Important Finance Terminologies (A-M)

Important Finance, Accounts and Economics Terminologies

 

What is Absolute Advantage

Absolute advantage is the ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time, or to produce the same quantity of a good or service per unit of time using a lesser quantity of inputs, than another entity that produces the same good or service. An entity with an absolute advantage can produce a product or service at a lower absolute cost per unit using a smaller number of inputs or a more efficient process than another entity producing the same good or service.

What Is Amalgamation

An amalgamation is a combination of two or more companies into a new entity. Amalgamation is distinct from a merger because neither company involved survives as a legal entity. Instead, a completely new entity is formed to house the combined assets and liabilities of both companies.

What Is Artificial Intelligence (AI)

Artificial intelligence (AI) refers to the simulation of human intelligence in machines that are programmed to think like humans and mimic their actions. The term may also be applied to any machine that exhibits traits associated with a human mind such as learning and problem-solving.

What Is an Automated Teller Machine (ATM)

An automated teller machine (ATM) is an electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative or teller. Anyone with a credit card or debit card can access cash at most ATMs.

What Is an Annuity

An annuity is a financial product that pays out a fixed stream of payments to an individual, and these financial products are primarily used as an income stream for retirees. Annuities are contracts issued and distributed (or sold) by financial institutions, which invest funds from individuals. They help individuals address the risk or outliving their savings. Upon annuitization, the holding institution will issue a stream of payments at a later point in time.

What Is an American Depositary Receipt – ADR

An American depositary receipt (ADR) is a negotiable certificate issued by a U.S. depository bank representing a specified number of shares—or as little as one share—investment in a foreign company's stock. The ADR trades on markets in the U.S. as any stock would trade.

What Is Bankruptcy Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor's assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt. What Is a Bill of Lading A bill of lading (BL or BoL) is a legal document issued by a carrier to a shipper that details the type, quantity, and destination of the goods being carried. A bill of lading also serves as a shipment receipt when the carrier delivers the goods at a predetermined destination. This document must accompany the shipped products, no matter the form of transportation, and must be signed by an authorized representative from the carrier, shipper, and receiver. Blockchain If you have been following banking, investing, or cryptocurrency over the last ten years, you may be familiar with “blockchain,” the record-keeping technology behind the Bitcoin network. And there’s a good chance that it only makes so much sense. In trying to learn more about blockchain, you've probably encountered a definition like this: “blockchain is a distributed, decentralized, public ledger." What Is a Business Valuation A business valuation is a general process of determining the economic value of a whole business or company unit. Business valuation can be used to determine the fair value of a business for a variety of reasons, including sale value, establishing partner ownership, taxation, and even divorce proceedings. Owners will often turn to professional business evaluators for an objective estimate of the value of the business. What Is Budget Deficit A budget deficit occurs when expenses exceed revenue and indicate the financial health of a country. The government generally uses the term budget deficit when referring to spending rather than businesses or individuals. Accrued deficits form national debt.   Coverage Ratio

