liability for the loan.

  • Council

A body of people elected or appointed to serve in an administrative, legislative, or advisory capacity.

  • Credit

The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.

  • Credit bureau

A business organization that puts together information for your credit file, keeps it up to date, and makes it available for a fee to lenders, insurance companies, and potential employers.

  • Credit card

Any card, plate or coupon book that may be used repeatedly to borrow money or buy goods and services on credit.

  • Credit history

A record of how a person has borrowed and repaid debt.

  • Credit rating

An estimate of the amount of credit that can be extended to an individual or business without undue risk. See also credit scoring system.

  • Credit report

A loan and bill payment history, kept by a credit bureau and used by financial institutions and other potential creditors to determine the likelihood that a future debt will be repaid.

  • Credit scoring system

A statistical system used to determine whether to grant credit by assigning numerical scores to various characteristics related to creditworthiness.

  • Credit union

Financial cooperative organization of individuals who have a common bond, such as place of employment or residence or membership in a labor union. Credit unions accept deposits from members, pay interest (in the form of dividends) on the deposits out of earnings and use their funds to provide consumer installment loans to members.

  • Creditor

A person, financial institutions or other business that lends money.

  • Creditworthiness

A creditor’s measure of a consumer’s past and future ability and willingness to repay debts.

  • Currency

Any form of money in actual use as a medium of exchange.

  • Currency appreciation

An increase in the value of one currency relative to another currency. Appreciation occurs when, because of a change in exchange rates, a unit of one currency buys more units of another currency.

  • Currency depreciation

A decline in the value of one currency relative to another currency. Depreciation occurs when, because of a change in exchange rates, a unit of one currency buys fewer units of another currency.

  • Currency devaluation

A deliberate downward adjustment in the official exchange rate established, or pegged, by a government against a specified standard, such as another currency or gold.

  • Currency revaluation

A deliberate upward adjustment in the official exchange rate established, or pegged, by a government against a specified standard, such as another currency or gold.

  • Current account balance

The difference between the nation’s total exports of goods, services and transfers and its total imports of them. Current account balance calculations exclude transactions in financial assets and liabilities.

  • Cyclical unemployment

Unemployment caused by a low level of aggregate demand associated with recession in the business cycle.

  • Day trade

Also known as a “daylight trade”. The purchase and sale or the short sale and cover of the same security in a margin account on the same day.

  • Debit

Charges to an account.

  • Debit card

A card that resembles a credit card but which debits a transaction account (checking account) with the transfers occurring contemporaneously with the customer’s purchases. A debit card may be machine readable, allowing for the activation of an automated teller machine or other automated payments equipment.

  • Debt

Money owed; also known as liability.

  • Debt service

Periodic payment of the principal and interest on a loan.

  • Decentralize

To distribute the administrative functions or powers of a central authority among several local authorities.

  • Default

Failure to meet the terms of a credit agreement.

  • Deficit

The amount each year by which government spending is greater than government income.

  • Delinquency

The failure to make timely payments under a loan or other credit agreement.

  • Demand

The amount of a commodity that people are ready and able to buy at a given time for a given price.

  • Demand deposit

A deposit that may be withdrawn at any time without prior written notice to the depository institution. A checking account is the most common form of demand deposit.

  • Denomination

A class of units having specified values, such as a system of currency.

  • Deposit

Any money in a savings or a checking account or in a certificate of deposit (CD).

  • Depository institution

A financial institution that obtains its funds mainly through deposits from the public. This includes commercial banks, savings and loan associations, savings banks and credit unions. Although historically they have specialized in certain types of credit, nonbank depository institutions have broadened their powers in recent years. For example, NOW accounts, credit union share drafts and other services similar to checking accounts may be offered by thrift institutions.

  • Depreciation

See currency depreciation.

  • Depression

A period marked by slackening activity or outright failure of businesses or banks, widespread unemployment, falling prices and wages, and general economic collapse.

  • Deregulation

The act or process of removing restrictions and regulations including government regulation of tariffs, market entry and exit and / or facilities in public services.

  • Direct deposit

A method of payment which electronically credits your checking or savings account.

  • Director

A member of a board or person who controls or governs the affairs of an institution or corporation.

  • Dirty float

A type of floating exchange rate that is not completely freely floating because central banks intervene from time to time to alter the rate from its free-market level. It is still a floating rate because it has not been pegged at a predetermined par value.

  • Discount payment

The difference between the face value and the price paid for a security.

  • Discount rate

The interest rate at which eligible depository institutions may borrow funds, usually for short periods, directly from a Federal Reserve Bank. The law requires the board of directors of each Reserve Bank to establish the discount rate every 14 days subject to the approval of the Board of Governors.

  • Discount window

Figurative expression for Federal Reserve facility for extending credit directly to eligible depository institutions.

  • Diversification

The distribution of investments among several companies to lessen the risk of loss.

  • Dividend

A share of profits paid to a stockholder.

  • Doubtful

A loan that has all the weaknesses of a substandard loan plus it is difficult to collect in full.

  • Durable Goods Orders

Reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods.

  • Durable merchandise

Goods that have a relatively lengthy life (television sets, radios, etc.).

  • Economic growth

An increase in the nation’s capacity to produce goods and services.

  • Economic shocks

Events that impact the economy, come from outside it, and are unexpected and unpredictable (e.g., Hurricane Andrew in 1991, the rise in oil prices by OPEC).

  • Economy

The careful or thrifty use or management of resources, such as income, materials or labor.

  • Edge Act corporation

Corporation chartered by the Federal Reserve to engage in international banking. The Board of Governors acts on applications to establish Edge Act corporations and also examines the corporations and their subsidiaries. Named after Senator Walter Edge of New Jersey, who sponsored the original legislation to permit formation of such organizations. See also agreement corporation.

  • Elastic currency

The ability of currency to expand and contract to meet the needs of the economy.

