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Terms Beginning With F - O
F.O.B. ("Free on Board")
Term used in conjunction with the terms factory, shipping point, or destination to indicate the point in the delivery of merchandise at which the purchaser begins to bear freight costs.
Face Lift
Changes other than structural that result in an improved appearance of a building. Such things as repairs, paint, new windows, and general cleaning all serve to improve the appearance of a building and, thus, give it a face lift.
Face Rate of Interest
The stated interest rate in a promissory note. Also known as the contract rate or nominal rate, the face rate of interest will be less than the annual percentage rate (APR) if additional charges such as origination fees and discount points are charged by the lender.
Face Value
The value of a debt such as a mortgage as stated in the instrument itself if current interest rates are greater than the contract rate of interest, the market value of the debt instrument will be less than the face value since the instrument would have to be discounted to generate the market rate of interest. Conversely, if the contract rate of interest is greater than current market rates, the instrument, if sold, will sell for a premium and, thus, its market value will be greater than its face value.
Face Value
(1) The amount of money printed on the face of the certificate of a security; the original dollar amount of indebtedness incurred. (2) The same as par value, the principal of a security, insurance policy, or unit of currency; the amount of money received by the holder of a security upon maturity and redemption. Face value is ordinarily the amount the issuing company promises to pay at maturity. Face value is not an indication of market value. Typically, the face value and the market value will be different, the difference representing the premium (market value higher) or discount (market value lower).
Factor
Any number or symbol that when multiplied by another forms a product; the reciprocal of a rate.
Factoring
A method of financing accounts receivable under which a firm sells its accounts receivable (generally without recourse) to a financial institution (the "factor").
Factors of Production
(1) Anything used as an input in the production process. In economics, usually grouped as land, labor, capital, and (sometimes) the entrepreneur or management. (2) An economic principle which refers to the inputs necessary to create goods or services. There are four factors of production: (a) capital, (b) labor, (c) entrepreneurship or management, and (d) land. Each factor must be compensated in order for the owner(s) to be induced to part with the factor. For example, capital is paid interest, labor is paid wages, entrepreneurship is paid profits and land is paid rent. Since land is the only immobile factor of production, it must attract the other three factors of production. As a result, land receives its payment only after the other factors have been compensated. This means that real estate is residual. Thus, the value of real estate is dependent upon how much compensation is left after the other three factors have been rewarded.
Factory Overhead
All manufacturing costs not considered direct materials or direct labor, including indirect materials, direct labor, and factory depreciation, taxes, and insurance.
Fair Credit Reporting Act
A federal act which became effective April 1, 1971, and attempts to regulate the actions of credit bureaus that give out erroneous information regarding consumers. First, banks and credit companies must make a customer's credit file available to the person in question. Further, the consumer, upon examining the file, has the right to correct any errors that may appear in the credit reports. Secondly, if a creditor denies a loan to an applicant, the applicant must be given the name and address of the credit bureau that supplied the credit information to the creditor. Upon request the credit bureau must supply the consumer with the pertinent information contained in the applicant's credit file. Finally, the act limits the access of the consumer's credit records to people who: (a) evaluate an applicant for insurance, credit or employment, (b) secure the consumer's permission, or (c) secure court permission.
Fair Employment Practice Acts
Statutes designed to eliminate discrimination in employment in terms of race, religion, natural origin, or sex.
Fair Gamble
A gamble with an expected monetary value of zero, any expectation of gain being exactly offset by an expectation of loss.
Fair Housing Amendment Act of 1988
A federal act which amended the Federal Fair Housing Act of 1968 to include two new protected classes, the handicapped and the "familial" status, or those with children under eighteen. The amendment became effective March 12, 1989.
Fair Insurance
An insurance with an expected monetary value of zero, any expectation of gain being exactly offset by an expectation of loss.
Fair Labor Standards Acts
Statutes, particularly the federal statute designed to prevent excessive hours of employment and low pay, the employment of young children, and other unsound practices.
Fair Market Value
(1) The price effecting exchange in the marketplace by willing buyers and sellers, each acting freely and possessing all relevant information on market opportunities and alternative buying and selling opportunities. (2) An economic concept denoting the price, in terms of money, at which a willing seller and willing buyer will agree when both parties are acting prudently, knowledgeably, and under no compulsion.
Fair Trade Acts
Statutes that authorize the making of resale price maintenance agreements as to trademark and brand name articles, and generally provide that all persons in the industry are bound by such an agreement whether they have signed it or not.
Fair Value
The fair value of a security is essentially synonymous with its market value. It is the price at which an asset or service passes from a willing seller to a willing buyer.
Fair Value Pricing
A mutual funds valuation policy, generally sanctioned by the Securities and Exchange Commission (SEC), in which mutual fund companies determine the value their fund based on factors influencing stock prices other than closing share prices, for example, the trading of futures tied to the securities in the portfolio. The procedure is intended to benefit long-term investors from speculation and short-term market distortions.
Fair-Trade Laws
Laws allowing manufacturers to fix minimum prices for their products and, if a single retailer agrees to it, to bind all retailers to it.
Family of Funds
A number of different mutual funds, each with its own investment objective, generally managed and distributed by the same company. Shareholders in one fund can normally exchange shares for those of another fund within the family.
Fannie Mae
The acronym for the Federal National Mortgage Association (FNMA), which buys mortgages on the secondary market, repackages them and sells off pieces to investors. The effect is to infuse the mortgage markets with fresh money.
Farm Mortgage
A loan secured by agricultural real estate. Such loans are normally used by farmers to raise capital for the purchase and operation of their farms.
Farmer's Home Administration (FMHA)
An agency of the U. S. Department of Agriculture that provides credit to farmers, rural residences, and certain communities. Currently, FMHA administers two loan programs for rural housing: (a) a direct loan program, and (b) a guaranteed loan program. Properties securing such loans may not be located in urban areas and, like FHA and VA, FMHA requires that the property meet certain minimum requirements. Although there is no statutory loan limit for such loans, the property must appraise for the contract sales price. Information on both loan programs is available from any office of the Farmer's Home Administration.
Farmland
A classification of land which denotes land primarily used for the raising of crops and or livestock.
FASA Fellow, American Society of Appraisers
A professional designation awarded by the American Society of Appraisers to individuals involved in the appraisal of both real and personal property.
FASB
The Financial Accounting Standards Board of the American Institute of CPAs, a nongovernmental group organized in 1973 to replace the Accounting Principles Board and to promulgate authoritative rules for the general practice of financial accounting.
FDIC
Federal Deposit Insurance Corporation, the federal agency that insures deposits of up to $100,000 in member banks.
Feasibility
The reasonable likelihood of satisfying certain investment objectives within the context of the market, finances, and other resources or constraints.
Feasibility Study
A detailed analysis of a real estate project to determine the most profitable use and the likelihood of the proposed use being a financial success. The study is often used by the promoter or developer to inure would-be investors to participate in the venture and to assist lenders in making their decision whether or not to loan the necessary funds.
Featherbedding
(1) Labor practices which try to induce the employer to hire more labor than is needed to do the job. (2) Labor-union practices that force employers to continue paying workers who are not really needed because their work is being done, or could be done, by fewer workers or by machines.
Federal Advisory Council (Federal Reserve System)
An advisory group consisting of one member elected from each of the 12 Federal Reserve Districts who, as a group, meet with the Federal Reserve Board of Governors at least four times each year to make recommendations on business and financial matters.
Federal Agency Security
Also referred to merely as agencies, a debt instrument issued by an agency of the federal government. While strictly not a debt obligation of the federal government, these are considered to carry the full faith and backing similar to U.S. Treasury bills, notes, and bonds and therefore typically carry the highest debt ratings.
Federal Debt
The total amount of government bonds and other securities which have been sold by the United States government to private individuals and businesses and to the Federal Reserve banks.
Federal Debt Limit
The limit imposed by law as to the maximum allowed total face amount of outstanding obligations issued or guaranteed as to principal and interest by the federal government. Guaranteed debt obligations held by the Secretary of the Treasury are excluded.
Federal Deposit Insurance Corporation (FDIC)
(1) An agency of the U.S. government responsible for managing the bank insurance funds insuring deposits at commercial banks and other qualifying financial institutions up to $100,000 per account in interest and principal. FDIC insurance is mandatory for all nationally-chartered banks and all banks which are members of the Federal Reserve System (Fed). The five-member board of directs of the FDIC consists of the chairman of the FDIC, the Comptroller of the Currency, the director of the Office of Thrift Supervision, and two members appointed by the President and confirmed by the Senate. (2) An independent agency functioning within the executive branch of the U.S. Government. FDIC was established following the run on banks that occurred prior to the Great Depression and its purpose was to insure the deposits of all banks who hold FDIC membership. As a result of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, FDIC currently insures both bank and thrift deposits. Thrift deposits are insured through the Savings Association Insurance Fund (SAIF), while commercial bank deposits are covered through the Bank Insurance Fund (BIF). The FDIC insures deposits up to a statutory limit for both banks and thrifts.
Federal Fair Housing Act of 1968
A federal fair housing law which was passed as Title VIII of the Civil Rights Act of 1968. As originally passed, the act prohibited discrimination in the sale or rental of residential dwelling units or vacant land intended to be used as such on the basis of race, color, religion, or national origin. Discrimination on the basis of sex was prohibited by an amendment in the Housing and Community Development Act of 1974. The Fair Housing Amendment Act of l988, which became effective March l3, 1989, added two new protected classes, the handicapped and the "familial" status, or those with children under eighteen.
Federal Financial Assistance
For purposes of applying the provisions of the Single Audit Act of 1984 and Office of Management and Budget (OMB) Circular A-128, audits of state and local governments, assistance provided by a federal agency in the form of grants, contracts, loans, loan guarantees, property, cooperative agreements, interest subsidies, insurance, or direct appropriations. Federal financial assistance does not include direct federal cash assistance to individuals.
Federal Funds
Also referred to simply as Fed funds, short-term, unsecured loans between member banks of the Federal Reserve System (Fed) used to simultaneously satisfy banks' needs to invest excess reserves and secure additional short-term funding. Technically, fed funds are not borrowings but represent the purchase of bank reserves through the Fed. Most dealings in fed funds are overnight; however, longer arrangements are also supported under this mechanism.
Federal Funds Market
The market in which financial institutions with deficient reserves may borrow reserves from other financial institutions or from nonfinancial corporations. The reserves are typically in the form of deposits at the Federal Reserve System.