A coverage ratio is a measure of a company's ability to service its debt and meet its financial obligations. The higher the coverage ratio, the easier it should be to make interest payments on its debt or pay dividends. The trend of coverage ratios over time is also studied by analysts and investors to ascertain the change in a company's financial position Candlestick A candlestick is a type of price chart that displays the high, low, open and closing prices of a security for a specific period. It originated from Japanese rice merchants and traders to track market prices and daily momentum hundreds of years before becoming popularized in the United States. The wide part of the candlestick is called the "real body" and tells investors whether the closing price was higher or lower than the opening price (black/red if the stock closed lower, white/green if the stock closed higher) Systematic Risk Systematic risk is the risk inherent to the entire market or market segment. Systematic risk, also known as “undiversifiable risk,” “volatility,” or “market risk,” affects the overall market, not just a particular stock or industry. This type of risk is both unpredictable and impossible to completely avoid. It cannot be mitigated through diversification, only through hedging or by using the correct asset allocation strategy Moving Average - MA A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random price fluctuations. It is a trend-following, or lagging, indicator because it is based on past prices.   Stock Option Stock options are sold by one party to another, that give the option buyer the right, but not the obligation, to buy or sell a stock at an agreed-upon price within a certain period of time. American options, which make up most of the public exchange-traded stock options, can be exercised any time between the date of purchase and the expiration date of the option. European options, also known as "share options" in the United Kingdom, are less common and can only be redeemed at the expiration date   Portfolio A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non publicly tradable securities, like real estate, art, and private investments. Portfolios are held directly by investors and/or managed by financial professionals and money managers. Investors should construct an investment portfolio in accordance with their risk tolerance and their investing objectives. Investors can also have multiple portfolios for various purposes. It all depends on one's objectives as an investor.   Time Value of Money - TVM The time value of money (TVM) is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also sometimes referred to as present discounted value.   Intrinsic Value The intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Additionally, intrinsic value is primarily used in options pricing to indicate the amount an option is in the money.   Current Assets Current assets is a balance sheet account that represents the value of all assets that can reasonably expect to be converted into cash within one year. Current assets include cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other liquid assets that can be readily converted to cash   Compound Interest Compound interest (or compounding interest) is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Thought to have originated in 17th-century Italy, compound interest can be thought of as “interest on interest,” and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount. The rate at which compound interest accrues depends on the frequency of compounding; the higher the number of compounding periods, the greater the compound interest. Thus, the amount of compound interest accrued on $100 compounded at 10% annually will be lower than that on $100 compounded at 5% semi-annually over the same time period     Correction A correction is a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation. The latest stock market correction occurred on February 8, 2018 as the DJIA and the S&P 500 fell more than 10% from their recent highs hit in late January, 2018. Corrections are generally temporary price declines interrupting an uptrend in the market or an asset. A correction has a shorter duration than a bear market or a recession, but it can be a precursor to either. A correction is very different from a crash since it measures the the percentage decline from the most recent high. A crash is generally considered to be a 10% or more decline, irrespective of the most recent high.   Depreciation Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes. For tax purposes, businesses can deduct the cost of the tangible assets they purchase as business expenses; however, businesses must depreciate these assets in accordance with IRS rules about how and when the deduction may be taken.   Acquisition An acquisition is a situation whereby one company purchases most or all of another company's shares in order to take control. An acquisition occurs when a buying company obtains more than 50% ownership in a target company. As part of the exchange, the acquiring company often purchases the target company's stock and other assets, which allows the acquiring company to make decisions regarding the newly acquired assets without the approval of the target company’s shareholders.   Ratio Analysis A ratio analysis is a quantitative analysis of information contained in a company’s financial statements. Ratio analysis is used to evaluate various aspects of a company’s operating and financial performance such as its efficiency, liquidity, profitability and solvency.   Gross Profit Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.   Call Option A call option is an agreement that gives an investor the right, but not the obligation, to buy a stock, bond, commodity or other instrument at a specified price within a specific time period   Annuity An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees. Annuities are created and sold by financial institutions, which accept and invest funds from individuals and then, upon annuitization, issue a stream of payments at a later point in time. The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase.   Preferred Stock A preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.   Liability A liability is a company's financial debt or obligations that arise during the course of its business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses.   Futures Contract A futures contract is a legal agreement, generally made on the trading floor of a futures exchange, to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future. Futures contracts are standardized to facilitate trading on a futures exchange and, depending on the underlying asset being traded, detail the quality and quantity of the commodity   Standard Deviation Standard deviation is a measure of the dispersion of a set of data from its mean. It is calculated as the square root of variance by determining the variation between each data point relative to the mean. If the data points are further from the mean, there is higher deviation within the data set.   Amortization Amortization is the paying off of debt with a fixed repayment schedule in regular installments over a period of time for example with a mortgage or a car loan. It also refers to the spreading out of capital expenses for intangible assets over a specific duration (usually over the asset's useful life) for accounting and tax purposes.   Swap A swap is a derivative contract through which two parties exchange financial instruments. These instruments can be almost anything, but most swaps involve cash flows based on a notional principal amount that both parties agree to. Usually, the principal does not change hands. Each cash flow comprises of one leg of the swap. One cash flow is generally fixed, while the other is variable, that is, based on a a benchmark interest rate, floating currency exchange rate, or index price   Volatility Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.   Retained Earnings Retained earnings refer to the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business, or to pay debt. It is recorded under shareholders' equity on the balance sheet. The formula calculates retained earnings by adding net income to, or subtracting any net losses from, beginning retained earnings, and subtracting any dividends paid to shareholders.   Liquidity Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price   Yield Curve A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is also used to predict changes in economic output and growth   Income Statement An income statement is a financial statement that reports a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period   Security A security is a fungible, negotiable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation (via stock), a creditor relationship with a governmental body or a corporation (represented by owning that entity's bond), or rights to ownership as represented by an option.   Short Selling Short selling is the sale of a security that is not owned by the seller or that the seller has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit. Short selling may be prompted by speculation, or by the desire to hedge the downside risk of a long position in the same security or a related one. Since the risk of loss on a short sale is theoretically infinite, short selling should only be used by experienced traders, who are familiar with the risks.   Book Value Book value of an asset is the value at which the asset is carried on a balance sheet and calculated by taking the cost of an asset minus the accumulated depreciation. Book value is also the net asset value of a company, calculated as total assets minus intangible assets (patents, goodwill) and liabilities. For the initial outlay of an investment, book value may be net or gross of expenses such as trading costs, sales taxes, service charges and so on   Gross Margin Gross margin is a company's total sales revenue minus its cost of goods sold (COGS), divided by total sales revenue, expressed as a percentage. The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services it sells. The higher the percentage, the more the company retains on each dollar of sales, to service its other costs and debt obligations

