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Financial Glossary – F


Face Value – represents the value of a tradable asset that is stated by the institution that issues it. Also known as the nominal value.

Factor Portfolio – a diversified portfolio that has a variety of stocks, with different levels of risk exposure (including alterations in interest rates and inflation).

Factors of Production – the elements or building blocks we use to produce economic goods and services. The factors of production are divided into four categories: land, labor, capital and enterprise (entrepreneurship). Subdivisions of a factor may include management, machines, materials and money – known as the 4 Ms. The main article also explains what the primary and secondary factors of production are.

Facism – a way of organizing a country or society, usually with extremely harsh control and ultra-nationalist propaganda. The country is led by a dictator who controls the government and the lives of his or her citizens. Dissent is not tolerated and is dealt with violently. A person who believes in fascism is a fascist.

Fair Trade – a cooperative movement whose aim is to buy and sell products that make sure that the people who produce them receive a fair price, operate in an internationally-accepted work environment, are paid a decent wage, receive training, and improve their standard of living and quality of life. Fair trade also means to make sure that international trade is conducted on a level playing field, without subsidies, taxes and quotas that favor one party or country unfairly.

F-Commerce – which stands for Facebook Commerce, refers to the selling of goods and services within a Facebook page. Social Commerce has a similar meaning, but includes selling within any social media website. F-commerce started off badly, with many retailers shutting down their Facebook shop operations within twelve months. It then took off again, and promises to become a major trading vehicle.

Feasible Portfolio – a pool of investments that can realistically be put together, given all available alternatives, that an investor can buy, according to his or her investment goals, capital resources limits, and tolerance for risk.

Federal Home Loan Mortgage Corporation – a US government corporation that trades in mortgages on financial markets in order to raise money to lend to home buyers. Also known as Freddie Mac.

Federal National Mortgage Association – colloquially known as Fannie Mae, it is a a government-sponsored enterprise (GSE) that buys and guarantees mortgages that comply with its funding criteria. It guarantees mortgage payments, even if borrowers default.

Federal Open Market Committee – known commonly by its abbreviation FOMC, is a 12-member committee within the Federal Reserve System that sets US monetary policy, including the discount rate and Fed funds target.

Federal Reserve System – commonly known as the Federal Reserve (or simply the ‘Fed’). It is the central banking system of the United States of America.

FICO Score – a metric (number) that banks and other lenders use to measure a loan applicant’s creditworthiness. The FICO Score is used by more than ninety-percent of US lenders when deciding whether to lend a consumer money.

Fill or Kill Order (FKO) – an order to buy a considerable amount of stock – the broker is instructed buy straightaway or cancel the order (kill it).

Finance – a set of activities related to the trading of capital assets between multiple entities. Finance is different from economics, which also includes also the production, consumption and distribution of services.

Financial Assets – intangible assets including stocks (shares), bonds and bank deposits. The value of a financial asset is derived from a contractual claim of what it represents. Unlike tangible assets (e.g. real estate), they are not physical.

Financial Center – a financial hub, a district or city where there is a high concentration of financial institutions, and a highly-developed commercial and communications infrastructure. In financial centers, massive volumes of domestic and international trading transactions are performed. London, New York and Tokyo are the three largest financial centers in the world.

Financial Market – a market where traders buy and sell financial securities, foreign exchange, commodities, and other fungible items. Banks, insurance companies, pension funds, and other financial institutions form part of the financial markets.

Financial Ratios – several ratios using data from a company’s financial statement that compare its performance and ability to pay off short- and long-term debts. Also known as accounting ratios.

Firm – a company or any entity that purchases and sells goods or services to consumers in the pursuit of profit. Examples of firms include, limited liability companies, partnerships, public limited companies, and sole proprietorships. Most law, accountancy or consultancy partnerships are known as firms (not companies).

First-mover advantage – also known as FMA, is a term used in marketing strategy where the advantage is gained by the initial significant occupant of a market segment, i.e. the first one to launch a new type of product or service. Also called Technological Leadership. The first-mover can gain rapid and significant market share, huge profits, customer loyalty, brand name recognition, and near-monopoly status. However, not all first-movers succeed, sometimes they fail and the second-movers or late-movers make all the money.

Fiscal Policy – refers to government spending and the collection of taxes. An expansionary fiscal policy is used to kick-start a sluggish economy, while a contractionary fiscal policy is adopted either to slow down the economy or pay off public debt. Governments deal with fiscal policy while central banks focus on monetary policy.

Fiscal Year – also known as a financial year, it is the 12-month-period that an entity uses for calculating and disclosing annual financial statements. The fiscal year may not be the same as the calendar year (Jan 1 to Dec 31).

Fixed Assets – assets that help a company produce things and earn income. Fixed assets cannot be converted into cash easily. Examples include PP&E (property, plant & equipment), vehicles, etc. Also known as fixed capital.

Fixed Costs – costs that do not change according to output or sales volume levels. They are the opposite of variable costs. Examples of fixed costs include rent, utilities and insurance premiums.

Fixed-Rate Mortgage – for a set period, which can be up to thirty years, the monthly payments on the mortgage do not change because the interest rate is ‘fixed’. This type of home loan is popular with households on a tight budget, and for people who like to plan ahead.

Forecasting – a planning tool that managers and directors of companies, economists, investors, and government departments use in their attempt to cope with the uncertainty of the future. Forecasting relies mainly on historical and current data, as well as the analysis of trends. There are several different forecasting methods.

Foreclosure – occurs when a borrower defaults and the lender demands he or she sells an asset (such as a house) in order to pay back a loan.

Forex – also known as the foreign exchange market, it is the international market for trading currencies. The abbreviation for ‘foreign exchange’ is ‘Forex’.

Fractional Reserve Banking – occurs when a bank has reserves that are less than the amount deposited by its customers. It is what makes the money supply grow.

Franchise – an arrangement in which the franchisor (owner of the business) gives the franchisee the right to distribute and sell the franchisor’s goods or service and use their business name and business model. Sometimes the franchisee gets the rights for a geographical area.

Free Market – an economy where the purchasing and selling of goods and services are not under the control of the government. Individuals and businesses can buy and sell freely. Also known as an open market.

Frictional Unemployment – consists of people who are between jobs, they are still going to interviews, and searching for their ideal job. When there is near-full employment, frictional unemployment is higher, because individuals tend to spend longer going to interviews and deciding whether what is offered to them is what they really want. When unemployment is high, frictional unemployment dries up rapidly – people are less fussy and want to get a job as quickly as possible, even if it is not ideal.

Fungible – refers to something that can be exchanged for something else. For example, I can trade a $10 bill for ten $1 bills, two $5 bills, or another $10 bill. Fungible items are goods or commodities that are freely exchangeable for or replaceable by another of exactly the same or very similar nature. Pure gold is fungible – one bar of gold is interchangeable with another identical bar or 2 bars of half the weight. Fungible is an adjective – the noun is fungibility.

Futures Contract – a contract to exchange a specified security (of a specific quantity) for a price that is determined on the day the contract is created for delivery and payment on a future date. Futures contracts are appealing for those seeking price stability.