Federal Funds Rate
The rate charged on interbank, short-term (typically overnight) purchases of excess reserves (federal funds). The fed funds rate also represents a key rate for monetary policy and is most often used by the Federal Reserve System (Fed) and the Federal Open Market Committee (FOMC) as the target rate for monetary policy actions. In this respect, the fed funds rate represents a key lending rate in the financial system and a rate of interest upon which other rates are based. By "controlling" this interest rate through extensive sales and purchases of government securities (e.g., Treasury bills, notes, and bonds), termed open market operations, this rate can be "managed" and thereby serves to control, within limits, other short-term and long-term interest rates throughout the financial markets.
Federal Home Loan Bank (FHLB)
One of eleven regional banks supervised by the Federal Home Loan Bank Board and supervising the activities of savings and loan associations.
Federal Home Loan Bank Board (FHLBB)
A board established by the Federal Home Loan Bank Act of 1932 which chartered and regulated federal savings and loan associations. The purpose of the board in regard to savings and loans was much the same as that of the Federal Reserve System in regard to commercial banks. As part of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Office of Thrift Supervision (OTS) was established to replace the Federal Home Loan Bank Board for the purpose of chartering, regulating and supervising thrift institutions.
Federal Home Loan Mortgage Corporation (FHLMC)
(1) Commonly referred to as Freddie Mac, the FHLMC represents a facilitator and conduit for the marketing of residential mortgages by purchasing mortgages from loan originators and then issuing its own mortgage-backed bonds to private investors, typically institutional investors such as bank trust funds, insurance companies, pension funds, and thrift institutions. The FHLMC's participation certificates are collateralized by the underlying pool of mortgage loans, with payment of interest and principal guaranteed by the FHLMC. (2) An affiliate of the Federal Home Loan Bank which creates a secondary money market in conventional residential loans and in FHA and VA loans by purchasing mortgage loans from members of the Federal Reserve System and the Federal Home Loan Bank Systems. (3) In 1970 under the Emergency Home Finance Act, the Federal Home Loan Mortgage Corporation (FHLMC) or "Freddie Mac" was created as a wholly-owned subsidiary of the Federal Home Loan Bank System. Freddie Mac was established as a secondary mortgage market for savings and loan associations who are members of the FHLBS. The creation of FHLMC was of added importance since S&L's make such a high percentage of the total conventional residential mortgages and many these lenders would like to roll over their mortgages. While Fannie Mae deals heavily in FHA and VA mortgages, the majority of mortgages in Freddie Mac's portfolio are conventional. In recent years, this agency has referred to itself as "The Mortgage Corporation".
Federal Housing Administration (FHA)
(1) A program set up in the 1930 to attempt to aid individuals in obtaining home mortgages. The FHA subsidized mortgages by offering lower than market interest rates. (2) A federal agency, part of the Department of Housing and Urban Development (HUD), that insures residential mortgages, thereby assisting home buyers who are not able to obtain financing from conventional mortgage lenders. (3) A federal agency established as part of the 1934 National Housing Act that insures mortgages made by FHA-approved lenders on real estate that meets FHA minimum standards. The establishment of the 1934 Housing Act immediately resulted in more construction jobs for the unemployed. This, in turn, helped to stimulate the depressed economy. In order to provide the means by which these new homes could be purchased, FHA established an insurance program to safeguard the lender against the risk of nonpayment of people purchasing these homes. The result was that the majority of homes financed were FHA insured. Even though the percentage of homes insured under FHA coverage has continued to decrease, the standards and requirements under FHA programs have been credited with influencing lending policies and techniques in financing residential real estate.
Federal Housing Administration (FHA) Mortgage
A mortgage written under the terms of the National Housing Act and insured by the Federal Housing Administration (FHA).
Federal Land Banks
Regional banks established as part of the Farm Credit Administration which are a source of long-term mortgages to farmers. The Federal Land Banks make first mortgages though local federal land bank associations to farmers, ranchers, rural residents, and farm-related businesses. A majority of the funds used to make these loans come from the selling of securities by the Federal Land Banks to investors. Each of the banks is known as "the Federal Land Bank of " and is located in the following twelve cities: Baltimore, Maryland 21203; Berkeley, California 94701; Columbia, South Carolina 24202; Houston, Texas 77001; Louisville, Kentucky 40201; New Orleans, Louisiana 70150; Omaha, Nebraska 68101; Springfield, Massachusetts 01101; Spokane, Washington 99204; St. Louis, Missouri 63166; St. Paul, Minnesota 55101; and Wichita, Kansas 67202.
Federal National Mortgage Association (FNMA)
(1) Also referred to as Fannie Mae, FNMA is a federally chartered, stockholder owned corporation that purchases residential mortgages insured or guaranteed by federal agencies, as well as conventional mortgages, in the secondary market. Funding for such purchases is obtained from fees, stock sales, and the sale of securities. Created in 1938 by Congress as part of the "New Deal," it holds a federal charter and an implicit suggestion that the government would bail it out if it could not meet its debt obligations, thereby tending to reduce funding costs. FNMA could be considered as a large and highly successful corporation with 1997 revenues reaching $27 billion, profits at $3 billion, and a workforce of 3,500 employees. (2) FNMA is the largest and best known buyer of existing mortgages. The Federal National Mortgage Association was originally organized by the federal government in 1938 to purchase FHA-insured mortgages. The association was reorganized in 1968 as a quasi-private corporation whose entire ownership is private. Fannie Mae raises capital by issuing corporate stock which is actively traded on the New York Stock Exchange and by selling mortgages out of its portfolio to various investors.
Federal Open Market Committee (FOMC)
(1) The decision-making body of the Federal Reserve System ("Fed"). Consists of twelve members, seven of which are the Federal Reserve Board of Governors, one is the president of the Federal Reserve Bank of New York, and four others are elected on a rotating basis from the remaining eleven Federal Reserve (District) Banks. The other seven Federal Reserve Bank Presidents sit as non-voting members of the FOMC. (2) The policy making arm of the Federal Reserve System. The FOMC directs open market operations, i.e., the buying and selling of U.S. Government securities in order to control the U.S. money supply. The FOMC also directs operations in foreign exchange markets.
Federal Open Market Operations
The primary tool in the conduct of monetary policy by the Federal Reserve Board of Governors and the Federal Open Market Committee (FOMC). Open market operations consists of the buying and selling of U.S. Government securities, (U.S. Treasure bills, notes and bonds) with the intent to change the overall level of bank reserves and liquidity in the financial system and affect interest rates. When the Fed buys securities it increases bank reserves which results in additional bank liquidity, lower interest rates, increased lending activity and greater economic activity. This condition is termed easy monetary policy. When the Fed sells securities it decreases bank reserves, constricts liquidity, forces interest rates up and decreases loans and economic activity. This condition is termed tight monetary policy. Also referred to as open market operations.
Federal Reserve (District) Bank
One of twelve regional banks, one for each of the twelve Federal Reserve Districts, making up part of the Federal Reserve System. Each Federal Reserve Bank has a president, operations and research staff, and a board of directors make up of nine members generally representing the region served. The twelve Federal Reserve Districts and the location of their Federal Reserve Banks are listed below:
• District 1 – Boston, Massachusetts
• District 2 – New York, New York
• District 3 – Philadelphia, Pennsylvania
• District 4 – Cleveland, Ohio
• District 5 – Richmond, Virginia
• District 6 – Atlanta, Georgia
• District 7 – Chicago, Illinois
• District 8 – St. Louis, Missouri
• District 9 – Minneapolis, Minnesota
• District 10 – Kansas City, Missouri
• District 11 – Dallas, Texas
• District 12 – San Francisco, California
Federal Reserve Board (FRB) of Governors
The seven-member governing board of the Federal Reserve System (Fed) whose members, appointed by the President and confirmed by the Senate, serve 14-year terms with appointments coming in two-year intervals. The board supervises the activities of the Fed and, as the majority of the Federal Open Market Committee (FOMC), is principally responsible for the conduct of monetary policy.
Federal Reserve Notes
The paper money which makes up most of the currency in the United States.
Federal Reserve System (FRS or more commonly "Fed")
The central banking system for the United States, the "Fed" was established by the Federal Reserve Act of 1913 and serves as the nation's central bank, issuing the nation's currency, conducting monetary policy through the regulation of the money supply and the cost of credit, facilitating the clearing of checks, providing short-term credit to member banks through the discount mechanism (discount rate), regulating bank operations, approving interstate bank mergers, supervising bank holding companies, and providing oversight to international banking operations. Its component parts include a 7-member Federal Reserve Board of Governors, 12 Federal Reserve Districts each with a Federal Reserve Bank (and 24 branch offices), the decision-making Federal Open Market Committee (FOMC) consisting of the seven Fed Board Governors and five Federal Reserve District Bank presidents elected on a rotating basis (as an exception, the president of the New York Federal Reserve Bank is a permanent member), Federal Advisory Council consisting of an elected member from each Federal Reserve District which, as a group, provides recommendations to the Board of Governors on business and financial matters, Federal Reserve staff members and researchers, and member banks owning stock in one of the 12 Federal Reserve Banks. The 7-member Board of Governors are appointed by the President of the United States, with Senate confirmation, for 14-year terms in staggered 2-year intervals (meaning that during the maximum 8 years in office, no President could appoint a majority (four) of the board, assuming all retained their office for the full term).
Federal Revenue Stamp
A U. S. revenue stamp which until January 1, 1968, was required to be placed on deeds prior to recordation. The rate was $0.55 per $500 of consideration, and proof that the stamps had been purchased was evidenced by the actual placement of the stamps on the instrument being recorded. Since the end of this requirement in 1968, some states have passed their own requirements for revenue stamps.
Federal Savings and Loan Insurance Corporation (FSLIC)
(1) A federal institution that insures deposits of federally chartered savings and loan associations. (2) A corporation established in 1934 as an agency of the federal government which insured the deposits of member savings and loan associations. Federally chartered S&L's had to maintain membership and state chartered associations could be members. As part of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, thrift deposits are now insured through the Savings Association Insurance Fund (SAIF) which is operated by the Federal Deposit Insurance Corporation (FDIC).