Brexit

Brexit is an abbreviation for "British exit," referring to the UK's decision in a June 23, 2016 referendum to leave the European Union (EU). The vote's result defied expectations and roiled global markets, causing the British pound to fall to its lowest level against the dollar in 30 years. Prime Minister David Cameron, who called the referendum and campaigned for Britain to remain in the EU, resigned the following month. Home Secretary Theresa May replaced him as leader of the Conservative party and as Prime Minister. Following a snap election on June 8, 2017, she remains Prime Minister.

Government Shutdown Definition

A government shutdown happens when nonessential government offices can no longer remain open due to lack of funding. The lack of funding usually occurs when there is a delay in the approval of the federal budget for the upcoming fiscal year. The shutdown remains in effect until parties can reach a compromise and a budget bill passes. During a government shutdown, many federally run operations will halt. Some organizations may still stay open by running on cash reserves, but once these funds run out, they will also close.

Swap

A swap is a derivative contract through which two parties exchange financial instruments. These instruments can be almost anything, but most swaps involve cash flows based on a notional principal amount that both parties agree to. Usually, the principal does not change hands. Each cash flow comprises one leg of the swap. One cash flow is generally fixed while the other is variable, which is based on a benchmark interest rate, floating currency exchange rate, or index price.

Liability

A liability is defined as a company's legal financial debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses.

Standard Deviation

The standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance. It is calculated as the square root of variance by determining the variation between each data point relative to the mean. If the data points are further from the mean, there is higher deviation within the data set; thus, the more spread out the data, the higher the standard deviation

Preferred Stock

A preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.

Annuity

An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees. Annuities are created and sold by financial institutions, which accept and invest funds from individuals and then, upon annuitization, issue a stream of payments at a later point in time. The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase

Call Option

Call options are an agreement that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other instrument at a specified price within a specific time period. The stock, bond, or commodity is called the underlying asset.

Gross Profit

Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.

Ratio Analysis

A ratio analysis is a quantitative analysis of information contained in a company’s financial statements. Ratio analysis is used to evaluate various aspects of a company’s operating and financial performance such as its efficiency, liquidity, profitability and solvency.

