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Finance

Managing money for an individual, business, or other organization

Pure Risks

Loss or no loss - insurable

Speculative Risks

Profit or loss

Natural risks

Risks relating to the natural environment

Human Risks

Risks caused directly by human actions and behavior

Internal Risks

Operational, financial, strategic risks that originate from within a business - these are under the business’s control

External Risks

Market, regulatory, geopolitical risks that originate from outside a business - beyond the business’s control

Reinvestment Risk

The risk that an investor may not be able to reinvest the proceeds from a matured investment at the same rate of return as the original investment

Risk Transfer

Business transfers risk to an insurance company through an insurance policy

Risk Retention

Business keeps part of the risk instead of transferring it entirely to an insurance company

Environmental Scan

A study of external factors that influence a business’s success - economic indicators and political factors

Internal Analysis

A study of internal factors that influence a business’s success - products, policies, and productivity

SWOT Analysis

Strengths, weaknesses, opportunities, and threats

Strengths

Internal factors that give a business a competitive advantage

Weaknesses

Internal factors that put businesses at a disadvantage

Opportunities

External factors that a business can exploit to its advantage

Threats

External factors that could harm a business

Contingency plan

Alternative course of action to be followed if a specific problem arises

Risk Management

Monitoring the opportunity for loss for a business

Enterprise Risk Management (ERM)

Comprehensive risk managment strategy that involves identifying all the risks that threaten a company, deciding which risks to focus on, and sharing that information with stakeholders

Accounts Payable

Money a company owes - suppliers

Accounts Recievable

Money a company is owed - customers

Solvency

The ability of a business to meet its financial obligations

Aging Accounts

Categorizing and analyzing accounts recievable based on the length of time invoices are outstanding

Delinquent Account

Money owed to a company that is at least 30 days past due

Tax

A fee charged by the government for the services they provide

Tax Law

Area of law that governs taxation

Estate (Death) Tax

A tax paid on wealth collected after a person has died

Marital Deduction

A tax deduction on estate tax due to the dead person’s property passing directly to the surviving spouse

Excise Tax

A tax paid on goods to discourage their consumption and fund public initiatives

Excise Tax Goods

Alcohol, tobacco, gasoline, luxury items

Indirect Tax

Included in the price of a product paid by the consumer

Luxury Tax

A tax paid on high-end non-essential goods and services

Income Tax

Percentage of the taxable income workers earn on the job

Voluntary Compliance

The assumption that taxpayers will comply with tax laws and accurately report their income and tax deductions fairly and honestly

Social Security (FICA)

Tax paid by workers so they may get benefits upon retirement

Sales Tax

Charged to customers as a percentage of the price of the item being purchased

Property Tax

Tax paid based on the value of property such as land and buildings - main source of money for local governments

Gift Tax

Tax paid on the transfer of property or money from one individual to another to prevent individuals from avoiding estate tax by giving away their assets before death

Progressive Tax System

People with higher incomes pay a higher percentage of income in taxes

Regressive Tax System

People with lower incomes pay a lower percentage of income in taxes

Proportional Tax System

Everyone pays the same percentage of income in taxes

Double Tax System

Two different taxes are levied on the same income

Taxation Department

Collects various types of taxes

Tax-Excemption

Money that is not taxed such as charitable donations

Tax-Deferred Income

Income that is earned but not immediately taxed, often related to retirement

Tax-Deductible

Subtract the expense from one’s taxable income

Annuities

Offered by insurance companies that provides a stream of periodic payment to the owner for a specified period in exchange for a lump sum and can offer tax-deferred growth

Insurance

A contract between a business and the insurer that covers a specific risk

Premium

Monthly payment the insured makes to the insurance company for the insurance plan

Deductible

Money the insured is expected to pay in case the insured event occurs

Renters Insurance

Provides coverage for tenants to protect the tenant’s personal property

COBRA Insurance

Short-term group coverage that can be obtained when one is between jobs

Life Insurance

Provides a payout to beneficiaries in the event of the policyholder’s death

Universal Life Insurance

Insured for life and able to grow savings tax-free

Cash Value Component (Life Insurance)