Federal Tax Lien
(1) A lien attached to property for nonpayment of a federal tax. (2) A federal lien which attaches to the real property of a person when that taxpayer has violated either federal estate tax laws or federal income tax laws. When a person dies his or her estate is subject to a federal estate tax. This tax causes a lien to attach on all real and personal property in the estate for a statutory period of ten years or until the tax is paid. If a person fails to pay federal income taxes, government may issue a tax warrant which, when recorded in the federal tax do in the county records, attaches a federal tax lien.
Federal Tax Return
The U.S. government's method to identify individual and company's annual tax responsibility. The tax returns identify the income and taxes.
Federal Trade Commission (FTC)
An agency of the federal government created in 1914 that has as its function the promotion of free and fair competition in interstate commerce the prevention of unfair and deceptive trade practices. In addition, FTC enforces the Fair Credit Reporting Act and those parts of the Truth-in-Lending Act for real estate brokers.
Federal Unemployment Taxes (FUTA)
A federal tax levied against employers to help finance administration of the various unemployment compensation programs operated by the states.
Fee Appraiser
A person who charges a fee for rendering his or her opinion as to the value a parcel of real estate. It is unethical for appraisers to charge a percentage of the derived value estimate as their compensation.
Fee Simple
(1) The absolute total interest in real property. (2) Highest possible degree of ownership of land. The estate allows owners to have unrestricted powers to dispose of property, and which can be left by will or inherited. (3) The largest quantum of ownership recognized by law; also referred to as fee simple absolute or fee. The owner of the fee simple has unlimited power to dispose of the interests during his or her lifetime and upon death the property is automatically passed on to the owner's heirs and devisees either by will or by descent. Ownership in this country is ordinarily in the fee simple form. The only restrictions on use are those restrictions defined by the law of nuisance or those necessarily imposed by law in order to protect the interests of society. A fee simple owner may convey lesser estates, sell easements, mortgage the property or do whatever else he or she wishes with the property so long as others are not harmed by the improper use of the property. The fee simple absolute is created by using the words "to (name) and his heirs and assigns forever." Compare to life estate, reversion.
Fee Simple Determinable
A qualified fee simple estate created to exist only until the occurrence or nonoccurrence of a particular event. The words, "so long as" are ordinarily used to create the estate.
Fee Simple Subject to a Condition Subsequent
A qualified fee estate which is subject to a power in the original grantor or the grantor's heirs to terminate the estate upon the happening of an event. The termination is not automatic, since the party with the future interest called the right of reentry or power of termination must take steps to either enter upon the property or to bring a court action to recover the land.
Fee Simple Subject to an Executory Limitation
A qualified fee simple estate which will automatically pass on to a third person upon the occurrence or nonoccurrence of a stated event.
Fee Tail
An estate in land which was designed to restrict the conveyance of title to the descendants of the grantee. This estate is established by a grant whereby the following words of conveyance are used, "to 'X' and the heirs of his body." Effectively the fee tail has created a long series of successive life estates. This estate was originally intended to promote the landlord aristocracy in England by keeping property in family.
Feedback Effect
The effect of secondary changes in other markets on the market in which an initial change in supply or demand occurred.
Fertility-Opportunity Hypothesis
A population fertility theory, in contrast to the more universally accepted demographic transition theory, that hypothesizes that parents have a biological urge to have large families and that they will see them, resources permitting. People who perceive expanding economic opportunity raise their family size target and desire and seek more children. Therefore, contrary to the demographic transition theory, rising living standards in many underdeveloped nations might cause population to grow faster, not slower, than predicted according to tradition population growth theories.
Feudal System
A system of land ownership established in England after the Norman of 1066, in which all property theoretically resided in the king. In return for service or other duties the king would give a feud or fief, i.e., property, both real and personal, to a lord.
FHA
See Federal Housing Administration (FHA).
FHA Insurance
An insurance fee charged the borrower on all FHA mortgages. The insurance payment is retained by FHA for use in buying any mortgage in default that is held by a lender.
Fiat Money
Paper money issued by governments or central banks which is not backed by or convertible into anything, but is money because the government declares it to be legal tender.
FICA
Federal Insurance Contribution Act under which the income of an individual is taxed to support a national social security program providing retirement income, medical care, and death benefits. Employers pay a matching amount of tax on their eligible employees.
Fidelity Bond
A written promise to indemnify against losses from theft, defalcation, and misappropriation of public funds by government officers and employees. Also see surety bond.
Fiduciary
(1) One who acts for another in financial matters. (2) A person in a position of trust or responsibility with specific duties to act in the best interest of a client. (3) A person who essentially holds the character of a trustee. Real estate brokers and salespersons are considered by law to be fiduciaries, thus they have a duty to act primarily for the principal's (the person who employed them) benefit and not their own. A fiduciary must act with the highest degree of care and good faith in relations with the principal and on the principal's business. The penalties for failing in fiduciary duties may be quite severe. Real estate brokers and mortgage brokers are fiduciaries.
Fiduciary Relationship
A relationship of trust and confidence between principal and agent; lawyer and client; doctor and patient; etc.
Fief
An interest in land given under a feudal system. The term "fee," as used to denote the extent of one's interest in land, is derived from the term fief.
Field Warehousing
A method of financing inventories in which a "warehouse" is established at the place of business of the borrowing firm.
FIFO
(First-In, First-Out) Inventory Pricing A valuation method that assumes that the oldest (earliest purchased) goods on hand are sold first, resulting in an ending inventory priced at the most recent acquisition prices.
Filtering Down Process
The means by which housing once occupied by middle- and upper-income groups becomes available to lower- income families. Normally the property has physically deteriorated and thus is less expensive than when originally occupied.
Final Goods
Goods produced by domestic producers during a period and not used up by the same or other domestic producers during the same period in the making of other goods.
Final Value Estimate
The estimate of value reached after the appraiser has analyzed the data, reconciled the value indications provided by the application of the various approaches to value, and made a final judgment.
Finance Charges
The total of all costs paid to the lender by the borrower directly or indirectly as an incident to the extension of credit. The Truth-in-Lending Act requires that consumers be told of the following charges: interest, finder and origination fees, discount points, service charges, credit report fees, and other such charges.
Financial Accounting
Those accounting activities leading primarily to publishable, general purpose financial statements such as the income statement, statement of financial position, and statement of changes in financial position.
Financial Accounting Standards Board (FASB)
An independent self-regulating organization which is the primary source of accounting rules followed by certified public accountants (CPAs) and auditors. The purpose of the FASB is to develop generally accepted accounted principles (GAAP) intended to establish uniformity in financial reporting and statements.
Financial Advisor
In the context of bond issuances, a consultant who advises the issuer on any of a variety of matters related to the issuance. The financial advisor sometimes also is referred to as the fiscal consultant.
Financial Analysis Auditing Compliance Tracking System
The National Futures Association's computerized system of maintaining financial records of its member firms and monitoring their financial conditions.
Financial Capital
Claims (such as money, stocks, deeds, or bonds) against real resources.
Financial Depositor
Institutions Banks, savings and loans or credit unions.
Financial Feasibility
The likelihood that a proposed project will attain a cash flow of s quantity, quality, and duration to allow investors to recover the capital invested and achieve the necessary and expected rate of return. Factors to be considered timing of inflows and outflows of cash, revenues, costs, debt service, and the of a sale or re-financing.
Financial Future
A contract traded in commodities markets. Each specifies a future date of delivery or receipt of a certain amount of a specific financial instrument, such as U.S. Treasury bonds, CDs and other interest-sensitive issues.
Financial Institution
(1) Establishments that handle monetary affairs, including insurance companies, commercial banks, savings and loans, leasing companies, and institutional investors. (2) A government agency or private business whose primary business it is to collect funds from the public through a variety of accounts and savings certificates and invest those funds in financial assets such as securities, consumer loans, and mortgage lending. Commercial banks represent the most prominent and numerous form of financial institution in the U.S. today. (3) An organization that attracts funds through some type of deposit mechanism lends those funds to individuals or corporations in order to make an acceptable return. The major financial institutions involved in financing real estate are savings and loan associations, commercial banks, mutual savings banks, life insurance companies, credit unions, finance companies, and pension funds. Also see financial intermediary.
Financial Institutions Reform, Recovery, and Enforcement
Federal legislation enacted in 1989 that changed the regulatory framework of financial institutions in the United States. Commonly referred to as the "savings and loan bailout bill," FIRREA was a direct result of the insolvency problems facing many savings and loan associations during the middle and late 1980s. Included in the act was the creation of the Savings Association Insurance Fund (SAIF), which insures thrift deposits, and the Bank Insurance Fund (BIF) which insures commercial bank deposits. Both funds are administered by the Federal Deposit Insurance Corporation (FDIC). FIRREA also established the Resolution Trust Corporation (RTC), an agency created to manage the assets and liabilities of savings and loan associations that became insolvent both before and after the enactment of the act.
Financial Instrument
There are two basic types: (1) a debt instrument, which is a loan with an agreement to pay back funds with interest; and (2) an equity security, which is share or stock in a company.
Financial Intermediary
(1) A financial institution such as a commercial bank which "intermediates" or serves as a go-between or "middleman" for surplus units (i.e., current savings exceeds spending) and deficit units (i.e., current spending exceeds savings), thereby facilitating the flow of funds through the economy for productive purposes. As such, financial intermediaries provide valuable services by bringing savers and borrowers together, albeit indirectly, reducing search costs, lowering costs to borrowers and increasing yields to savers, and absorbing the risk of savers. (2) A financial institution which takes savings deposits from individuals and then invests the money in loans to homeowners and in government securities and other income-earning assets. Commercial banks, savings and loan institutions, credit unions, consumer finance companies and several other financial organizations accepting deposits and making loans and investments act as financial intermediaries.
Financial Lease A lease that does not provide for maintenance services, cannot be canceled, and is fully amortized over the life of the lease.
Financial Leverage
(1) The ratio of total debt to total assets. There are other measures of financial leverage, especially ones that relate cash inflows to required cash outflows. Generally, the debt/total asset ratio is used to measure leverage. (2) The use of debt to increase the expected return on equity. The degree of financial leverage is measured by the ratio of debt to debt plus equity. (3) The use of borrowed money to complete an investment transaction. If the asset purchased with borrowed money offers annual financial benefits at a rate in excess of the loan's interest rate, leverage is said to be positive or favorable. The investor makes money by borrowing. Conversely, if an asset purchased with borrowed money fails to increase in value or if it fails to provide benefits in excess of the interest rate paid on the borrowed money, then leverage is negative. Leverage is neutral when the property earns at the same rate as the interest rate on borrowed money. Also referred to as simply leverage.