High Net Worth Individual - HNWI

High net worth individual (HNWI) is a classification used by the financial services industry to denote an individual or a family with liquid assets above a certain figure. Although there is no precise definition of how rich someone must be to fit into this category, high net worth is generally quoted in terms of having liquid assets of a particular number. The exact amount differs by financial institution and region.

Volatility

Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.

 

Tax Season

 

Tax season is the time period between January 1 and April 15 of each year when individual taxpayers traditionally prepare financial statements and reports for the previous year. In the United States, individuals must file their annual tax return by April 15 of the year following the reportable earnings

Intrinsic Value

Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, using fundamental analysis. Also called the true value, the intrinsic value may or may not be the same as the current market value. Additionally, intrinsic value is also used in options pricing to indicate the amount that an option is "in the money."

Time Value of Money - TVM

The time value of money (TVM) is the concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also sometimes referred to as present discounted value

Portfolio

A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non publicly tradable securities, like real estate, art, and private investments. Portfolios are held directly by investors and/or managed by financial professionals and money managers. Investors should construct an investment portfolio in accordance with their risk tolerance and their investing objectives. Investors can also have multiple portfolios for various purposes. It all depends on one's objectives as an investor.

Yield Curve

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year, 10-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is used to predict changes in economic output and growth. Yield curve rates are usually available at the Treasury's interest rate web sites by 6:00 PM ET each trading day.

Tax Deduction

 

A tax deduction is a deduction that lowers a person’s tax liability by lowering his taxable income. Deductions are typically expenses that the taxpayer incurs during the year that can be applied against or subtracted from his gross income in order to figure out how much tax is owed. 

Business Cycle

The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles are generally measured using rise and fall in real – inflation-adjusted – gross domestic product (GDP), which includes output from the household and nonprofit sector and the government sector, as well as business output. "Output cycle" is therefore a better description of what is measured. The business or output cycle should not be confused with market cycles, measured using broad stock market indices; or the debt cycle, referring to the rise and fall in household and government debt.

Stock Option

Stock options are sold by one party to another, that give the option buyer the right, but not the obligation, to buy or sell a stock at an agreed-upon price within a certain period of time. American options, which make up most of the public exchange-traded stock options, can be exercised any time between the date of purchase and the expiration date of the option. European options, also known as "share options" in the United Kingdom, are less common and can only be redeemed at the expiration date.

Moving Average - MA

A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random price fluctuations. It is a trend-following, or lagging, indicator because it is based on past prices

What is a Bull Market

 

A bull market is the condition of a financial market of a group of securities in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies and commodities. Because prices of securities rise and fall essentially continuously during trading, the term "bull market" is typically reserved for extended periods in which a large portion of security prices are rising. Bull markets tend to last for months or even years.

Credit Monitoring Service

 

A credit monitoring service tracks changes in borrower behavior in order to notify consumers of potential fraud, as well as changes to their creditworthiness.

Coverage Ratio

A coverage ratio is a measure of a company's ability to service its debt and meet its financial obligations. The higher the coverage ratio, the easier it should be to make interest payments on its debt or pay dividends. The trend of coverage ratios over time is also studied by analysts and investors to ascertain the change in a company's financial position

Indicator

Indicators are statistics used to measure current conditions as well as to forecast financial or economic trends.

Market Index

A market index is a weighted average of several stocks or other investment vehicles from a section of the stock market, and it is calculated from the price of the selected stocks. Market indexes are intended to represent an entire stock market and track the market's changes over time.

Retained Earnings

A business generates earnings which can be positive (profits) or negative (losses). While managing losses is a different ball game altogether, profits (or the positive earnings) give a lot of room to the business owner(s) or the company management to utilize the surplus money earned

Compound Interest

Compound interest (or compounding interest) is interest calculated on the initial principal and which also includes all of the accumulated interest of previous periods of a deposit or loan. Thought to have originated in 17th century Italy, compound interest can be thought of as “interest on interest,” and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount. The rate at which compound interest accrues depends on the frequency of compounding such that the higher the number of compounding periods, the greater the compound interest. Thus, the amount of compound interest accrued on $100 compounded at 10% annually will be lower than that on $100 compounded at 5% semi-annually over the same time period. Because the interest-on-interest effect can generate increasingly positive returns based on the initial principal amount, it has sometimes been referred to as the "miracle of compound interest."