  • Electronic Funds Transfer (EFT)

Transfer of funds electronically rather than by check or cash. The Federal Reserve’s Fedwire and automated clearinghouse services are EFT systems.

  • Electronic Funds Transfer Systems (EFTS)

A variety of systems and technologies for transferring funds (money) electronically rather than by check. Includes Fedwire, automated clearinghouses (ACHs) and other automated systems.

  • Electronic banking

Conducted by Automated Teller Machines (ATMs), telephones or debit cards.

  • Employment cost index

A measure of total employee compensation costs, including wages, salaries and benefits. This is the broadest measure of labor costs.

  • Employment rate

The percentage of the labor force that is employed. The employment rate is one of the economic indicators that economists examine to help understand the state of the economy. See also unemployment rate.

  • Equal Credit Opportunity Act

Enacted in 1974, the Equal Credit Opportunity Act, or ECOA, seeks to ensure that non-credit-related factors, such as a person’s race, national origin, or sex, do not enter into a decision to deny a person’s request for credit.

  • Equilibrium

A situation in which the quantities demanded and supplied in a market are equal. Equilibrium exists when forces that cause changes in the market are in balance so that there is no tendency for the market price to change.

  • Equity

Ownership interest in an asset after liabilities are deducted.

  • Eurodollars

Deposits denominated in U.S. dollars at banks and other financial institutions outside the United States. Although this name originated because of the large amounts of such deposits held at banks in Western Europe, similar deposits in other parts of the world are also called Eurodollars.

  • Examine

To test the state or condition of; inspect or analyze carefully.

  • Excess reserves

Amount of reserves held by an institution in excess of its reserve requirement and required clearing balance. Also see reserves.

  • Exchange rate

The price of a country’s currency in terms of another country’s currency.

  • Exempted security

A security that is exempted from most provisions of the securities laws, including the margin rules. Such securities include U.S. government and agency securities, and municipal securities designated by the SEC.

  • Expected rate of inflation

The public’s expectations for inflation. These expectations determine how large an effect a given policy action by the Fed will have on economic activity.

  • Face value

The principal amount of a bond, which will be paid off at maturity.

  • Fair market value

The price a willing buyer will pay and a willing seller will accept for real or personal property.

  • Federal Advisory Council (FAC)

Advisory group made up of one representative (in most cases a banker) from each of the 12 Federal Reserve districts. Established by the Federal Reserve Act, the council meets periodically with the Board of Governors to discuss business and financial conditions and make recommendations.

  • Federal Deposit Insurance Corporation (FDIC)

An independent deposit insurance agency created by Congress in 1933 to maintain stability and public confidence in the nation’s banking system. The FDIC promotes safety and soundness of insured depository institutions and the U.S. financial system by identifying, monitoring and addressing risks to the deposit insurance funds; minimizes disruptive effects from the failure of banks and savings associations; and ensures fairness in the sale of financial products and the provision of financial services.

  • Federal Open Market Committee (FOMC)

Twelve-member committee made up of the seven members of the Fed’s Board of Governors; the president of the Federal Reserve Bank of New York; and, on a rotating basis, the presidents of four other Reserve Banks. The FOMC meets eight times a year to set Federal Reserve guidelines regarding the purchase and sale of government securities in the open market as a means of influencing the volume of bank credit and money in the economy. It also establishes policy relating to System operations in the foreign exchange markets.

  • Federal Reserve Act of 1913

Federal legislation that established the Federal Reserve System.

  • Federal Reserve Bank

One of the 12 operating arms of the Federal Reserve System, located throughout the nation, that together with their 25 branches carry out various System functions, including operating a nationwide payments system, distributing the nation’s currency and coin, supervising and regulating member banks and bank holding companies and serving as banker for the U.S. Treasury.

  • Federal Reserve District (Reserve district or district)

One of the twelve geographic regions served by a Federal Reserve Bank.

  • Federal Reserve System

The central bank of the United States, created by Congress and made up of a seven-member Board of Governors in Washington, D.C., 12 regional Federal Reserve Banks, and their 24 branches.

  • Federal Reserve float

Float is checkbook money that appears on the books of both the check writer (the payer) and the check receiver (the payee) while a check is being processed. Federal Reserve float is float present during the Federal Reserve’s check collection process. To promote efficiency in the payments system and provide certainty about the date that deposited funds will become available to the receiving depository institutions (and the payee), the Federal Reserve credits the reserve accounts of banks that deposit checks according to a fixed schedule. However, processing certain checks and collecting funds from the banks on which these checks are written may take more time than the schedule allows. Therefore, the accounts of some banks may be credited before the Federal Reserve is able to collect payment from other banks, resulting in Federal Reserve float.

  • Federal Reserve note

Currency issued by the Federal Reserve. Nearly all of the nation’s circulating paper currency consists of Federal Reserve notes printed by the Bureau of Engraving and Printing and issued to the Federal Reserve Banks which put them into circulation through commercial banks and other depository institutions. Federal Reserve notes are obligations of the U.S. government.

  • Federal Tax Deposit (FTD)

Federal Tax Deposits are made up of withholding taxes from employee’s paycheck. This withholding includes employee’s income tax and FICA (Social Security and Medicare). Employers send withheld money to an authorized financial institution or Federal Reserve Bank.

  • Federal deficit

The excess of government spending over its revenue.

  • Federal funds

Short-term transactions in immediately available funds between depository institutions and certain other institutions that maintain accounts with the Federal Reserve; usually not collateralized.

  • Federal funds rate (funds rate)

The federal funds rate is the interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. The rate may vary from depository institution to depository institution and from day to day.

  • Federal margin call

A broker’s demand upon a customer for cash, or securities needed to satisfy the required Regulation T down payment for a purchase or short sale of securities.