Financial Management Rate of Return (FMRR)
A modified internal rate of return model designed to remedy some of the deficiencies of the internal rate of return (IRR) technique. Two rates are considered by the FMRR: (a) a safe, liquid after-tax rate, and (b) a run-of-the mill reinvestment rate.
Financial Pro Forma
See pro forma.
Financial Ratio Analysis
A means by which an investor/lender detects facets of a business or investment that are within norms as well as those that become unhealthy. An astute investor uses financial ratio analysis to compare potential acquisitions and select the ones offering the greatest potential. By monitoring constantly changing ratios, it is possible to detect areas of weakness for both management and capital employment in order to take steps necessary to bring ratios back to the desired balance level of safety and risk. Also referred to as ratio analysis.
Financial Resources
Cash and other assets that, in the normal course of operations, will become cash.
Financial Risk
(1) That portion of total corporate risk, over and above basic business risk, that results from using debt. (2) The uncertainty resulting from the financing of an investment.
Financial Solvency
The expected normal condition of a business present when current assets exceed current liabilities.
Financial Statement
(1) A written statement of the financial position of a person or company, showing total assets and liabilities as of a certain date. Many lenders require a financial statement as part of a loan application. (2) An accounting report summarizing the financial condition of an individual or a business. Most commonly used financial statements include the balance sheet, which is a presentation of assets, liabilities, and net worth at a particular point in time (stock concept), and the income statement, which represents the flow of cash, i.e., income and expenses, through an organization over a period of time (flow concept).
Financial Structure
(1) The mix of equity and debt used in the purchase price of an asset. (2) The entire right-hand side of the balance sheet (the "sources of funds") showing the way in which a firm is financed.
Financially Feasible
A real estate project in which the economic objectives of the investor(s) are satisfied.
Financier
A person or financial institution engaged in the lending and management of money.
Financing
The difference between the purchase price and the down payment, commonly referred to as debt or the mortgage. One of the features distinguishing real estate from some investments is the ability to finance all or a significant part of the purchase price with borrowed dollars.
Financing Accounts
See accommodating accounts.
Financing Factor
One who lends money to manufacturers on the security of goods to be manufactured thereafter.
Financing Gap
A term applied to the difference (gap) between corporate capital expenditures (investment) and internal cash flows used to fund them. The financing gap represents an important indicator of a corporation's ability to improve its competitive position through investment in more modern plants and factories, acquisition of new business equipment and labor-saving machinery and the purchase of state-of-the-art technology such as advanced computer systems. As the economy weakens, the financing gap increases on reduced sales and cash flows, thereby forcing business to cut back on capital expenditures. To counter this condition, businesses can either increase cash flows through, say, slashing operating costs (e.g., reducing employment and salary costs), scale back new investment projects which may jeopardize future sales and the firm's overall long-term competitive position, or borrow in the capital markets, which in a weakening economy may prove difficult and/or expensive as lenders become more leary in times of growing economic uncertainty.
Financing Package
The total of all loans used to develop and/or purchase a real estate project.
Financing Statement
A written notice filed in the public records by a creditor who has extended credit for the purchase of personal property. Lenders record financing statements to evidence personal property, such as a new furnace, siding or windows, is subject to a lien. The purpose of filing the statement is to establish the creditor's interest in the personal property which is the security for the debt but which may become a fixture when it is attached to real property.
Finder's Fee
A payment made by one party to another for locating a prospect. This payment is often used in the financing of real estate when a mortgage banker locates a lender willing to loan money to a borrower. In addition, in most states real estate brokers may legally split a real estate sales commission with another broker who was partly responsible for bringing about the sale. However, an unlicensed person may not legally accept a finder's fee from a real estate broker since by doing so the unlicensed person is brokering real estate without a license and is thus in violation of licensing law. The term is also known as a referral fee.
Fine Tuning
The idea that policy makers can use monetary and/or fiscal policy to reduce fluctuations in output and employment.
Fire and Extended Coverage Insurance
A basic fire insurance policy protecting the insured against losses suffered from fire or lightning. In addition, the owner can receive extended coverage which insures against losses suffered due to windstorm, hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, theft, and vandalism and malicious mischief. Coverage of these extra perils normally adds very little to the premium.
Firm Commitment
An agreement by a financial institution to loan a specified sum of money for a specific time period and at a certain interest rate, provided all conditions set by the lender are met by the borrower.
Firm Offer
An offer made by a potential buyer that will not be further negotiated.
Firm Price
A stated sales price that is fixed and, thus, nonnegotiable. While uncommon in real estate transactions, occasionally an owner will put his or her property on the market at a firm price and will instruct the listing sales broker not to accept any offer below the listed price.
First Lien
A legal claim with the highest priority against a certain property; also known as a senior lien.
First Mortgage
(1) Mortgage holding priority over the claims of subsequent lenders against the same property. (2) A mortgage constituting the primary lien against real property and having prior claim to the property ahead of other claims (junior mortgages). (3) A lien on property in which the lender's claims are superior to the rights of subsequent lenders. Such a lien position means less risk to the lender and thus normally results in a lower interest rate charged to the borrower than that charged on second or junior mortgages. Certain lenders only make first mortgages due to regulatory requirements; others limit mortgages to these senior instruments due to company policy. See second mortgage.
First Notice Day
According to Chicago Board of Trade (CBOT) rules, the first day on which a notice of intent to deliver a commodity in fulfillment of a given month's futures contract can be made by the clearinghouse to a buyer. The clearinghouse also informs the sellers who they have been matched up with.
First-Degree Price Discrimination
A situation in which a seller charges each buyer for each unit bought the maximum price the buyer is willing to pay for that unit.
Fiscal Agent
A fiduciary agent, usually a bank or county treasurer, who performs the function of paying debt principal and interest when due.
Fiscal Drag
An automatic stabilization device originating in the progressive tax system. As nominal incomes expand, individuals are pushed into higher tax brackets and their average tax liability increases. This has a dampening effect on spending.
Fiscal Federalism
The financial interrelationships between the federal, state, and local governments.
Fiscal Policy
(1) Federal government actions directed towards affecting taxation and spending. Adjusting government expenditures and taxes to try to stabilize the economy and overcome inflation and/or unemployment. (2) The deliberate manipulation of taxes and government expenditures in order to affect the level of national income, prices, unemployment, and other economic variables. Fiscal policies include all actions involving changes in federal government tax revenues and changes in federal expenditures. Contrast with monetary policy conducted by the Federal Reserve Board of Governors.
Fiscal Year
A business year used for accounting or tax purposes as compared to a calendar year. The fiscal year of many governmental units, including the federal government runs from July 1 through June 30 of the following year. Whether or not a government operates on a fiscal or calendar year is particularly important in prorating property taxes between buyer and seller. Entities are said to be on a fiscal year when their accounting year ends on a date other than December 31.
Fixed Assets
(1) Sometimes called long-term assets, long-lived assets, or plant and equipment. (2) Tangible property used in the operation of a business. Examples include land, plant, machinery and equipment, furniture and fixtures, and leasehold improvements. Fixed assets are stated on the balance sheet at their purchased price less depreciation.
Fixed Charges
(1) Costs that do not vary with the level of output, especially fixed financial costs such as interest, lease payments, and sinking fund payments. (2) Expenses the amount of which is set by agreement. Examples are interest, insurance, and contributions to pension funds. Also referred to as fixed expenses.
Fixed Costs
(1) Those costs whose total remains constant within the relevant range even though the volume of activity may vary. (2) Costs of providing goods or services that do not vary proportionately to the volume of goods or services provided (e.g., insurance and contributions to retirement systems).
Fixed Currency
A currency whose official value relative to gold and other currencies is maintained by a central bank. The bank intervenes to buy and to sell the currency when it deviates from the official value.
Fixed Exchange Rates
An exchange rate system in which currencies are pegged to one another at a specific rate of exchange, or, pegged to a common currency or item of value like gold. Also referred to as pegged exchanged rates. Most currencies in today's markets vary in rates of exchange based upon demand and supply conditions; however, variations may exist in which governments attempt to control rates of exchange (dirty float) or allow restricted exchange rate variations. Contrast with floating exchange rates.
Fixed Expenses
Expenditures such as property taxes, license fees, and property insurance not vary directly given changes in the occupancy rate. Fixed expenses are on items subtracted from effective gross income to determine the net operating of property. Also referred to as fixed costs.
Fixed Inputs
Those factors of production whose quantity cannot be increased or decreased in the short run. For example, an industrial plant.
Fixed Liabilities
See long-term debt.
Fixed Rate Loan
A loan with a rate of interest fixed over its maturity. Contrast with variable rate loan.
Fixed Rate Mortgage
A loan carrying a constant interest rate over the full life of the mortgage contract. Historically, fixed rate mortgages have been the norm in permanent financing, particularly residential real estate. Thus, when a borrower secures a fixed rate mortgage he or she knows that the lender cannot raise the interest rate regardless of what the market rate of interest is doing. However, in recent years lenders have in some instances been reluctant to loan money for a long period of time including in the loan provision a clause allowing them to vary the rate of interest according to an established index and when market conditions change. These are referred to as adjustable rate mortgages (ARMs) or variable rate mortgages (VRMs).
Fixed-Coupon Repurchase/Reverse Repurchase Agreement
Agreements in which the parties agree that the securities returned will have the same stated interest rate as, and maturities similar to, the securities transferred. See repurchase agreement and reverse repurchase agreement.
Fixed-Income Investment
A catch-all description for investments in bonds, certificates of deposit and other debt-based instruments that pay a fixed amount of interest.
Fixed-Income Securities
Securities that offer a specified, measurable cash flow (e.g., most bonds). See bond.
Fixing-Up Expenses
The money spent to repair and/or refurbish real estate so as to improve a property's appearance, value, and marketability.
Fixity of Location
A physical characteristic of land which makes it subject to the influence of surrounding land uses. Since real estate space is fixed in location it cannot be moved. While it is true that the various elements within the space may be moved, such as the topsoil or the minerals, the space itself remains in the same geographic location. This immobility leads to several legal and economic results. From a legal standpoint only the legal rights and not the asset itself can be physically transferred to a purchaser.