Current Assets

The term current assets represents all the assets of a company that are expected to be conveniently sold, consumed, utilized or exhausted through the standard business operations which can lead to their conversion to a cash value over the next one year. Since current assets is a standard item appearing in the balance sheet, the time horizon represents one year from the date shown in the heading of the company's balance sheet. Current assets include cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities and other liquid assets. In a few jurisdictions, the term is also known as current accounts.

Wealth Management

Wealth management is a high-level professional service that combines financial and investment advice, accounting and tax services, retirement planning, and legal or estate planning for one set fee. Clients work with a single wealth manager who coordinates input from financial experts and can include coordinating advice from the client's own attorney, accountants and insurance agent. Some wealth managers also provide banking services or advice on philanthropic activities.

Deflation

 

Deflation is the general decline in prices for goods and services occurring when the inflation rate falls below 0%.  Deflation happens naturally when the money supply of an economy is fixed.  In times of deflation, the purchasing power of currency and wages are higher than they otherwise would have been. This is distinct from but similar to price deflation, which is a general decrease in the price level.

Stop Order

A stop order is an order to buy or sell a security when its price moves past a particular point, ensuring a higher probability of achieving a predetermined entry or exit price, limiting the investor's loss or locking in a profit. Once the price crosses the predefined entry/exit point, the stop order becomes a market order.

Bubble

A bubble is an economic cycle characterized by the rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive sell-off occurs, causing the bubble to deflate

Whole Life Insurance

Whole life insurance provides coverage for the life of the insured. In addition to providing a death benefit, whole life also contains a savings component where cash value may accumulate. These policies are also known as permanent or traditional life insurance.

Money Manager

A money manager is a person or financial firm that manages the securities portfolio of an individual or institutional investor. Typically, a money manager employs people with various expertise ranging from research and selection of investment options to monitoring the assets and deciding when to sell them

Trustee

A trustee is a person or firm that holds and administers property or assets for the benefit of a third party. A trustee may be appointed for a wide variety of purposes, such as in the case of bankruptcy, for a charity, for a trust fund or for certain types of retirement plans or pensions. Trustees are trusted to make decisions in the beneficiary's best interests and often have a fiduciary responsibility to the trust beneficiaries

Correction

A correction is generally defined as a ten percent or greater decline in the price of a security from its most recent peak. Corrections can occur in individual stocks, indexes, commodities, currencies or any asset that is traded on an exchange. An asset, index, or market may fall into a correction either briefly or for sustained periods of time, including days, weeks, months, or even longer.