Savings or investment account linked to a universal life insurance policy for tax-deferred growth

Term Life Insurance

Provides coverage for a set period of time and only pays if you are insured at the time of death

Death Benefit

Money paid to the beneficiaries upon the death of the policyholder

Beneficiaries

People named by the policyholder that recieve benefits

Liability Insurance

Provides financial protection including legal defense costs against claims or lawsuits arising from injuries or damages caused to other people or their property

General Liability Insurance

Protects against claims related to bodily injury, property damage, and personal injury

Professional Liability Insurance

Provides financial protection for certain types of professionals to reduce risk of financial loss to the individual and the company if a client sues them

Occurence Policy

Covers incidents that occur during the policy period, regardless of when the claim is filed

Claims-Made Policy

Covers claims filed during the policy period regardless of when the incident occurred - requires continuous coverage for incidents to be covered

Disability Insurance

Pays a percentage of employees’ salaries if they are unable to work for long periods of time due to illness or injury - nontaxable

Long-Term Care Insurance

Needed if you lose your independence due to physical or mental limitations following an accident or illness

Life Settlement

Owner of a life insurance policy sells the policy to a third party for a lump sum cash payment

Cash Surrender Value

The amount of money an insurance policyholder is entitled to recieve if they decide to terminate their life insurance policy before it’s maturity or before death

Lump Sum Cash Payment

A single, large payment made at once as opposed to smaller, periodic payments

Risk Retention Group

A type of insurance company that is owned by its members

Captive Insurance Company

Aids its parent groups by reducing premium expenses, freeing up capital, and covering risks not commonly addressed by the greater insurance company

Securities

Legal owning and lending agreements between two parties

Securities Information

Information provided regarding an investment intrument issued that demonstrates whether it is debt or equity

Invest

Any activity where money is put at risk in the short-term for the purpose of creating a profit in the long-term

Time Value of Money

The increase of an amount of money due to interest earned over time or dividends paid

Maturity Date

The date the principal amount is repaid to the securityholder

Face Value

The amount of money that the issuer promises to repay the holder at maturity

Interest (Coupon) Rate

The amount of interest the debtor pays the creditor periodically

Callable

Can be called back by the issuer before the maturity date

Non-Callable

Cannot be called back by the issuer before the maturity date

Lien

A claim the lender has against an asset of the borrower to secure the repayment of a debt

Secured

Borrower pledges the lender collateral to guarantee that the borrowed money will be repaid

Unsecured (Signature)

Money is borrowed simply by signing a promissory note to repay the borrowed money

Market Price

The actual price that prevails in a market at any particular moment

Capital Gains

The difference between the purchase price and selling price of an investment

Stockturn

The number of times stock is sold in a given period of time

Market Value

The price at which an asset would sell in an auction setting

Dividend

A portion of a company's profits distributed to shareholders

Portfolio Turnover Rate

A percentage that indicates how frequently assets within an investment portfolio are bought or sold over a specific period

Compounding

Earning interest upon interest

The Rule of 72

To estimate the number of years it takes for an investment to double in value, given a fixed annual rate of return - divide 72 by the annual rate of return

Debt Securities

Lending securities

Bonds

Debt security that represents a loan made by an investor to a borrower, typically a government or corporation

Discount Bond

Investor pays less than the face value to purchase the bond

Premium Bond

Investor pays more than the face value to purchase the bond

Savings Bond

Bond issued by a government as a way to raise funds

Yankee Bond

Bond issued in the US by a foreign entity, denominated in US dollars

Eurobond

A bond issued in a currency other than the currency of the country in which is is issued - typically issued in international markets

Notes

Typically has a shorter maturity period, have fixed interest rates paid at regular intervals, can be secured or unsecured, tradeable, callable or non-callable

Treasury Bills (T-Bills)

Short-term debt security issued by a government and doesn’t have periodic interst payments