Fixtures
(1) An item of personal property attached to real property so that it can not be removed without damage to the real property. A fixture becomes part of the real property. Personal property which for some reason, such as the manner of attachment, has become realty. Such property is also referred to as chattel real. Examples of fixtures include built-in cabinets in a kitchen, bathtubs, permanent bookcases, and other such objects. (2) Personal property that has become so attached to or adapted to real estate that if has lost its character as personal property and is part of the real estate. (3) Attachments to buildings which are not intended to be removed and which cannot be removed without damage to the latter. Note: those fixtures with a useful life presumed to be as long as that of the building itself are considered a part of such a building; all others are classed as equipment.
Flag Lot
A parcel of land that is shaped like a flagpole and a flag with the land being the "flag" and the only access being the "pole."
Flat
A floor or part of a floor in a building designed for occupancy by a single family for residential purposes.
Flat Lease
A type of lease requiring the tenant to pay equal rent payment each period, be the period monthly or annually. Rental payments under this type of lease change during the term of the lease and thus because of expected inflation generally used by a landlord when the lease is for a significant period of time.
Flat Rate Tax
An income tax in which a uniform tax rate is applied to all businesses and individuals.
Flea Bag
An inexpensive, run-down rental property such as an apartment or hotel.
Flex Equity (E-Flex) Options
Similar to a normal option which gives the holder of the option the right, but not the obligation, to buy or sell the underlying stock at a predetermined "strike" price for a certain period of time. Most such options have standardized strike prices and expiration periods. By contrast, flex equity options enable investors to customize features such as the strike price, expiration date, and number of contracts held.
Flexible (Floating) Exchange Rates
Exchange rates that are determined by the forces of supply and demand in the absence of intervention by national governments.
Flexible Budget
A financial plan formulated so that the operating volume assumed can be varied to agree with actual volume of activities attained.
Flexible Loan Insurance Program (FLIP)
An innovative financing technique developed to overcome the negative amortization aspects of the graduated payment mortgage (GPM). The key to the flip mortgage is the use of the buyer's down payment. Instead of being used as a payment, the cash is deposited in a pledged, interest-bearing savings account where it serves as both a cash collateral for the lender and as a source of supplemental payments for the borrower during the first few years of the loan.
Flip (Flipping)
(1) The near simultaneous buying and selling of a parcel of real estate at an price for the purpose of leveraging the transaction. (2) The quick sale or "cash out" of shares acquired through an initial public stock offering (IPO). Such practices can de-stabilized new stock issues and jeopardize the underwriting business of brokerage firms.
Float
(1) The amount of funds tied up in checks that have been written but are still in process and have not yet been collected. (2) The time period in which a person has free use of someone else's money. (3) The time taken to "clear" a check or draft for payment; the time from the submission of the draft and the time at which funds are debited from the issuer's account. See availability float or payment float. (4) The total number of outstanding shares available on the market.
Floating Currency
A currency whose exchange rate relative to those of other currencies is allowed to fluctuate more or less freely. "Dirty floating" occurs if the central bank intervenes to keep the currency from deviating outside the country's desired range.
Floating Debt
Liabilities other than bonded debt and time warrants which are payable on demand or at an early date. Examples are accounts payable, notes, and bank loans. Also see current liabilities.
Floating Exchange Rates
(1) Exchange rates (between the monies of different nations) which are allowed to move up or down in response to supply and demand conditions in the foreign exchange markets. (2) Exchange rates may be fixed by government policy ("pegged") or allowed to "float" up or down in accordance with supply and demand. When market forces are allowed to function, exchange rates are said to be floating. (3) An exchange rate system in which the price of various currencies with respect to one another vary with fundamental economic and financial conditions such as demand and supply conditions, trade balances, interest rate differentials, etc. In lieu of completely floating exchange rates, some governments attempt to stabilize their currency's value, particularly with their primary trading partners, within a broad range. Also referred to as flexible exchange rates. Contrast with fixed exchange rates.
Floating Lending Rate
A lending rate that is established at a fixed number of percentage points above a given rate, such as the London interbank offer rate (LIBOR), and which is renegotiated periodically, often every six months. Negotiation occurs throughout the life of the loan.
Floating Policy
An insurance policy that covers a class of goods located in a particular place that the insured had on hand at the time the policy was issued, but which, at the time of loss, may not be the identical items that were on hand at the time the policy was issued. A fire policy covering the inventory of a hardware store is an example.
Floating Rate
A finance term used to explain the spread on a variable interest rate loan. Developers and builders often borrow money at an interest rate tied to the prime rate, for example, "prime plus two." (The London Interbank Offered Rate, or LIBOR is also increasingly becoming an index rate for such purposes.) This means that if the prime rate is 10 percent the builder pays 12 percent on the money borrowed. However, if the prime increases to 11 percent, then the interest rate charged by the lender automatically is adjusted upward, or "floats" to, in this case, 13 percent.
Floating Rate Loan
A loan whose interest rate is adjusted periodically to a standard base interest rate in accordance with specified terms of the loan document, i.e., a tied-to-prime (interest rate) loan.
Floating-Rate Bond
A bond usually issued by large corporations and financial institutions whose rate of interest is pegged to another market rate, typically the rate on U.S. Treasury bills, and adjusted periodically by specified increments over this base rate.
Flood Insurance
Insurance that protects a property owner from damages resulting from flooding. Due to the high cost of flood insurance when written through a private insurance company, Congress enacted the National Flood Insurance Program (NFIP) in 1968. The intent of this legislation was to provide insurance coverage for those people suffering both real and personal property losses as a result of floods. Due to the lack of public interest in the program and the public's exposure to catastrophic losses, Congress enacted the Flood Disaster Protection Act in 1975. Under this law, no real estate located in a floodplain area can be financed through a federally regulated lender unless flood insurance is purchased.
Floodplain
The land bordering or surrounding a river or stream that can be under water when the river or stream are at their high-water mark.
Floor
The huge trading area of a stock exchange where stocks and bonds are bought and sold.
Floor Area
The total of all the horizontal areas of all the floors in a building.
Floor Area Ratio (FAR)
The relationship between the floor area of a building and the total area of the land under the building. Minimum and maximum floor area ratios are often established as part of a zoning ordinance.
Floor Broker (FB)
(1) A member of the stock exchange who executes orders on the floor of the exchange to buy or sell any listed securities. (2) An individual who executes orders for the purchase or sale of any commodity futures or options contract on any contract market for any other person.
Floor Loan
An initial extension of credit for a construction mortgage made by a lender without a requirement for sales or leasing of the property being financed. The amount of the total funding that is held back, called the holdback, is set aside until such time as the builder shows proof of sale or leasing all or a significant portion of the project.
Floor Plan
The layout of a building showing the exact specifications as to size and shape o each room.
Floor Trader (FT)
An individual who executes trades for the purchase or sale of any commodity futures or options contract on any contract market for such individual's own account.
Floor-to-Ceiling Loan
A financing technique in which the total amount of the loan is a function of the projected net operating income of the project. The total amount of the loan is funded by the lender in two separate payments. The "floor loan" is made upon satisfactory completion of the project and may be as high as 50 to 75 percent of the total loan. The remainder of the loan, termed the "ceiling," is funded only if certain predetermined occupancy and/or net income requirements are met.
Flotation Cost
The cost of issuing new stocks or bonds.
Flow of Current Financial Resources
A measurement focus that recognizes the net effect of transactions on current financial resources by recording accruals for those revenue and expenditure transactions which have occurred by year end that are normally expected to result in cash receipt or disbursement early enough in the following year either (a) to provide financial resources to liquidate liabilities recorded in the fund at year end or (b) to require the use of available expendable financial resources reported at year end.
Flow of Economic Resources
The measurement focus used in the commercial model and in proprietary and similar trust funds to measure economic resources, the claims to those economic resources and the effects of transactions, events and circumstances that change economic resources and claims to those resources. This focus includes depreciation of fixed assets, deferral of unearned revenues and prepaid expenses, and amortization of the resulting liabilities and assets. Under this measurement focus, all assets and liabilities are reported on the balance sheet, whether current or noncurrent. Also, the accrual basis of accounting is used, with the result that operating statements report expenses rather than expenditures.
Flow of Income
The total amount of income projected from a real estate investment as stated ii either annual figures or the total flow over the economic life of the investment.
Focal-Point Price
A price that has a compelling prominence for reasons of aesthetics, precedent, or symmetry.
Folio
Latin word for "page." When deeds, promissory notes, subdivision regulations and other legal instruments dealing with real estate are recorded in the public land records, they are assigned a liber (book) volume and a folio (page) number.
For Rent by Owner (FRBO)
Effort on the part of an owner of real estate to lease his or her space without employing the services of a property management firm. Owners of both residential rental property as well as income-producing property often manage the property themselves and thus they do not see the need for a professional management company.
For Sale by Owner (FSBO)
An attempt by the owner of real estate to sell his or her property without using the services of a real estate broker. Quite often the owner believes that by selling the property without employing a real estate broker the commission will be saved and therefore the owner will end up with more money.
Forbearance
Refraining from action by a creditor against the debt owed by a borrower after the debt has become due.
Forced Sale
The selling of an asset under less than favorable conditions in order to liquidate the asset, such as the selling of mortgaged property through foreclosure by the lender.
Forecasting
(1) An estimate of future events based on present knowledge, facts, theory, and judgment. (2) A quantitative estimate (or set of estimates) about the likelihood of a future event or events based on past and current information. This "past and current information" is specifically embodied in the structure of the econometric forecast model used to generate the forecasts. By extrapolating the model out beyond the period over which it was estimated, we can use the information contained in it to make forecasts about future events. It is useful to distinguish between two types of forecasting, ex post and ex ante. In an ex post forecasts all values of dependent and independent variables are known with certainty and therefore provides a means of evaluating a forecasting model. Specifically, in an ex post forecast, a model will be estimated using observations excluding those in the ex post period, and then comparisons of the forecasts will be made to these actual values. An ex ante forecast predicts values of the dependent variable beyond the estimation period using values for the explanatory variables which may or may not be known with certainty.
Forecasting Equation
A mathematical relationship that specifies how the model coefficient values are to be combined to produce a forecast.
Forecasting Horizon
The length of time into the future for which forecasts are prepared. Synonymous with forecast horizon.
Forecasting System
The collection and integration of subsystems, methods, and processes that facilitates the analysis of past history, selection of a best modeling structure, model validation, calculation of a forecast, monitoring of the forecast, and the application of technical and managerial judgment.