  • Fedwire

Electronic funds transfer network operated by the Federal Reserve. Fedwire is usually used to transfer large amounts of funds and U.S. government securities from one institution’s account at the Federal Reserve to another institution’s account. It is also used by the U.S. Department of the Treasury and other federal agencies to collect and disburse funds.

  • Fiat paper money (or Fiat currency)

Paper currency that has value because the government has decreed that it is a “legal tender” for making tax payments and often for discharging other debts and payments as well. Fiat money does not represent a claim on some other form of money or commodity such as gold and silver.

  • Finance

Charge or cost of credit, including interest paid by a customer for a consumer loan. Under the Truth in Lending Act, the finance charge must be disclosed to the customer in advance. See also Consumer Credit Protection Act of 1988.

  • Finance charge

The total dollar amount paid to get credit.

  • Finance company

A company that makes loans to individuals.

  • Financial

Reference to transactions involving money.

  • Financial institution

An institution that uses its funds chiefly to purchase financial assets (loans, securities) as opposed to tangible property. Financial institutions can be classified according to the nature of the principal claims they issue. See also depository institution.

  • Financing fee

The fee a lender charges to originate a loan. The fee is based on a percentage of the loan amount; one point is equivalent to one percent.

  • Fiscal agency services

Services performed by the Federal Reserve Banks for the U.S. government. These include maintaining deposit accounts for the Treasury Department, paying U.S. government checks drawn on the Treasury, and issuing and redeeming savings bonds and other government securities.

  • Fiscal policy

The federal government’s decisions about the amount of money it spends and collects in taxes to achieve a full employment and noninflationary economy.

  • Fixed exchange rate system

Exchange rates between currencies that are set at predetermined levels and don’t move in response to changes in supply and demand.

  • Fixed rate

A traditional approach to determining the finance charge payable on an extension of credit. A predetermined and certain rate of interest is applied to the principal.

  • Float

A sum of money that represents checks that are outstanding.

  • Floating exchange rate

A fixed exchange rate is when the value of a currency is fixed by governmental action at some officially determined level in terms of another currency.

  • Foreclosure

The legal process used to force the payment of debt secured by collateral whereby the property is sold to satisfy the debt.

  • Foreign currency operations

Purchase or sale of the currencies of other nations by a central bank for the purpose of influencing foreign exchange rates or maintaining orderly foreign exchange markets. Also called foreign-exchange market intervention.

  • Foreign exchange desk

The foreign exchange trading desk at the New York Federal Reserve Bank. The desk undertakes operations in the exchange markets for the account of the Federal Open Market Committee, and as agent for the U.S. Treasury and for foreign central banks.

  • Forward exchange

A type of foreign exchange transaction whereby a contract is made to exchange one currency for another at a fixed date in the future at a specified exchange rate. By buying or selling forward exchange, businesses protect themselves against a decrease in the value of a currency they plan to sell at a future date.

  • Fraud

Intentional misrepresentation, concealment, or omission of the truth for the purpose of deception or manipulation to the detriment of a person or an organization. Fraud is a legal concept and the application of the term in a specific instance should be determined by a legal expert.

  • Full Employment and Balanced Growth Act of 1978

(Humphrey-Hawkins Act) Federal legislation that, among other things, specifies the primary objectives of U.S. economic policy-maximum employment, stable prices, and moderate long-term interest rates.

  • Function

The action for which a person or thing is particularly fitted or employed.

  • Functions of money

Medium of exchange: Acts as a go-between to make it easier to buy and sell goods or services or pay debts. Allows buyers and sellers to avoid the difficulties associated with barter exchanges of goods and services.

Store of value: Allows people to transfer the purchasing power of their present money income or wealth into the future, ideally without a loss of value. Stores purchasing power between the time money is earned and the time it is spent.

Unit of account: Serves as a way to measure and compare the value of goods and services in relation to one another. When comparing prices, individuals can determine if one good is a better buy than another. It also allows people to keep accurate financial records.

  • Funds

A sum of money or resources set aside for a specific purpose.

  • Futures

Contracts that require delivery of a commodity of specified quality and quantity, at a specified price, on a specified future date. Commodity futures are traded on a commodity exchange and are used for both speculation and hedging.

  • Garnishment

A notice to an employer or other asset holder requiring that monies, wages, or property due a debtor be withheld and given a creditor to be applied to a specific debt in arrears.

  • General obligation bond

A type of municipal bond backed by the full faith and credit of the governmental unit that issues it.

  • Global economy

International economic activity which includes the world-wide integration of markets for goods, services, labor, and capital.

  • Gold exchange standard

A variant form of the gold standard under which a country pegged the value of its currency to the value of the currency of a “major” country, e.g. sterling or dollars, which was itself on a gold standard. The international monetary regime in force between 1958 and 1970 is frequently described as a “gold exchange standard” system because of the wide use of the dollar, itself pegged to gold, as a reserve currency and as an accepted medium of exchange internationally.

  • Gold standard

A monetary system in which currencies are defined in terms of a given weight of gold.

  • Government securities

Securities issued by the U.S. Treasury or federal agencies.

  • Governor

An official appointed to govern; the manager or administrative head of an organization, business or institution.

  • Graduated payment

Repayment terms calling for gradual increases in the payments on a closed-end obligation. A graduated payment loan usually involves negative amortization.

  • Grandfathered activities

Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United States, but which were acquired or engaged in before a particular date. Such activities may be continued under the “grandfather” clauses of the Bank Holding Company Act and the International Banking Act.

  • Gross Domestic Product (GDP)

The broadest measure of aggregate economic activity encompassing every measure of the economy, measuring the total value of goods and services produced during a specific period.

  • Growth

An increase as in, size, number, value, or strength.

  • Humphrey-Hawkins Act

Informal name for the Full Employment and Balanced Growth Act of 1978, from the names of the act’s original sponsors.

