Glossary of Finance Terms

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FASB #13
The statement of the Financial Accounting Standards Board that details the conditions and procedures for capitalizing leases.
FVAn
The future value of an annuity over n periods.
Fair (Equilibrium) Value
The price at which investors are indifferent between buying or selling a security.
Financial Futures
A contract that is used to hedge against fluctuating interest rates, stock prices, and exchange rates.
Financial Intermediaries
Specialized financial firms that facilitate the transfer of funds from savers to demanders of capital.
Financial Lease
A lease that does not provide for maintenance services, is not cancelable, and is fully amortized over its life; also called a capital lease.
Financial Leverage
The use of debt financing.
Financial Leverage
The extent to which fixed-income securities (debt and preferred stock) are used in a firm's capital structure.
Financial Merger
A merger in which the firms involved will not be operated as a single unit and from which no operating economies are expected.
Financial Risk
An increase in stockholders' risk, over and above the firm's basic business risk, resulting from the use of financial leverage.
Financial Service Corporation
A firm which offers a wide range of financial services, including investment banking, brokerage operations, insurance, and commercial banking.
Fixed Assets Turnover Ratio
The ratio of sales to net fixed assets.
Fixed Charge Coverage Ratio
This ratio extends the TIE ratio to include the firm's annual long-term lease and sinking fund obligations.
Fixed Exchange Rate System
The world monetary system in existence after World War II until 1971, under which the value of the U.S. dollar was tied to gold, and the values of the other currencies were pegged to the U.S. dollar.
Floating Exchange Rates
A system under which exchange rates are not fixed by government policy but are allowed to float up or down in accordance with supply and demand.
Floating Rate Bond
A bond whose interest rate fluctuates with shifts in the general level of interest rates.
Flotation Cost, F
The percentage cost of issuing new common stock.
Foreign Bond
A bond sold by a foreign borrower but denominated in the currency of the country in which it is sold.
Foreign Bonds
Bonds issued by either foreign governments or foreign corporations.
Formula Value
The value of an option calculated at the current stock price minus the strike, or exercise, price.
Forward Contract
A contract under which one party agrees to buy a commodity at a specific price on a specific future date and the other party agrees to make the sale. Physical delivery occurs.
Forward Exchange Rate
An agreed-upon price at which two currencies will be exchanged at some future date.
Founders' Shares
Stock owned by the firms' founders that has sole voting rights but restricted dividends for a specified number of years.
Free Cash Flows
The firm's operating cash flows less mandatory equity investments.
Free Trade Credit
Credit received during the discount period.
Friendly Merger
A merger whose terms are approved by the managements of both companies.
Future Value (FV)
The amount to which a cash flow or series of cash flows will grow over a given period of time when compounded at a given interest rate.
Future Value Interest Factor for an Annuity (FVIFAi,n)
The future value interest factor for an annuity of n periods compounded at i percent.
Future Value Interest Factor for i and n (FVIFi,n)
The future value of $1 left on deposit for n periods at a rate of i percent per period.
Futures Contract
Standardized contracts that are traded on exchanges and are "marked to market" daily, but where physical delivery of the underlying asset is virtually never taken.


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