Foreclosure
(1) Legal proceedings initiated by a lender to acquire possession of the collateral used to secure a loan currently in default. The process for foreclosing on such assets may vary extensively among states, but the process generally results in the property being disposed of by the lender or his agents to satisfy outstanding loans and related expenses. (2) Procedure for enforcing a mortgage resulting in the public sale of the mortgaged property and less commonly in merely barring the right of the mortgagor to redeem the property from the mortgage. (3) The process by which a lender sells property securing a loan in order to repay the loan. Under a deed of trust, foreclosure is by public auction after appropriate advertisement. A mortgage may require the lender to obtain court approval prior to sale. (4) The seizure of property as payment for delinquent tax or special assessment obligations. Ordinarily, property foreclosed is resold to liquidate delinquent tax or special assessment obligations, but on occasion governments retain possession for their own needs. (4) A legal procedure by which mortgaged property in which there has been default on the part of the mortgager (borrower) is sold to satisfy the mortgage debt. The most common type of foreclosure in most states is foreclosure by sale. Foreclosure by sale takes two general forms: (a) foreclosure by judicial sale, and (b) foreclosure by power of sale (also known as foreclosure by advertisement). While procedures differ from state to state, under a foreclosure by judicial sale, a petition is usually filed with the court against the defaulting mortgager and all persons having junior lien interests in the property. The petition states the nature of the default, the amount due, and the property involved.
Foreign (International) Bill of Exchange
A bill of exchange made in one nation and payable in another.
Foreign Bond
Bond sold outside the country of the borrower but in the country of the currency in which the bond is denominated. The bond is underwritten by local institutions and is issued under the regulations prevalent in that country.
Foreign Corporation
(1) A corporation incorporated under the laws of another state. (2) A corporation not incorporated or chartered in a particular state yet conducting business in that state. Even though it is not chartered in states where it does business, a foreign corporation must consent to certain requirements and stipulation before it may legally operate in the state. Compare to domestic corporation.
Foreign Exchange
(1) The money of any other country; currency other than the one used internally in a given country.. (2) Foreign currency used to settle outstanding financial obligations between countries. (3) A financial asset involving a cash claim held by a resident of one country against a resident of another country.
Foreign Exchange Market
See Forex market.
Foreign Exchange Reserves
Foreign money held by the government, or by the central bank. Also special drawing rights (SDRs) and gold may be held as foreign exchange reserve assets. Also referred to as foreign reserves.
Foreign Reserves
Central government holdings of gold, foreign exchange reserve positions in the International Monetary Fund (IMF), and special drawing rights (SDRs).
Foreshore
The part of a parcel of land lying between the high water mark and the low water mark.
Forex Market
An over-the-counter market where buyers and sellers conduct foreign exchange business by telephone and other means of communication. Also referred to as foreign exchange market.
Forfeiture
(1) Loss of property for some specified reason such as a nonperformance condition or outstanding legal obligation. (2) The automatic loss of cash or other property as a punishment for not complying with legal provisions and as compensation for the resulting damages or losses. Note: the term should not be confused with confiscation. The latter term designates the actual taking over of the forfeited property by the government. Even after property has been forfeited, it cannot be said to be confiscated until the governmental unit claims it.
Forgery
Altering a written document with the intent to injure or defraud someone.
Form 1099
An official disclosure filing for Internal Revenue Service (IRS) income tax reporting of money payments made to individuals or corporations such as bank interest earned, stock dividends, bond interest, pension payments, and royalties earned.
Form 10-K
An audited financial report required to be filed annually with the Securities and Exchange Commission (SEC) by companies with registered securities, or companies with 500 or more shareholders, assets of $2 million, and shares listed on a major exchange. Once filed, the report becomes public information and constitutes the most comprehensive financial and operational picture of a company available on a periodic basis. Information contained in the Form 10-K is summarized in the company's annual report to shareholders. (2) A company's annual audited report filed with the SEC, due within 90 days of the end of the company's fiscal year.
Form 10-Q
(1) A financial report required to be filed quarterly with the Securities and Exchange Commission (SEC) by companies with registered securities. Once filed, the report becomes public information and constitutes an important source of financial information of a company on a more frequent basis. Unlike the Form 10-K, the Form 10-Q does not have to be audited. (2) A company's quarterly report filed with the SEC, due within 45 days of the end of the company's quarter.
Form 3
The form required by the Securities and Exchange Commission (SEC) of all holders of ten percent or more of a company's registered stock detailing information on the number of shares owned, rights, etc.
Form 4
A form required by the Securities and Exchange Commission (SEC) of publicly held corporations indicating any significant events which might alter the company's financial condition or the value of its stock.
Form 8-K
A report required by the Securities and Exchange Commission (SEC) to disclose significant events which may potentially affect a company's financial condition or the market value of its stock. The form is required to be filed within 30 days of the event.
Form Report
A specific format established for use in presenting the results of an appraisal. Lenders, government agencies, and certain investors often require the use of a form report by appraisers in rendering an opinion as to the value of certain types of property such as single-family residential homes or condominiums.
Form S-16
Referred to as a registered secondary offering, a form filed showing an investment banker's offering of a significant block of stock that was previously issued to the public.
Formal Contract
A written contract under seal that is enforceable because of the way it is written and does not depend upon sufficiency of the consideration.
Forward (Cash) Contract
(1) An obligation, set to take effect at some future date, to buy or sell some commodity or security at a specified price. Forward contracts tend not to be speculative and usually result in the transfer of the underlying commodity or security. (2) A cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime in the future. Forward contracts, in contrast to futures contracts, are privately negotiated and are not standardized.
Forward Commitment
An agreement by a lender to make a loan at a given rate of interest at some future date, or purchase a loan from another lender, or sell a loan to a purchaser; an agreement by a lender or investor to either make or purchase a loan within a certain period of time into the future.
Forward Exchange Rate
An agreed upon price at which two currencies are to be exchanged at some future date.
Forward Integration
Part of a corporate vertical integration process in which a firm attempts to control its distributors, sales outlets and contacts with the ultimate consumer. Contrast with backward integration.
Forward Rate
Foreign exchange rate for currency to be delivered at a future date.
Founders' Shares
Classified stock that has sole voting rights and restricted dividends. Owned by the firm's founders.
Fractional Appraisal
An appraisal of one component or legal interest of the whole property.
Fractional Interest
A partial interest in real estate, such as an easement.
Fractional Reserve Banking System
A monetary system in which financial institutions keep only a fraction of their deposits in the form of reserves.
Fractional Reserves
The proportion of bank deposits that must be retained as legal reserves against deposits. The remainder may be loaned out or invested. The level of legal reserves are determined by the reserve requirements, which are set by the Federal Reserve Board of Governors. Fractional reserves and the fractional reserve system under which depository institutions operate constitutes the foundation for the nation's expansion of its money supply. As only a certain percentage of deposits need be kept on hand by the institution, the remainder of the funds can be loaned out, creating new deposits, which in turn create new loans, etc., resulting in a multiplicative effect on the total money supply based on the initial deposit.
Franchise
(1) A special privilege granted by a government permitting the continuing use of public property, such as city streets, and usually involving the elements of monopoly and regulation. (2) A business arrangement undertaken for the purpose of marketing a product or service. One party (the franchiser) provides marketing and selling expertise for a fee to another party (the franchisee) who in turn sells the product or service in the marketplace.
Fraud
A misrepresentation of a material fact which is made with knowledge of its falsity and with intent to deceive a party who in fact relies on the misrepresentation to his or her detriment and injury. Fraud can result from words spoken or written, acts, or nondisclosure where there is a duty to inform. Fraud is a defense against the enforcement of a contract.
Freddie Mac
The acronym for the Federal Home Loan Mortgage Corporation (FHLMC); it operates similarly to Fannie Mae.
Free and Clear
Title to property which is unencumbered by any mortgages or other liens.
Free Good
Anything which is available in sufficient quantity that everyone can have all they want without having to pay for it.
Free Market System
Auction An auction process used by the Federal National Mortgage Association (FNMA) in which the FNMA accepts bids from approved lenders as to the amount, price, and terms of existing mortgages that these lenders wish to sell to Fannie Mae. Upon deciding how much money it will spend during a given time period, Fannie Mae notifies the successful bidders (determined by which mortgages offered for sale will generate the highest yield to FNMA), and these bidders have a certain period in which they can choose to deliver the mortgages. Once the mortgages have been delivered to Fannie Mae, the originator of the mortgage continues to service the loan (collect monthly payments, escrow property taxes, etc.) and for this service the originator receives a servicing fee.
Free Reserves
Funds available to a bank for lending or investing; reserves over and above required reserves, to include borrowings from the Federal Reserve System. As these reserves are excess to all obligations and may be loaned out to create new credit and deposits, they constitute and important economic indicator of future potential loan activity.
Free Trade
No tariffs, quotas, or other restrictions are imposed on trade between nations.
Freehold
An estate in real property which continues for an indefinite period of time. Freehold estates may be inheritable or non-inheritable. Inheritable estates include the fee simple absolute, the qualified fee, and the fee tail. Noninheritable estates include various life estates which are created by acts of parties, such as an ordinary life estate, or by operation of law, such as dower and curtesy.
Freeholder
One who owns a freehold interest in real property.
Free-Rider Problem
The unwillingness of individuals voluntarily to help cover the cost of a pure public good and their eagerness to let others produce the good so they can enjoy its benefits at a zero cost.
Free-Standing Building
A building which contains only one business. Fast-food franchises and retail stores are often free-standing buildings.
Frictional Unemployment
The temporary unemployment which occurs when workers are changing jobs.
Friedman-Phelps Alternative
An explanation of the Phillips curve in terms of workers' incorrect price expectations. According to this theory, the short-run Phillips curve presents a tradeoff between unemployment and inflation only as long as workers maintain the same price expectations. When expectations change, the short-run Phillips curve shifts. In the long run, the Phillips curve is vertical at the natural rate of unemployment.
Front Foot
A property measurement for purposes of valuation that is measured by the footage on the street line. When the dimensions of a lot are given, such as 200 by 600, the first measurement, 200, normally refers to the front footage.
Front Money
Money that must be raised by a builder/developer before obtain financing in order to start a project. Front money is needed to pay for such options on the land, legal fees, feasibility studies, engineering studies, and drawings. The money, also known as seed money, is normally provided by the equity investor(s) since at this stage in the development of a project financing has not been finalized.