  • Index of industrial production

A measure of the physical output of the nation’s factories, mines and utilities.

  • Indicator

Any of various statistical values that collectively provide an indication of the stability of an economic system.

  • Individual Development Account (IDA)

A type of savings account, offered in some communities, for people whose income is below a certain level.

  • Individual Retirement Account (IRA)

A retirement plan, offered by banks, brokerage firms and insurance companies, to which individuals can contribute each year on a tax-deferred basis.

  • Industrial bond

A financial instrument issued by businesses primarily to fund expansion or acquisitions.

  • Inflation

A sustained increase in the general price level or a decline in the value or purchasing power of money.

  • Inflation tax

The transfer of resources to the government from businesses and consumers that occurs when government spending is financed by printing government-issued money rather than being financed by government taxes or borrowing from the public. When the government obtains goods and services by printing new money and inflation occurs, consumers and businesses holding money pay an inflation tax because inflation erodes the purchasing power of their money holdings.

  • Installment credit

A loan, extended by financial institution or retail firms, to be repaid along with interest charge in fixed periodic payments or, if variable rate of interest is charged, to be repaid in amounts that vary with the interest charged.

  • Installment plan

A plan requiring a borrower to make payments at specified intervals over the life of a loan.

  • Interest

A fee for the use of money over time. It is an expense to the borrower and revenue to the lender. Also money earned on a savings account.

  • Interest payments

The return expressed in percentage earned on an investment each year. These payments are issued every six months based on an annual rate.

  • Interest rate

The rate charged to borrow funds, usually from banks or other lending institutions.

  • Intermediate targets

An intermediate target is a variable (such as the money supply) that is not directly under the control of the central bank, but that does respond fairly quickly to policy actions, is observable frequently and bears a predictable relationship to the ultimate goals of policy.

  • International Banking Facility (IBF)

International banking facilities enable depository institutions in the United States to offer deposit and loan services to foreign residents and institutions free of Federal Reserve System reserve requirements, as well as some state and local taxes on income.

  • International Monetary Fund (IMF)

An international organization with 146 members, including the United States. The main functions of the IMF are to lend funds to member nations to finance temporary balance of payments problems, to facilitate the expansion and balanced growth of international trade and to promote international monetary cooperation among nations. The IMF also creates special drawing rights (SDRs), which provide member nations with a source of additional reserves. Member nations are required to subscribe to a Fund quota, paid mainly in their own currency. The IMF grew out of the Bretton Woods Conference of 1944.

  • Internet banking

Usually conducted through a personal computer (PC) that connects to a banking Web site via the Internet. Internet banking can also be conducted via wireless technology through both personal digital assistants (PDAs) and cellular phones.

  • Investing

The act of using money to make more money.

  • Investor

An organization, corporation, individual or other entity that acquires an ownership position in an investment, assuming risk of loss in exchange for anticipated returns.

  • Jobless claims

A weekly compilation of the number of individuals who filed for unemployment insurance for the first time. It predicts trends in the labor market.

  • Joint float

An arrangement by which a group of currencies maintain a fixed relationship relative to each other, but move jointly relative to another currency in response to supply and demand conditions in the exchange market.

  • Keynesian economics

An economic theory originated by the British economist John Maynard Keynes and his followers. Keynes maintained that governments should use the power of the budget to maintain economic growth and stability and overcome the recessionary cycles common in most western economies.

  • Labor value of money

A theory that holds that the value of a good is determined by the value of the labor that went into making it.

  • Lease financing

A specialized area of finance dealing with renting property owned by a lender, financing the leases of a company engaged in rentals, financing the purchase of an item to be leased out by a borrower.

  • Legal tender laws

Government laws that decree that creditors are required to accept an asset (such as paper money or coins) in settlement of debts and that the government will accept the asset in payment of taxes. When paper money and coins are a legal tender and people use them to settle a debt, the obligation is considered to be paid in full.

  • Lender of last resort

As the nation’s central bank, the Federal Reserve has the authority and financial resources to act as “lender of last resort” by extending credit to depository institutions or to other entities in unusual circumstances involving a national or regional emergency, where failure to obtain credit would have a severe adverse impact on the economy.

  • Leverage

The ability to use a small amount of money to attract other funds, including loans, grants and equity investments.

  • Liability

Money an individual or organization owes; same as debt.

  • Lien

A creditor’s claim against a property, which may entitle the creditor to seize the property if a debt is not repaid.

  • Liquidity

Quality that makes an asset easily convertible into cash with relatively little loss of value in the conversion process. Sometimes used more broadly to encompass credit in hand and promises of credit to meet needs for cash.

  • Liquidity risk

In banking, risk that a depository institution will not have sufficient cash or liquid assets to meet borrower and depositor demand.

  • Load

The fee a brokerage firm charges an investor for handling transactions.

  • Loan

A sum of money lent at interest.

  • M1

Measure of the U.S. money stock that consists of currency held by the public, travelers checks, demand deposits and other checkable deposits including NOW (negotiable order of withdrawal) and ATS (automatic transfer service) account balances and share draft account balances at credit unions.

  • M2

Measure of the U.S. money stock that consists of M1, certain overnight repurchase agreements and certain overnight Eurodollars, savings deposits (including money market deposit accounts), time deposits in amounts of less than $100,000 and balances in money market mutual funds (other than those restricted to institutional investors).

  • M3

Measure of the U.S. money stock that consists of M2, time deposits of $100,000 or more at all depository institutions, term repurchase agreements in amounts of $100,000 or more, certain term Eurodollars and balances in money market mutual funds restricted to institutional investors.

  • Macroeconomics

The study of economics in terms of whole systems with reference to general levels of output and income and to the interrelations among sectors of the economy. See also microeconomics.

  • Management fee

The fee paid to a company for managing an investment portfolio.

  • Margin

With regard to securities, this term refers to a fractional amount of full value, or the equity outlay (down payment) required for an investment in securities purchased on credit.

