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banking

The issuing, exchanging, loaning, and custody of money and the extension of credit.

payer

The person who writes a check.

2-for-1 stock split

When each stockholder receives an additional share for each share held, but the value of each share is reduced by half.

3-for-2 stock split

When each stockholder receives an additional share for every two shares held, but the value of each share is reduced by 2/3.

credit card

A card issued by a financial company that allows the holder to borrow funds, primarily used for short-term financing.

debit card

An electronic card issued by a bank that allows clients to withdraw cash or pay for goods and services directly from their bank accounts.

Securities Investor Protection Corporation

Insures investors accounts for up to $500,000 in the event of fraud or bankruptcy.

add-on clause

Provision contained in an installment contract that creates a security interest in earlier goods until full payment is made on new goods.

liquid assets

Assets that are easily convertible to cash, such as those in savings accounts, stocks, and US savings bonds.

renewable term life insurance

Best for short-term life insurance; policies start with low premiums and increase upon renewal while guaranteeing renewal even if the policyholder has a serious illness.

Truth in Lending Act

Federal law that requires lenders to disclose the true costs of credit to borrowers.

escrow

When real estate agents have a bank collect money from buyers to put into the seller's account.

municipal bonds

Bonds issued by local governments, typically offering the lowest interest rates.

balance sheet

A financial statement that summarizes a company's assets and liabilities.

property damage liability

Insurance coverage that pays for damages to the car and possessions of the other party in an accident caused by the insured.

comprehensive physical damage

Insurance coverage that pays for damages to your car caused by natural disasters, theft, and vandalism.

personal injury protection

Insurance coverage that covers medical expenses for the insured and passengers in the insured's vehicle.

price-to-earnings ratio

A ratio used to evaluate a stock's price in relation to the company's profits.

mutual company

An insurance company that returns part of its profits to policyholders.

independent agency

Created by Congress to address concerns beyond ordinary legislation.

passbook accounts

Another term for savings accounts.

credit unions

Depositors are the owners of this type of financial institution.

prime rate

The interest rate charged by banks to their best corporate borrowers.

whole life insurance

A life insurance policy that remains in force for the insured's life, allowing cash values to build up.

teller

An entry-level position at a financial institution.

commercial bank

An institution primarily concerned with accepting deposits and making business loans.

suitability

An important element for financial professionals to recommend products based on the client's situation.

defensive stocks

Stocks that are more volatile than growth stocks and are popular in poor economic conditions.

cashier's check

A check drawn on the bank's own funds, providing assurance of payment.

M1

The narrowest definition of the money supply, including currency and checking account balances.

fractional reserve banking

A banking system in which a portion of deposits are kept in reserve and the rest is lent out.

junk bonds

High-yield, non-investment grade bonds characterized by higher risk.

bond rating

A grade indicating a bond's credit quality, assessed by independent rating services.

D

Indicates bonds that are in default for non-payment.

Fair Credit Reporting Act

A law that protects and regulates the collection and use of consumer credit information.

Fair Debt Collection Practices Act

Prohibits debt collectors from using abusive or unfair practices.

treasury bonds

Marketable U.S. government debt securities with a maturity of more than 10 years.

investment banking

Involves underwriting new security issues and advising on mergers and acquisitions.

underwriter

A party that purchases new issues of securities and resells them to investors for a profit.

IPO

Initial Public Offering; the first sale of a firm's stock to the public.

syndicate

A group of investment banks that jointly underwrite a security issue.

investment institution

A financial firm that raises funds to invest in loans and securities.

mutual fund

A financial intermediary that invests pooled funds into a portfolio of securities.

money market mutual fund

A mutual fund that invests in short-term assets.

hedge fund

Investment firms organized as partnerships of wealthy investors that make high-risk investments.

finance company

Non-bank financial intermediary that makes small loans to households and firms.

contractual saving institution

Financial institutions such as pension funds and insurance companies that receive contract-based payments.

pension fund

A financial intermediary that invests workers' contributions for future retirement benefits.

insurance company

Non-depository intermediary specializing in writing protection contracts for policyholders.

systemic risk

Risk that affects the entire financial system rather than individual firms.

cash flow statement

Financial report disclosing a company's cash inflows and outflows.

income statement

Financial performance measure that shows net profit or loss over a specified period.

Form 10-K

Comprehensive summary report of a company's annual performance submitted to the SEC.

stock company

A corporation whose capital is divided into shares.

joint-stock company

Business entity owned by shareholders.

demand deposit

Account holders can withdraw funds without prior notice.

term deposit

An account that cannot be accessed for a specified time period.

currency swap

Exchange of principal and interest in one currency for the same in another.

long position

Buying a security with the expectation it will rise in value.

short position

Selling a borrowed security expecting it will fall in value.

buying on margin

Using borrowed money to purchase securities.

coinsurance clause

Policy stipulation for insuring a building up to a certain percentage of its value.

acceleration clause

Contract clause that allows lenders to demand loan repayment under certain conditions.

balloon payment

A large final loan payment due at the end of the term.

prepayment clause

Clause allowing for loan principal repayment without penalty under specified conditions.

market capitalization

Total market value of a company's outstanding shares.

depository intermediary

Financial institution that accepts public deposits and pays interest.

financial institution

An establishment that focuses on financial transactions.

gift tax

Tax paid by the giver on a gift of money or property.

front-end load

Sales charge deducted at initial investment for mutual funds.

back-end load

Fee paid when selling mutual fund shares within a specific timeframe.

uninsured/underinsured motorist coverage

Insurance to compensate for inadequate liability insurance of another driver.

title insurance

Insurance protecting against losses from events before policy purchase.

smart cards

Cards with embedded microchips for reusable value storage.

FTSE 100

British stock index equivalent to the Dow Jones Industrial Average.

qualified endorsement

Endorsement that limits the endorser's liability.

payor

The person who makes payments to another.

payable

Indicates an amount owed on a balance sheet.

without recourse

Qualified endorsement limiting liability of the endorser.

check safekeeping

Bank's practice of not returning canceled checks, allowing photocopies if needed.

finance companies

Charge higher interest rates due to borrowers' credit troubles.

common size analysis

Comparison of firms' financial statements in the same industry.

FDIC

Federal Deposit Insurance Corporation; protects depositors against bank failures.

reserve requirement

Percentage of deposits banks must retain and cannot lend.

federal funds rate

Interest rate for short-term loans between member banks.

premium

Amount by which a bond or stock sells above its par value.

no load fund

A mutual fund that does not impose sales or redemption charges.

load fund

A mutual fund that includes a sales charge or commission.

Microsoft and Intel

First two NASDAQ stocks included in the Dow Jones Industrial Average in 1999.

maturity value

Amount received when a security is redeemed at maturity.

par value

Nominal dollar amount assigned to a security by the issuer.

secondary market

Market where securities are purchased from other investors.

guaranteed insurability

Insurance policy requiring renewal for a specified time regardless of health changes.

online/electronic account access

Encouraged by creditors to reduce bad debt collection costs.

common stock

Securities representing ownership in a corporation, most traded on exchanges.

preferred stock

Ownership class with higher claims and dividends before common stockholders.

stock dividend

Dividend paid as additional shares of stock rather than cash.

finance charge

Fee representing the cost of credit or borrowing.

auction market

Market type where buyers enter bids and sellers offer at the same time.

dealer market

Market where dealers buy and sell securities against their inventory.