Frontage
The linear distance of a parcel of land abutting a road or river.
Frontage Assessment
An assessment made by local governments to pay for improvements sidewalks and roads. Improvements such as roads or sidewalks can be paid for by assessing property facing or abutting the road based on the proportion of a particular property's frontage to the total distance being improved.
Front-End Fee
Charges made by a lender to a borrower for expenses incurred in determining whether or not a loan will be made. Such expenses would include credit report appraisal, survey, structural inspection, and various legal fees. The fee may be stated as a set amount or as a percentage of the requested loan. Such fees are not payments for the use of money and thus are not considered to be interest.
Front-End Load
The sales commission charged at the time of purchase of a mutual fund, insurance policy or other product.
Frozen Account
An accounted barred from further withdrawals by judicial ruling of other legal process.
FSLIC
Federal Savings and Loan Insurance Corporation, the federal agency that insures deposits of up to $100,000 in member savings and loan associations.
Full Carrying Charge Market
A futures market where the price difference between delivery months reflects the total costs of interest, insurance, and storage.
Full Disclosure
(1) Revealing all known facts which may affect the decision of a buyer or tenant. (2) An accounting principle stipulating that all facts necessary to make financial statements not misleading must be disclosed. (3) The obligation to reveal all material facts. Under agency law a real estate broker or salesperson acting as an agent is required to fully disclose all material facts to a third party. Failing to do so may result in legal action against the agent. In addition, federal and state acts such as the Truth-in-Lending Act and the Interstate Land Sales Full Disclosure Act require that certain information be made available to the consumer. (4) As mandated by the Securities and Exchange Act of 1934, every company with stock listed on an exchange must register with the Securities and Exchange Commission (SEC) and provide annual and other reports to the public disclosing financial and other important information for use by the investing public.
Full Faith and Credit
(1) A term used to describe the financial backing attached to a municipal bond or other government security indicating the pledge by the issuing entity to use the full taxing authority, plus other revenue sources, to repay both principal and interest. (2) A pledge of the general taxing power for the payment of debt obligations. Note: Bonds carrying such pledges are usually referred to as general obligation bonds, full faith and credit bonds, or tax-supported bonds. By contrast, some municipal securities are based solely on the revenues from the project which they are funding, i.e., a revenue bond.
Full Membership (CBOT)
A Chicago Board of Trade (CBOT) membership that allows an individual to trade all futures and options contracts listed by the exchange.
Full Recourse
The condition under which loans are sold to a financial institution with an unconditional guarantee by the seller as to repayment of principal and interest.
Full Recourse Loan
A loan sold by a dealer, such as an automobile dealer, to a buyer under the condition of repurchase should the loan go into default status. As the dealer or loan originator retains the default risk on the paper sold, such loans are sold at a discount relative to a nonrecourse loan.
Full Service Bank
Designating a banking institution offering the public most, if not all, of the services traditionally expected of such an institution. Such services typically include checking and savings deposit accounts, consumer, real estate, and commercial lending, money transfers, among others.
Full Service Broker
A brokerage firm offering its clients a full spectrum of brokerage services to include buying and selling, asset management, and investment advice. Such firms typically have access to research facilities for their customers. Contrast with discount broker.
Full-Bodied Money
Any piece of money which is made from material which is as valuable as the face value of the money. Example: a $50 gold piece which contains $50 worth of gold.
Full-Price Offer
An offer to purchase real estate at the exact price and with the exact conditions stated by the owner. Most real estate offers are not full-price offers, although in some isolated markets offers are made above the listing price due to the high demand and short supply of available property.
Fully Amortized Mortgage
A loan that is fully repaid at maturity by periodic reduction of the principal. The first part of each payment covers interest on the outstanding debt as of the payment due date and the remainder of the payment reduces the outstanding debt.
Fully Amortizing Loan
A loan in which the regular periodic payments are sufficient to fully pay off both principal and interest within a specified maturity date. See balloon payment.
Fully Diluted Earnings per (Common) Share
Adjusted earnings per share (EPS) on common stock after allowing for the exercise of warrants and stock options, and the conversion of convertible bonds and preferred stocks.
Fully Indexed Note Rate
As related to adjustable rate mortgages, the index value at the time of application plus the gross margin stated in the note.
Fully Managed Fund
A mutual fund whose investment policy gives its management complete flexibility as to the types of investments made and the proportions of each. Management is restricted only to the extent that federal or blue sky laws require.
Functional Distribution of Income
The apportionment of national income among the owners of human, natural, and capital resources.
Functional Obsolescence
(1) Impairment of functional capacity or efficiency. For example, homes without indoor plumbing (while they may contain working outdoor plumbing facilities) are considered functionally obsolete. (2) A loss in value within a structure due to changes in tastes, preferences, technical innovations, or market standards. The item in question may be curable, such as lack of air conditioning in Florida, or incurable, such as exceptionally low ceilings in a warehouse, depending on the costs of correcting the item as compared to the benefits expected if the correction is made.
Fund
A fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities, and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.
Fund Accounts
All accounts necessary to set forth the financial operations and financial position of a fund.
Fund Balance
The excess of the assets of a fund over its liabilities and reserves except in the case of funds subject to budgetary accounting where, prior to the end of a fiscal period, it represents the excess of the fund's assets and estimated revenues for the period over its liabilities, reserves, and available appropriations for the period.
Fund Type (Governmental Accounting)
Any one of seven categories into which all funds are classified in governmental accounting. The seven fund types are: (1) general; (2) special revenue; (3) debt service; (4) capital projects; (5) enterprise; (6) internal service; and (7) trust and agency.
Fundamental Analysis
(1) An analysis for investing purposes of the fundamental performance indicators of a company based on generally readily available public data such as sales performance, management, competitive environment, and the like. Such analysis is rejected by the semi-strong form of the efficient market hypothesis which purports that an investor's rate of return cannot be improved by analysis of such fundamental information readily available to the public. (2) Study of the balance sheet, earnings history, management, product lines and other elements of a company in an attempt to discern reasonable expectations for the price of its stock. Contrast with technical analysis.
Fundamentalist
An individual who bases investment decisions on information about a company, its sales performance, its management, its industry and the competitive environment, and the general economy rather than an examination of investment cycles.
Fundamentals
A stock market prediction technique based on important information about a stock, the firm's management, earnings behavior, product lines, the market in which it operates, and other relevant information.
Funded Debt
(1) Long-term debt. (2) Same as bonded debt, which is the preferred term.
Funded Deficit
A deficit eliminated through the sale of bonds issued for that purpose.
Funding
The process of replacing short-term debt with long-term securities (stocks or bonds).
Funds
Defined most narrowly as cash, more widely considered to be the amount of net working capital or current assets less current liabilities.
Funds from Operations (FFO)
Used by real estate investment trusts (REITs) to define the cash flow from their operations. It is calculated by adding depreciation and amortization expenses to earnings, and can be represented as funds from operations per share (FFO/S). FFO/S should be used in lieu of EPS when evaluating REITs and other similar investment trusts.
Future Advance Mortgage
A mortgage given to secure additional loans to be made in the future as well as an original loan.
Future Advances
Money loaned by a mortgagee (lender) to a mortgager (borrower) after the mortgage has been placed on the property and secured by the original security agreement. A construction loan often calls for future advances in which dollars are dispersed to the developer as various stages of construction are completed.
Future Benefits
The positive cash flows and/or increases in the value of property anticipated by an investor. Such anticipation is the foundation on which the income approach to value is based.
Future Interest
A present ownership interest or the possibility of ownership in land with the right of possession postponed into the future. Essentially a future interest is a present non-possessory right which will or may become a possessory right at some future date. Future interest may be classified as follows: (a) possibility of reverter, (b) right of reentry or power of termination, (c) reversions, and (d) remainders.
Future Worth of One
A factor used to calculate how much a present sum will be worth in the future if it is held for a certain period of time and earns an interest rate that is compounded periodically.
Future Worth of One per Period
A factor used to calculate how much a series of equal sums deposited at the end of periodic compounding time intervals will be worth at the end of the total term.
Futures
An arrangement allowing the holder of the contract the right to exercise some transaction at a specified future date. Futures contracts, also referred to as hedging, do not normally result in the actual exercise of the contract, that is, normally no transfers are made. The purpose of the contract is merely to attempt to mitigate or off-set a risk normally associated with an economic or financial transaction. For example, a U.S. importer of Japanese products who must pay his suppliers in Japanese Yen will purchase a futures contract to purchase Japanese Yen with U.S. dollars at some specified price (rate of exchange). In this way, if the U.S. dollar depreciates with respect to the Yen before the importer has been repaid, he is still guaranteed a set rate for repayment on his obligation to his supplier.
Futures Commission Merchant (FCM)
An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to support such orders. Also referred to as commission house or wire house.
Futures Contract
(1) An agreement to buy or sell a certain amount of a commodity (such as wheat, soybeans or gold) or a financial instrument (such as Treasury bills or deutsche marks) at a stipulated price in a specified future month, which may be as much as nine months away. As the actual price moves closer to or further away from the contract price, the price of the contract fluctuates up and down, thus creating profits and losses for its holders, who may never actually take or make delivery of the underlying commodity. (2) A legally binding agreement, made on the trading floor of a futures exchange, to buy or sell a commodity or financial instrument sometime in the future. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. The only variable is price, which is discovered on an exchange trading floor. (3) Agreements to buy or sell a commodity at a particular price on a stipulated date. Futures contracts also can be written on other financial instruments, such as the underlying securities in certain indexes. The price of a contract is established between the buyer and seller on the floor of a commodity exchange, using the open outcry system in which traders shout out their buy or sell offers.
Futures Exchange
A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options on futures contracts.
Futures Market
(1) The market in which futures contracts are traded. (2) Markets where you can make a contract today to buy something at a specified future date for a price which is agreed on, today. If the price of what you bought goes up between now and the delivery date, you'll make a profit. If it goes down, you'll lose.
FV
Abbreviation for future value.
FVIF
Abbreviation for future value interest factor. See interest factor (IF).
GAAP
See Generally Accepted Accounting Principles.
GAAS
See Generally Accepted Auditing Standards.
GAGAS
See Generally Accepted Government Auditing Standards.
Gain
An increase in money or property value.
Gains from Trade
The increased output and income that is generated by the increased efficiency which results from specialization and trade.
