The Ultimate Financial Terms Glossary
Money is an intimidating subject. It’s complicated, personal, and one of the most important issues an adult will ever have to deal with. And we have to deal with it every day. In many cases, one’s quality of life is directly associated with money - its acquisition, use, investment, and how to manage the results of all that activity. A good working knowledge of the terms that lead to financial prosperity is a wise investment, too.
Annuity - a type of investment, usually involving insurance, that provides annual payments to the investor once the annuity matures.
Asset - something of value, owned or controlled by an individual or company; can be money, property, real estate, stock ownership, or many other items on which a dollar value can be assessed.
Bankruptcy - the state of being without value, determined by comparing one’s assets against financial obligations or responsibilities; owing more than one has the means to pay.
Bear market - a market environment in which share prices are falling, indicating an opportune time to sell.
Bond - a form of insurance that protects a company or government entity against loss from situations that include, but are not limited to, bankruptcy.
Bull market - a market environment in which share prices are rising, signaling a good time for buying.
Capital - money and similar assets that are available for investing or for sustaining or expanding a business; also, money or other financial property used to produce more wealth.
Co payment - payment owed by an individual who is in partnership with an entity that is responsible for the remaining balance due on the same debt; co-payments are commonly paid by the patient when medical care involving health care insurance is administered.
Credit - the ability to obtain goods or services on trust, before payment for them has been made and based on the understanding that payment will happen at a later date.
Debit - a reduction of assets (payment) made or scheduled to be made to meet a financial obligation; debits are the opposite of credits.
Dividend - a certificate of money that entitles the holder to claim its cash value; also, new shares issued to, but not purchased by share- or account-holders.
Dow theory - a six-point theory incorporating various factors that influence stock market prices; formulated by Charles H. Dow (1851-1902), founder/editor of the Wall Street Journal and co-founder of Dow Jones and Company.
Equity - the difference between the market value of a home or other real property and the debt or mortgage that is owed on the property; also, the value of shares held or other capital investment in ownership of a business, as in owning a 30% share of a business.
Exchange rate - the value of one nation’s currency compared against the value of another nation’s currency; used to assess the buying power of one unit of currency against one unit of currency from other nations.
Fannie Mae - Federal National Mortgage Association (FNMA), one of the largest mortgage trading associations in the United States (US); Fannie Mae was originally owned by the federal government but is now a privately owned corporation.
Freddie Mac - Federal Home Loan Mortgage Corporation (FHLMC) buys mortgages in the US from lenders that include commercial and mortgage banks, credit unions, and savings institutions.
Go public - describes the process of a privately owned company selling shares of ownership stock on the open market (going to the public), often to support expansion efforts; such shares are sold in an initial public stock offering (IPO).
Hardship withdrawal - the contractual allowance for ending a financial arrangement or selling one’s investment share of a limited-term investment, with little or no assessment of penalty for early withdrawal, before the term limit has been reached; a hardship withdrawal is allowed only when the investor can prove financial devastation that makes continuing the relationship impossible, such as in the case of death, loss of employment, and several other events, all of which must be defined in the terms of the original contract to avoid penalty.
High-yield bond - an investment that carries the potential for a very high rate of return on investment but does so under risky circumstances, which include the loss of all or almost all of the monies invested; see junk bond.
Interest rate - the percentage point a borrower must pay to a lender to cover the cost of the lender’s financing and servicing of a loan.
Junk bond - very risky securities investment that comes with the possibility of an exceptionally high rate of return on the investment but also carries the threat of complete or extreme loss of value; often issued because a company is needing quick money to finance a take-over maneuver.
Liquid asset - any asset that can be quickly converted to cash; gold and stock shares are liquid assets but real estate is not.
Market - the stock market, where shares are typically sold or bought; also, the economy in general, operating under a system of supply and demand.
Merger - occurs when two businesses combine, or merge, their operations into one company.
Mutual fund - a professionally managed investment program that receives money from shareholders to in a relatively safe, diversified field of holdings.
NASDAQ - National Association of Securities Dealers Automated Quotations, a computerized system that analyzes the securities trade on a continuous basis.
National debt - the sum of all monies a government borrows from all sources.
Net worth - the value of an individual or business investment portfolio after deducting the liabilities from the assets.
Open market - competitive market that allows buyers and sellers to trade without restriction.
Portfolio - the full range of investments held by an investor.
Profit margin - the monetary difference between a product’s selling price and the cost it takes to produce or secure that product.
Refinance - a method of changing the terms of a loan; usually done to secure a lower interest rate.
Sallie Mae - Student Loan Marketing Association (SLMA), publicly-traded US corporation that secures and services educational loans to college students.
Share - one of many equal increments of ownership in a company; each share entitles the shareholder to a proportional share of ownership in the business.
Stock - capital raised from the sale of ownership shares in a business; also used to describe the shareholder’s investment.
Trader - a person licensed to buy and sell stocks, currency, and other goods on the behalf of others.
Trust - a company or organization overseen by a board of trustees, such as the National Trust for Historic Preservation.
Vesting - the degree of entitlement an employee earns by contributing to a company pension fund; vested value usually increases annually until the pension is said to be fully vested, implying the employee has earned access to 100% of his pension fund’s value.
Will - a legal document that describes how an individual would like his assets to be distributed or dispensed with upon his death.
Yield - the value generated from a financial transaction or investment.
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