Consumer Price Index - CPI

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living; the CPI is one of the most frequently used statistics for identifying periods of inflation or deflation. What Is a Fiduciary A fiduciary is a person or organization that acts on behalf of another person or persons to manage assets. Essentially, a fiduciary owes to that other entity the duties of good faith and trust. The highest legal duty of one party to another, being a fiduciary requires being bound ethically to act in the other's best interests. What Is Financial Technology – Fintech Financial technology (Fintech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services. ​​​At its core, fintech is utilized to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones. Fintech, the word, is a combination of "financial technology". What Is a Government Shutdown A government shutdown happens when nonessential government offices can no longer remain open due to lack of funding. The lack of funding usually occurs when there is a delay in the approval of the federal budget for the upcoming fiscal year. The shutdown remains in effect until parties can reach a compromise and a budget bill passes. During a government shutdown, many federally run operations will halt. Some organizations may still stay open by running on cash reserves, but once these funds run out, they will also close. Any office which does not receive funding from Congress would continue to operate during the shutdown. What Is the Goods and Services Tax (GST) The goods and services tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. In effect, GST provides revenue for the government. What Is a Hostile Takeover A hostile takeover is the acquisition of one company (called the target company) by another (called the acquirer) that is accomplished by going directly to the company's shareholders or fighting to replace management to get the acquisition approved. A hostile takeover can be accomplished through either a tender offer or a proxy fight. What Is Hyperinflation Hyperinflation is a term to describe rapid, excessive, and out-of-control general price increases in an economy. While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month. What Is a Holding Company A holding company is a form of corporate ownership structure or conglomerate. It involves a parent corporation, limited liability company (LLC), or limited partnership (LP) that owns enough equity and voting stock in another company that it can control that company's policies and oversee its management decisions. Although a holding company owns the assets of other companies, it often maintains only oversight capacities and therefore does not actively participate in running a business's day-to-day operations of these subsidiaries. What Is Hypothesis Testing Hypothesis testing is an act in statistics whereby an analyst tests an assumption regarding a population parameter. The methodology employed by the analyst depends on the nature of the data used and the reason for the analysis. What Is an IPO An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes share premiums for current private investors. Meanwhile, it also allows public investors to participate in the offering. What are International Financial Reporting Standards (IFRS) International Financial Reporting Standards (IFRS) set common rules so that financial statements can be consistent, transparent and comparable around the world. IFRS are issued by the International Accounting Standards Board (IASB). They specify how companies must maintain and report their accounts, defining types of transactions and other events with financial impact. IFRS were established to create a common accounting language, so that businesses and their financial statements can be consistent and reliable from company to company and country to country. What Is the Interest Coverage Ratio The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. The interest coverage ratio may be calculated by dividing a company's earnings before interest and taxes (EBIT) during a given period by the company's interest payments due within the same period. What Is an Inferior Good An inferior good is an economic term that describes a good whose demand drops when people's incomes rise. This occurs when a good has more costly substitutes that see an increase in demand as incomes and the economy improve. Inferior goods—which are the opposite of normal goods—are anything a consumer would demand less of if they had a higher level of real income. They may also be associated with those who typically fall into a lower socio-economic class. What Is a Giffen Good A Giffen good is a low income, non-luxury product that defies standard economic and consumer demand theory. Demand for Giffen goods rises when the price rises and falls when the price falls. In econometrics, this results in an upward-sloping demand curve, contrary to the fundamental laws of demand which create a downward sloping demand curve. Examples of Giffen goods can include bread, rice, and wheat. These goods are commonly essentials with few near-dimensional substitutes at the same price levels. What Is Indemnity Indemnity is a comprehensive form of insurance compensation for damages or loss, and in the legal sense, it may also refer to an exemption from liability for damages. What is Insider Trading Insider trading involves trading in a public company's stock by someone who has non-public, material information about that stock for any reason. Insider trading can be either illegal or legal depending on when the insider makes the trade. It is illegal when the material information is still non-public, and this sort of insider trading comes with harsh consequences. What Is an Index Fund An index fund is a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor's 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses, and low portfolio turnover. These funds follow their benchmark index regardless of the state of the markets.  