  • Margin stock

Any stock listed on a national securities exchange, any over-the-counter security approved by the SEC for trading in the national market system, or appearing on the Board’s list of over-the-counter margin stocks and most mutual funds.

  • Market interest rates

Rates of interest paid on deposits and other investments, determined by the interaction of the supply of and demand for funds in the money market.

  • Market value

The amount a seller can expect to receive on the open market for merchandise, services or securities.

  • Matched sale-purchase transactions

Transaction in which the Federal Reserve sells a government security to a dealer or a foreign central bank and agrees to buy back the security on a specified date (usually within seven days) at the same price (the reverse of a repurchase agreement). Such transactions allow the Federal Reserve to temporarily absorb excess reserves from the banking system, limiting the ability of banks to make new loans and investments.

  • Maturity

The time when a note, bond or other investment option comes due for payment to investors.

  • Member bank

Depository institution that is a member of the Federal Reserve System. All federally chartered banks are automatically members of the System. State-chartered banks are divided into those that are members of the System (state member banks) and those that are not (nonmember banks).

  • Mergers

The absorption of an estate, corporation, contract, or an interest in another.

  • Metallic standard

Tying the value of currency to the market value of precious metals.

  • Microeconomics

The study of economics in terms of individual areas of activity (as a firm, household or prices). See also macroeconomics.

  • Modernize

To accept or adopt modern ways, style, or ideas.

  • Monetary

Of or pertaining to money or its means to circulation.

  • Monetary Control Act of 1980 (MCA)

Act which requires that all banks and all institutions that accept deposits from the public make periodic reports to the Federal Reserve System. Starting in September 1981, the Fed charged banks for a range of services that it had provided free in the past, including check clearing, wire transfer of funds and the use of automated clearinghouse facilities.

  • Monetary equilibrium

When the quantity of money supplied is equal to the quantity demanded.

  • Monetary policy

A central bank’s actions to influence the availability and cost of money and credit, as a means of helping to promote national economic goals. Tools of monetary policy include open market operations, discount policy and reserve requirements.

  • Money

Anything that serves as a generally accepted medium of exchange, a standard of value and a means to save or store purchasing power. In the United States, currency (the bulk of which is Federal Reserve notes), coin and funds in checking and similar accounts at depository institutions are examples of money.

  • Money market savings account

A type of savings account offered by a financial institution.

  • Money supply

Total quantity of money available for transactions and investment; measure of the U.S. stock include M1, M2 and M3. (Also referred to as the money stock or simply money.)

  • Money trusts

Small groups of powerful banking and financial interests located in the money centers of New York and Philadelphia during the 1800s and early 1900s.

  • Moral hazard

The risk that a party to a transaction has not entered into a contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.

  • Mortgage Loan

A temporary and conditional pledge of property to a creditor as security for the repayment of debt.

  • Motor vehicle sales

Unit sales of domestically-produced cars and light-duty trucks. Figures are good indicators of trends in consumer spending.

  • Municipal bond

A bond issued by cities, counties, states and local governmental agencies to finance public projects, such as construction of bridges, schools and highways.

  • Mutual fund

A pool of money managed by an investment company.

  • National Association of Securities Dealers (NASD)

A self-regulatory organization with jurisdiction over certain broker-dealers. The NASD requires member brokers to register and conducts examinations for compliance with net capital requirements and other regulations. It also conducts market surveillance of the over-the-counter (OTC) securities market. National Association of Securities Dealers Automated Quotations (NASDAQ) is a subsidiary of the NASD which facilitates the trading of approximately 5,000 most active OTC issues through an electronically connected network.

  • National Association of Securities Dealers Automated Quotations (NASDAQ )

A computerized system established by the NASD to facilitate trading by providing broker/dealers with current bid and ask price quotes on over-the-counter stocks and some listed stocks.

  • National Credit Union Administration (NCUA)

The federal government agency that supervises, charters and insures federal credit unions. NCUA also insures state-chartered credit unions that apply and qualify for insurance. The NCUA also operates a credit facility for member credit unions.

  • National rate of unemployment

The rate of unemployment attainable without stimulating an increase in the inflation rate.

  • Negative amortization

An increase in the principal of a loan, when the loan payments are insufficient to pay the interest due. The unpaid interest is added to the outstanding loan balance causing the principal to increase rather than decrease as payments are made. This situation typically occurs in an adjustable mortgage with an annual cap limiting any increases in the interest rate, and also in a graduated payment mortgage, which has low initial payments so moderate-income borrowers can afford to make the loan payments.

  • Negotiable Order of Withdrawal (NOW) account

An interest-earning account on which checks may be drawn. Withdrawals from NOW accounts may be offered by commercial banks, mutual savings banks, and savings and loan associations and may be owned only by individuals and certain nonprofit organizations and governmental units.

  • Net worth

The difference between the total assets and total liabilities of an individual.

  • Nominal interest rates

Current stated rates of interest paid or earned.

  • Nonmember bank

Depository institution that is not a member of the Federal Reserve System. Specifically, a state-chartered commercial bank that has elected not to join the System.

  • OTC margin bond

A debt security not traded on the national securities exchange, which meets certain Regulation T requirements as to size of original offering, available information and status of interest payments.

  • Office of Thrift Supervision (OTS)

A bureau of the Treasury Department, established in August 1989, which has the authority to charter federal thrift institutions and serve as the primary regulator of approximately 2,000 federal and state-chartered thrifts.

  • Office of the Comptroller of the Currency (OCC)

An independent bureau of the Treasury Department and the oldest federal financial regulatory body. The OCC oversees the nation’s federally chartered banks and through a system of bank supervision and regulation promotes safety and soundness by requiring that national banks adhere to sound management principles and comply with the law, and encourages banks to satisfy customer and community needs while remaining efficient competitors in the financial services market.