Game (Decision Theory)
Any decision-making situation in which the payoff to people's choices depends not only on them (and nature), but also on other people's choices.
Game Theory
A method of studying decision making in situations of conflict when the fates of those who seek different goals are interlocked.
Gamma
A measurement of how fast delta an option premium changes, given a unit change in the underlying futures price.
GAN
See grant anticipation note (GAN).
Gap
A term used to denote the dollar volume difference between a bank's interest-rate sensitive assets (i.e., the volume of assets that may be repriced or that will mature within a given time period) and its interest-rate sensitive liabilities (i.e., the volume of liabilities that may be repriced or that will mature within the same given time period). The importance of the gap lies in terms of movements to interest rates and the resultant effects on net interest income (the difference between interest income and interest expense). If, for example, a financial institution shows a large positive gap (i.e., interest-rate sensitive assets exceed interest-rate sensitive liabilities), then a decline in interest rates will force the bank to re-price more assets than liabilities causing interest income to decline more than interest income and reducing net interest income.
Gap Loan
A loan that fills the difference between the floor loan and the full amount of the permanent loan.
Gap Management
Programs, policies, and techniques used by a financial institution to minimize the effects of interest rates on net interest income (the difference between interest income and interest expense) and therefore net income. Gap management policies deal specifically with the pricing and repricing decisions on earning assets and paying liabilities to insure that interest rate fluctuations causing increases in interest expense on borrowed funds are off-set by corresponding increases to interest income on earning assets. Neutral gap management attempts to only protect net interest income; active gap management speculates on the direction of interest rates and attempts to improve net interest income throughout the interest rate cycle.
Garnishment
The name given in some states to attachment proceedings, i.e., the seizure of property of, or a debt owed to, the debtor by the service of process upon a third person who is in possession of the property or who owes a debt to the debtor.
GATT
(General Agreement on Tariffs and Trade) The international organization set up in 1947 to reduce trade restrictions among nations. Several "rounds" of multilateral negotiations have been undertaken, and significant reductions in trade restrictions have been achieved.
GDP
See Gross Domestic Product (GDP).
GDP Implicit Price Deflator
A comprehensive price level index compiled and issued quarterly by the U.S. Department of Commerce, Bureau of Economic Analysis (BEA) and associated with the items comprising measures of Gross Domestic Product (GDP).
General Agreement on Tariffs and Trade
See GATT.
General Contractor
One who constructs a building or other improvement for the owner or developer. May retain a construction labor force or use sub-contractors.
General Creditor
A creditor who has a claim against the debtor but does not have any lien on any of the debtor's property, whether as security for his debt or by way of a judgment or execution upon a judgment.
General Equilibrium
(1) A situation in which all of the markets and sectors in the economy are simultaneously in equilibrium. (2) A state of the economy in which billions of optimizing decisions by millions of decision makers are compatible with each other because all input and output markets are in equilibrium at the same time. A condition in which all markets are said to have "cleared," i.e., demand and supply conditions have be satisfied with neither surpluses or shortages.
General Improvement District (GID)
A public entity created under the provisions of the specific state and authorized by the respective county commission to provide specific services to a limited geographical area. A GID may be formed to provide one or a combination of services such as road maintenance, parks and recreation facilities, water and sanitary sewer service. etc.
General Ledger
A book, file, or other device which contains the accounts needed to reflect, in summary and in detail, the financial position and the results of financial operations of the governmental unit. Note: In double entry bookkeeping, the debits and credits in the general ledger are equal, and therefore the debit balances equal the credit balances.
General Legacy
A legacy to be paid out of the assets generally of the testator without specifying any particular fund or source from which the payment is to be made.
General Lien
(1) A lien that includes all of the property owned by the debtor, rather than a specific property. (2) A lien such as a tax lien or judgment lien, which attaches to all property of the debtor rather than the lien of, for example, a trust deed, which attaches only to a specific property.
General Long-Term Debt
Long-term debt legally payable from general revenues and backed by the full faith and credit of a governmental unit. See long-term debt.
General Obligation Bond (GO)
A bond issued by a municipal government in which principal and interest are secured by the full faith of the issuer, usually including the full taxing authority of the governmental entity. Contrast with revenue bond.
General Obligation Bonds Payable
Bonds backed by the full faith and credit of government. See full faith and credit.
General Partner
In a partnership, a partner whose liability is not limited. All partners in an ordinary partnership are general partners. A limited partnership must have at least one general partner.
General Partnership
A partnership in which the partners conduct as co-owners a business for profit, and each partner has a right to take part in the management of the business and has unlimited liability.
General Purpose Financial Statements (GPFS)
Five combined financial statements that, together with the accompanying notes, constitute the minimum financial reporting needed for fair presentation in conformity with Generally Accepted Accounting Principles (GAAP). These five combined financial statements, with their accompanying notes, make up the first of the financial reporting pyramid's three reporting levels containing financial statements. Known as the combined statements-overview, these statements include (1) combined balance sheet—all fund types and account groups, (2) combined statement of revenues, expenditures and changes in fund balances—all governmental fund types, (3) combined statement of revenues, expenditures and changes in fund balances—budget and actual-general and special revenue fund types (and similar governmental fund types for which annual budgets have been legally adopted), (4) combined statement of revenues, expenses and changes in retained earnings (or equity) all proprietary fund types, and (5) combined statement of changes in financial position—all proprietary fund types. Trust fund operations may be reported in (2), (4) and (5) above, as appropriate, or separately. The combined statements-overview also are referred to as the "liftable" GPFS.
General Warranty Deed
(1) A deed in which the grantor agrees to protect the grantee against any other claim to title of the property and provides other promises. (2) A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.
Generally Accepted Accounting Principles (GAAP)
(1) A group of standards or guides to action in preparing financial accounting reports the content and usefulness of which have evolved over many decades. (2) The accounting rules and conventions as promulgated by the Financial Accounting Standards Board (FASB) which constitute the primary source of accounting rules followed by certified public accountants (CPAs) and auditors. (3) Uniform minimum standards and guidelines for financial accounting and reporting. They govern the form and content of the financial statements of an entity. GAAP encompass the conventions, rules and procedures necessary to define accepted accounting practice at a particular time. They include not only broad guidelines of general application, but also detailed practices and procedures. GAAP provide a standard by which to measure financial presentations. The primary authoritative body on the application of GAAP to state and local governments is the Governmental Accounting Standards Board (GASB).The primary purpose of such principles is to establish uniform principles for financial accounting and in the preparation of financial statements.
Generally Accepted Auditing Standards (GAAS)
Standards established by the AICPA for the conduct and reporting of financial audits. There are ten basic GAAS, classed into three broad categories: general standards, standards of field work and standards of reporting. The auditing standards board of the AICPA publishes SAS to comment and expand upon these basic standards. These SAS, together with the ten basic standards, constitute GAAS. These GAAS set forth the objectives of the audit and establish measures that can be applied to judge the quality of its performance.
Generally Accepted Government Auditing Standards
Standards established by the Government Accounting Office (GAO) in its publication standards for audit of governmental organizations, programs, activities and functions ("yellow book") for the conduct and reporting of both financial and performance audits. GAGAS set forth general standards applicable to both types of audits and separate standards of field work and reporting for financial and performance audits. The GAGAS standards of field work and reporting for financial audits incorporate and build upon GAAS.
Gentlemen's Agreements
Informal oral understandings among oligopolists in the same industry that they will maintain a certain minimum price.
Gentrification
The displacement of lower-income residents by higher-income residents in a neighborhood. Generally occurs when an older neighborhood is rehabilitated or revitalized.
GI Loan
Same as VA loan.
GID
See general improvement district (GID).
Giffen's Paradox
A situation in which consumers buy less of an item when its price is lower and more when it is higher, all else being equal.
Gift Deed
A deed for which consideration is love and affection and no material consideration is involved.
Gift Tax
Federal tax upon a monetary gift to a relative or friend. Generally, each person may give up to $10,000 per year to each done without imposition of a federal gift tax. On higher gifts, there may be a gift tax, or the gift may affect the donor's estate tax.
GIGO
One of the fundamental laws of computer science which stands for "Garbage In, Garbage Out." The term has now been broadened and applied to all aspects of financial analysis. See the SWAG method for obtaining inputs to a GIGO system.
Gilt-Edged
High-grade bond issued by a company that has demonstrated its ability to earn a comfortable profit over a period of years and pay its bondholders their interest without interruption.
Gilt-Edged Bond
A high-grade bond issued by a company that has demonstrated its ability to repay its debt obligations and show sufficient earnings to cover its outstanding debt obligations.
GIM
See gross income multiplier.
GIM Membership (CBOT)
A Chicago Board of Trade (CBOT) membership that allows an individual to trade all futures contracts listed in the government instrument market category.
Gini Coefficient
The ratio of two areas in the Lorenz curve graph that summarizes the extent of income or wealth inequality; the ratio of the area between the line of perfect equality and actual inequality to the area between the line of perfect equality and the line of perfect inequality.
Ginnie Mae
See Government National Mortgage Association (GNMA).
Ginnie Mae Certificate
Nickname for securities guaranteed by the Government National Mortgage Association (GNMA), which buys up mortgages in the secondary market and sells them to investors via securities known as Ginnie Mae pass-through certificates.
Ginnie Mae Pass-Through Certificates
(1) A pass-through certificate secured by a pool of mortgage loans insured by the Government National Mortgage Association (GNMA), an arm of the federal government. Ginnie Mae pass throughs often provide high yields with security to investors, although the returns may be affected by the pattern of loan repayments on the mortgages in the pool. (2) A mortgage-backed security which provides the holder or investor a proportional interest in a pool of residential mortgages which are guaranteed by the GNMA. The term pass-through is derived from the fact that the originating entities, i.e., banks, mortgage bankers, or savings institutions, distribute all principal and interest, to include repayments, directly to the investor. Ginnie Mae securities are backed by pools of residential mortgages that are guaranteed by the Department of Veterans Affairs (VA) or insured by the Federal Housing Administration (FHA) mortgages.
Globalization
A term used to describe business, economic, and financial concepts of world-wide linkages among businesses, economies, and financial markets. Globalization deals in concepts in which national borders have no true meaning; production and labor is thought of on a world-wide basis with manufacturing shifting to areas showing the greatest overall levels of productivity. Similarly, financial markets are thought of in a global sense rather than on a national basis. In this way, economies become more critically intertwine |