What Is a Junk Bond Junk bonds are bonds that carry a higher risk of default than most bonds issued by corporations and governments. A bond is a debt or promises to pay investors interest payments and the return of invested principal in exchange for buying the bond. Junk bonds represent bonds issued by companies that are struggling financially and have a high risk of defaulting or not paying their interest payments or repaying the principal to investors. What Is a Joint Venture (JV) A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. What Is Just-in-Time (JIT) The just-in-time (JIT) inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules. Companies employ this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs. This method requires producers to forecast demand accurately. What Is Just in Case Just in case (JIC) is an inventory strategy in which companies keep large inventories on hand. This type of inventory management strategy aims to minimize the probability that a product will sell out of stock. The company that utilizes this strategy likely has a hard time predicting consumer demand or experiences large surges in demand at unpredictable times. A company practicing this strategy essentially incurs higher inventory holding costs in return for a reduction in the number of sales lost due to sold-out inventory. What Is a Juris Doctor A Juris Doctor degree is the highest law degree in the United States and was originally a replacement to the Bachelor of Laws degree. A Juris Doctor or Juris Doctorate degree represents professional recognition that the holder has a doctoral degree in law. Due to the length of study required in the United States to attain a law degree, the name change reflected its status as a professional degree. What Is a Joint-Stock Company The modern corporation has its origins in the joint-stock company. A joint-stock company is a business owned by its investors, with each investor owning a share based on the amount of stock purchased. What Is Jurisdiction Risk Jurisdiction risk refers to the risk that arises when operating in a foreign jurisdiction. This risk can come by simply doing business or by lending money in another country. In recent times, jurisdiction risk has focused increasingly on banks and financial institutions that are exposed to the volatility that some of the countries where they operate may be high-risk areas for money laundering and terrorism financing. What Is Knowledge Process Outsourcing (KPO) Knowledge process outsourcing (KPO) is the outsourcing of core, information-related business activities. KPO involves outsourcing work to individuals that typically have advanced degrees and expertise in a specialized area. What Is Keynesian Economics Keynesian economics is an economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed by the British economist John Maynard Keynes during the 1930s in an attempt to understand the Great Depression. Keynes advocated for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression. What Is Leverage Leverage results from using borrowed capital as a funding source when investing to expand the firm's asset base and generate returns on risk capital. Leverage is an investment strategy of using borrowed money—specifically, the use of various financial instruments or borrowed capital—to increase the potential return of an investment. Leverage can also refer to the amount of debt a firm uses to finance assets. When one refers to a company, property or investment as "highly leveraged," it means that item has more debt than equity. What Is London InterBank Offered Rate (LIBOR) The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. What Is Ltd. (Limited) Ltd. is a standard abbreviation for "limited," a form of corporate structure available in countries including the U.K., Ireland, and Canada. The term appears as a suffix that follows the company name, indicating that it is a private limited company. In a limited company, shareholders' liability is limited to the capital they originally invested. If such a company becomes insolvent, the shareholders' personal assets remain protected. What Is a Line of Credit (LOC) A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. What Is a Letter of Credit A letter of credit, or "credit letter" is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. It may be offered as a facility. What Is a Letter of Intent (LOI) A letter of intent (LOI) is a document declaring the preliminary commitment of one party to do business with another. The letter outlines the chief terms of a prospective deal. Commonly used in major business transactions, LOIs are similar in content to term sheets. One major difference between the two, though, is that LOIs are presented in letter formats, while term sheets are listicle in nature. What Is Moore's Law Moore's Law refers to Moore's perception that the number of transistors on a microchip doubles every two years, though the cost of computers is halved. Moore's Law states that we can expect the speed and capability of our computers to increase every couple of years, and we will pay less for them. Another tenet of Moore's Law asserts that this growth is exponential. What Is Management by Objectives (MBO) Management by objectives (MBO) is a strategic management model that aims to improve the performance of an organization by clearly defining objectives that are agreed to by both management and employees. According to the theory, having a say in goal setting and action plans encourages participation and commitment among employees, as well as aligning objectives across the organization. What Is a Mutual Fund A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. What is Money Laundering Money laundering is the illegal process of making large amounts of money generated by a criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source. The money from the criminal activity is considered dirty, and the process "launders" it to make it look clean. What is Monopolistic Competition Monopolistic competition characterizes an industry in which many firms offer products or services that are similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic competitive industry are low, and the decisions of anyone firm do not directly affect those of its competitors. Monopolistic competition is closely related to the business strategy of brand differentiation What is Monetary Policy Monetary policy, the demand side of economic policy, refers to the actions undertaken by a nation's central bank to control money supply to achieve macroeconomic goals that promote sustainable economic growth. What is Fiscal Policy Fiscal policy refers to the use of government spending and tax policies to influence economic conditions, especially macroeconomic conditions, including aggregate demand for goods and services, employment, inflation, and economic growth. What Is Fiat Money Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it as is the case for commodity money. Most modern paper currencies are fiat currencies, including the U.S. dollar, the euro, and other major global currencies.

 

(Source: Investopedia)