  • Online banking

Access by personal computer or terminal to bank information, accounts and certain transactions via the financial institution’s web site on the Internet. Also known as Internet banking.

  • Open market operations

Purchases and sales of government securities and certain other securities in the open market, through the Domestic Trading Desk at the Federal Reserve Bank of New York as directed by the Federal Open Market Committee (FOMC), to influence the volume of money and credit in the economy. Purchases inject reserves into the banking system and stimulate growth of money and credit; sales do the opposite.

  • Open-end credit

A line of credit that may be used repeatedly up to a certain limit, also called a charge account or revolving credit.

  • Open-end lease

A lease that may involve a balloon payment based on the value of the property when it is returned. Also called finance lease.

  • Over The Counter (OTC)

Figurative term for the means of trading securities that are not listed on an organized stock exchange such as the New York Stock Exchange, as in OTC margin bonds. Over-the-counter trading is done by broker-dealers who communicate by telephone and computer networks.

  • Overdraft checking account

A checking account associated with a line of credit that allows a person to write checks for more than the actual balance in the account, with a finance charge on the overdraft.

  • Par value

The full face value of a security.

  • Payday Loan

A transaction in which a short-term cash advance is made to a consumer in exchange for a customer’s post-dated check in the amount of the advance plus a fee, or in exchange for a consumer’s authorization to debit a transaction account in the amount of the advance plus a fee at a designated future date.

  • Payments system

Collective term for mechanisms (both paper-backed and electronic) for moving funds, payments and money among financial institutions throughout the nation. The Federal Reserve plays a major role in the nation’s payments system through distribution of currency and coin, processing of checks, electronic transfer of funds and the operation of automated clearinghouses that transfer funds electronically among depository institutions; various private organizations also perform payments system functions.

  • Permissible nonbank activities

Financial activities closely related to banking that may be engaged in by bank holding companies (BHCs), either directly or through nonbank subsidiaries. For example, a BHC might own finance companies or engage in mortgage banking. The Federal Reserve Board determines which activities are closely related to banking. Before making such activities permissible, the Board must determine that performance of the activities by bank holding companies is in the public interest.

  • Personal Identification Number PIN

A sequence of digits assigned to consumers that are used to identify them when debit cards are used at an ATM, POS terminals or a home device. See also ATM, Credit card, Debit card.

  • Personal income

The dollar value of income received from all sources by individuals.

  • Personal outlays

Consumer purchases of durable goods, nondurable goods and services.

  • Points

In reference to a loan, points consist of a lump sum payment made by the borrower at the outset of the loan period. Generally, each point equals one percent of the loan amount. See also seller’s points.

  • Predatory lending

Targeting loans to elderly, low-income and other people to take advantage of their financial status or lack of financial knowledge.

  • Premium

The amount by which the auction price of a bill, note, or bond is higher than its face value.

  • President

One appointed or elected to preside over an organized body of people; the chief officer of a government branch, company or corporation.

  • Pretax

A person’s salary before state and federal income taxes are calculated.

  • Price level

The average level of the prices of products and services purchased by consumers.

  • Prime rate

The lowest interest rate on bank loans, offered to preferred borrowers.

  • Principal

The unpaid balance on a loan, not including interest; the amount of money invested.

  • Private

Not available for public use, control, or participation.

  • Processing

To prepare, treat, or convert to some special process.

  • Producer Price Index (PPI)

A measure of the average price level for a fixed basket of capital and consumer goods paid by producers.

  • Productivity

The amount of physical output for each unit of productive input.

  • Profit

The return received on a business undertaking after all operating expenses have been met.

  • Progressives

Farmers and ranchers opposed to big Eastern-based money trusts and conservatives in the government during the late 1800s and early 1900s.

  • Promissory note

A written promise on a financial instrument to repay the money plus interest.

  • Protect

To assure payment of (drafts, or notes for example) by setting aside funds.

  • Public

Connected with or acting on behalf of the people, community, or government rather than private matters or interests.

  • Purchasing power parity theory

The exchange rate between any two currencies adjusts to reflect changes in the price levels within the two countries.

  • Purpose credit

Credit used for the purpose of buying, carrying or trading in securities.

  • Qualified plan

A tax-deferred retirement plan for the self-employed.

  • Real GDP

GDP (gross domestic product) adjusted for inflation. Real GDP provides the value of GDP in constant dollars, which is used as an indicator of the volume of the nation’s output.

  • Real economy

The physical side of the economy dealing with goods, services and resources. This side is concerned with using resources to produce the goods and services that make the satisfaction of wants and needs possible.

  • Real interest rates

Interest rates adjusted for the expected erosion of purchasing power resulting from inflation. Technically defined as nominal interest rates minus the expected rate of inflation.

  • Recession

A significant decline in general economic activity extending over a period of time. Usually declared after two consecutive quarters of declining gross domestic product.

  • Redlining

A practice in which certain areas of a community are eliminated from eligibility for mortgages or other loans, either intentionally or unintentionally, allegedly because the area is considered a poor investment risk.

  • Reform

A movement that attempts to institute improved social and political conditions without revolutionary change.

  • Regulation

A principle rule, or law designed to control or govern.

  • Renegotiable rate

A type of variable rate involving a renewable short-term “balloon” note. The interest rate on the loan is generally fixed during the term of the note, but when the balloon comes due, the lender may refinance it at a higher rate. In order for the loan to be fully amortized, periodic refinancing may be necessary.

  • Report of Condition and Income

Financial report that all banks, bank holding companies, savings and loan associations, Edge Act and agreement corporations, and certain other types of organizations must file with a federal regulatory agency. Informally termed a call report.

  • Repurchase agreements

An agreement by which, for example, the Federal Reserve purchases a security for immediate delivery and receives interest at a specific rate from a government securities dealer, with an agreement to sell the security back at the same price by a specific date (usually within 15 days). This arrangement allows the Federal Reserve to inject reserves into the banking system on a temporary basis to meet a temporary need and to withdraw these reserves as soon as that need has passed.

  • Required reserve balance

Portion of its required reserves that a depository institution must hold in an account at a Federal Reserve Bank.

  • Required reserves

Funds that a depository institution is required to maintain as vault cash or on deposit with a Federal Reserve Bank; required amount varies according to required reserve ratios set by the Board of Governors and the volume of reservable liabilities held by the institutions.

  • Reserve requirements

Requirements set by the Federal Reserve Board of Governors for the amounts that certain financial institutions must set aside in the form of reserves. Reserve requirements act as a control on the expansion of money and credit and may be raised or lowered within limits specified by law (lowering reserve requirements allows more bank lending and money growth; raising requirements, less lending and money growth).

  • Reserves

A depository institution’s vault cash (up to the level of its required reserves) plus balances in its reserve account (not including funds applied to its required clearing balance).

  • Return

The profit made on an investment.

  • Revenue bond

A type of municipal bond backed by revenue from the project the bond finances.

  • Risk

The possibility of loss on an investment.

  • Savings account

A service depository institutions offer whereby people can deposit their money for future use and earn interest.

  • Savings and Loans Associations

A state or federally chartered financial institution that accepts savings and checkable deposits from the public and invests them primarily in mortgage loans. A savings and loan association may be either a mutual or capital stock institution and may also make loans to businesses and consumers.

  • Savings bank

Depository institution historically engaged primarily in accepting consumer savings deposits and in originating and investing in securities and residential mortgage loans; now may offer checking-type deposits and make a wider range of loans.

  • Section 8

A program of the Department of Housing and Urban Development (HUD) that provides rental assistance to low- and very low-income families. HUD pays the difference between the market rent of a unit and the amount that the tenant is able to pay.

  • Securities

Paper certificates (definitive securities) or electronic records (book-entry securities) evidencing ownership of equity (stocks) or debt obligations (bonds).

  • Securities and Exchange Commission (SEC)

An independent, nonpartisan, quasi-judicial regulatory agency with responsibility for administering the federal securities laws. The purpose of these laws is to protect investors and to ensure that investors have access to disclosure of all material information concerning publicly traded securities. The Commission also regulates firms engaged in the purchase or sale of securities, people who provide investment advice, and investment companies.

  • Security interest

The creditor’s right to take property or a portion of property offered as security.

  • Seigniorage

The profit which results from the difference between the cost of making coins and currency and the exchange value of coin and currency in the market.

  • Self-Regulatory Organizations (SRO)

Nongovernment organizations that have statutory responsibility to regulate their own members such as the New York Stock Exchange (NYSE) and National Association Of Securities Dealers (NASD).

  • Seller’s points

In reference to a loan, seller’s points consist of a lump sum paid by the seller to the buyer’s creditor to reduce the cost of the loan to the buyer. This payment is either required by the creditor or volunteered by the seller, usually in a loan to buy real estate. Generally, one point equals one percent of the loan amount. See also points.

  • Service charge

A component of some finance charges, such as the fee for triggering an overdraft checking account into use.

  • Short-term interest rates

Interest rates on loan contracts-or debt instruments such as Treasury bills, bank certificates of deposit or commercial paper-having maturities of less than one year. Often called money market rates.

  • Simple interest

Interest that is paid only on the original amount borrowed for the length of time the borrower has use of the credit. The amount borrowed is referred to as the principal. In the simple interest rate calculation, interest is computed only on that portion of the original principal still owed.

  • Society for Worldwide Interbank Financial Telecommunications (SWIFT )

A message writing system that connects worldwide participating banks, primarily for the purpose of communicating payment information. Frequently, the SWIFT message is only part of an international payment.

  • Special Drawing Rights (SDR)

A type of international money created by the International Monetary Fund (IMF) and allocated to its member nations. SDRs are an international reserve asset, although they are only accounting entries (not actual coin or paper, and not backed by precious metal). Subject to certain conditions of the IMF, a nation that has a balance of payments deficit can use SDRs to settle debts to another nation or to the IMF.

  • Specie

Any monetary gold or silver, whether in the form of bullion (bars) or coins.

  • Speculation

The practice of buying or selling stocks, commodities, land or other types of assets hoping to take advantage of an expected rise or fall in price.

  • Spot transaction

A foreign exchange transaction in which each party promises to pay a certain amount of currency to the other on the same day or within one or two days.

  • Spot value (or spot price)

The value or price at which current transactions of goods and services take place. The spot market is the market in which goods and services are traded for immediate delivery and payment. Purchased or sold “on the spot” as opposed to some later time.

  • Stability

Reliability; dependability

  • State member bank

A bank that is chartered by a state and has elected to join the Federal Reserve System.

  • Stock market

Association where security trading is conducted in an organized system.

  • Stockholder

A person who owns stock in a company and is eligible to share in profits and losses; same as shareholder.

  • Street name

Securities held in the name of brokers, banks or their nominees, instead of in the customer’s name.

  • Subprime Lending

Lending provided to those who do not qualify for “prime” rates, those rates reserved for borrowers with virtually blemish-free credit histories. Subprime lending that involves unscrupulous practices is considered predatory.

  • Substandard

A loan that usually lacks current sound worth and paying capacity of borrower or collateral pledged.

  • Supply

The amount of a commodity available for meeting a demand or for purchase at a given price.

  • Surcharge

An extra charge imposed on those who purchase with a credit card instead of cash.

  • Swap

An arrangement between the central banks of two countries for standby credit to facilitate the exchange of each other’s currencies.

  • Swap arrangements

Short-term reciprocal lines of credit between the Federal Reserve and 14 foreign central banks as well as the Bank for International Settlements. Through a swap transaction, the Federal Reserve can, in effect, borrow foreign currency in order to purchase dollars in the foreign exchange market. In doing so, the demand for dollars and the dollar’s foreign exchange value are increased. Similarly, the Federal Reserve can temporarily provide dollars to foreign central banks through swap arrangements.

  • System

A social, economic or political organizational form.

  • Tax-deferred

Phrase referring to money that is not subject to income tax until it is withdrawn from an account, such as an individual retirement account or a 401(k) account.

  • Tender

An application or offer to purchase a U.S. Treasury bill, note or bond.

  • Term

The period from when a loan is made until it is fully paid.

  • Terms

Provisions specified in a loan agreement.

  • The Desk

The trading desk at the Federal Reserve Bank of New York through which open market purchases and sales of government and federal agency securities are made. The desk maintains direct telephone communication with major government securities dealers. A “foreign desk” at the Federal Reserve Bank of New York conducts transactions in the foreign exchange market.

  • Thrift Institutions Advisory Council (TIAC)

A council, established following the passage of the Monetary Control Act of 1980, whose purpose is to provide information and views on the special needs and problems of thrifts. The group is comprised of representatives of savings banks, savings and loan associations, and credit unions.

  • Thrift institution

A general term encompassing savings banks, savings and loan associations, and credit unions.

  • Too-big-to-fail

Government practices that protect large banking organizations from the normal discipline of the marketplace because of concerns that such institutions are so important to markets and their positions so intertwined with those of other banks that their failure would be unacceptably disruptive, financially and economically.

  • Trade balance

Measures the difference between exports and imports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade.

  • Trade deficit

The amount by which merchandise imports exceed merchandise exports.

  • Trade-weighted value of the dollar

The value of the dollar pegged to, or expressed relative to, a market basket of selected foreign currencies. The Federal Reserve calculates a trade-weighted value of the dollar based on the weighted-average exchange value of the dollar against the currencies of 10 industrial countries.

  • Transaction account

A checking or similar account from which transfers can be made to third parties. Demand-deposit accounts, negotiable order of withdrawal (NOW) accounts, automatic transfer service (ATS) accounts, and credit union share draft accounts are examples of transaction accounts at banks and other depository institutions.

  • Transfer

To convey or shift from one person or place to another.

  • Treasury

The executive department of a government in charge of the collection, management, and expenditure of the public revenue.

  • Treasury bill (T-bill)

Short-term U.S. Treasury security having a maturity of up to one year and issued in denominations of $10,000 to $1 million. T-bills are sold at a discount: Investors purchase a bill at a price lower than the face value (for example, the investor might buy a $10,000 bill for $9,700); the return is the difference between the price paid and the amount received when the bill is sold or it matures (if held to maturity, the return on the T-bill in the example would be $300). T-bills are the type of security most frequently used in Federal Reserve open market operations.

  • Treasury bond

Long-term security having a maturity of 10 years or longer issued in denominations of $1,000 or more. A 30-year bond is sometimes referred to as a long bond. Bonds pay interest semiannually, and the principal is payable at maturity.

  • Treasury note

Intermediate-term security having a maturity of one to 10 years and issued in denominations of $1,000 or more. Notes pay interest semiannually, and the principal is payable at maturity.

  • Treasury securities

Interest-bearing obligations of the US government issued by the Treasury as a means of borrowing; money to meet government expenditures not covered by tax revenues. Marketable Treasury securities fall into three categories- bills, notes, and bonds. Marketable Treasury obligations are currently issued in book-entry form only; that is, the purchaser receives a statement, rather than an engraved certificate.

  • Truth in lending disclosures

Information sent to customers at periodic intervals regarding finance charges, service charges, minimum payment schedule, customer obligations, and Fair Credit Billing Act requirements for items in dispute.

  • U.S. Treasury securities

Interest-bearing obligations of the U.S. government issued by the U.S. Department of the Treasury as a means of borrowing money to meet government expenditures not covered by tax revenues. There are three types of marketable Treasury securities-bills, notes and bonds.

  • U.S. savings bond

A nontransferable, registered bond issued by the U.S. government in denominations of $50 to $10,000.

  • Unemployment rate

The percentage of the labor force that is unemployed and actively seeking a job.

  • Uniform currency

The term used to describe the uniform acceptance across the country of currency notes issued by nationally chartered banks following the National Banking Act of 1863.

  • Unsecured credit

Credit extended on the borrower’s promise to repay the debt, and for which collateral is not required.

  • Unsecured debt

A debt instrument not backed by the issuer’s pledging of assets. Unsecured bonds are called debentures.

  • Variable rate

A variable-rate agreement, as distinguished from a fixed-rate agreement, calls for an interest rate that may fluctuate over the life of the loan. The rate is often tied to an index that reflects changes in market rates of interest. A fluctuation in the rate causes changes in either the payments or the length of the loan term. Limits are often placed on the degree to which the interest rate or the payments can vary.

  • Vault cash

Cash kept on hand in a depository institution’s vault to meet day-to-day business needs, such as cashing checks for customers; can be counted as a portion of the institution’s required reserves.

  • Velocity

The rate at which money balances turn over in a period for expenditures on goods and services (often measured as the ratio of GNP-gross national product-to the money stock). A larger velocity means that a given quantity of money is associated with a greater dollar volume of transactions.

  • Will

A document, also called testament, that, when signed and witnessed, gives legal effect to the wishes of a person, called a testator, with respect to disposal of property upon death.

  • Wire transfer

Electronic transfer of funds; usually involves large dollar payments.

  • Wraparound

A financing device that permits an existing loan to be refinanced and new money to be advanced at an interest rate between the rate charged on the old loan and the current market interest rate. The creditor combines or “wraps” the remainder of the old loan with the new loan at the intermediate rate.

  • Yield

The return on a loan or investment, stated as a percentage of price.

 

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