Glossary

Face Value

The value of a bond that appears on its face. Also referred to as par value or principal.

Factor Model

A model that assumes a linear relation between an asset's expected return and one or more systematic risk factors.

Factoring

Sale of an accounts receivable balance to buyers (factors) that are willing and able to bear the costs and risks of credit and collections.

Fast Track Negotiating

Authority provided by the U.S. Congress to the Executive Branch to negotiate amendment-proof trade agreements.

Federal Trade Commision (FTC)

The FTC is an indepedent US government agency established in 1914 by Woodrow Wilson. Its main goals are consumer protection and prevention of trust formation.

Federal Trade Commission (FTC)

A U.S. agency, which ensures that consumers are protected in the marketplace against unfair methods of competitions.

Financial Contagion

The spread of a financial crisis from one country or region to other countries or regions.

Financial Engineering

The process of innovation by which new financial products are created.

Financial Innovation

The process of designing new financial products, such as exotic currency options and swaps.

Financial Market

The market for the exchange of credit and capital in an economy. It consists of the money market and the capital market.

Financial markets

Markets for financial assets and liabilities.

Financial Policy

The corporation’s choices regarding the debt-equity mix, currencies of denomination, maturity structure, method of financing investment projects, and hedging decisions with a goal of maximizing the value of the firm to some set of stakeholders.

Financial Price Risk

The risk of unexpected changes in a financial price, including currency (foreign exchange) risk, interest rate risk, and commodity price risk.

Financial Risk

Financial risk refers to unexpected events in a country’s financial, economic, or business life.

Financial Service Income

In the U.S. tax code, income derived from financial services such as banking, insurance, leasing, financial service management fees, and swap income.

Financial Strategy

The way in which the firm pursues its financial objectives.

Financial Structure

The proportion of debt and equity and the particular forms of debt and equity chosen to finance the assets of the firm. Also known as capital structure.

First-to-market Advantage

Also know as "first-mover advantage." The idea of first-mover advantage is that the initial occupant of a strategic position or niche (market segment) gains access to resources and capabilities that a follower cannot match.

Fixed Cost

A cost that is fixed in total for a given period of time and for given volume levels. It is not dependent on the amount of goods or services produced during the period.

Fixed Exchange Rate System

An exchange rate system in which governments stand ready to buy and sell currency at official exchange rates. Fluctuations of this currency are not possible.

Fixed Forward Contract

Currency is bought or sold at a given future date.

Flight of Capital

The movement of capital from one place to another in order to avoid loss or increase gain.

Floating Currency System

An exchange rate system under which a government is not obligated to declare that its currency is convertible into a fixed amount of another currency.

Floating Exchange Rate

An exchange rate system in which currency values are allowed to fluctuate according to supply and demand forces in the market without direct interference by government authorities.

Floor

In banking and finance, a floor can be negotiated and agreed upon when the interest rate is dependent on the market interest rate.

FOB Endorsement

Used with FOB (Free on Board), FAS, C&F, or CFR (but not CIF) quotations, FOB sales endorsement to an open marine policy can cover transit risk from the point of origin until title transfers. In these instances, the exporter relies on the importer to insure.

Food and Drug Administration (FDA)

A United States agency which has power to set standards for food, drugs, cosmetics, and devices. Before new drugs can be approved by the FDA and be released to the market, they must undergo extensive laboratory testing within the pharmaceutical company. The company must then file a formal and thorough application for approval with the FDA.

Force Majeure

The title of a standard clause in marine contracts exempting the parties for non-fulfillment of their obligations as a result of conditions beyond their control, such as Acts of God or war.

Foreign Aid

A grant of money, technical assistance, capital equipment, or other assistance typically extended by richer nations to poorer nations.

Foreign Base Company Income

In the U.S. tax code, a category of Subpart F income that includes foreign holding company income and foreign base company sales and service income.

Foreign Bonds

Bonds that are issued in a domestic market by a foreign borrower, denominated in domestic currency, marketed to domestic residents, and regulated by the domestic authorities.

Foreign Bottom

An ocean vessel built or registered in a foreign country.

Foreign Branch

A foreign affiliate that is legally a part of the parent firm. In the U.S. tax code, foreign branch income is taxed as it is earned in the foreign country.

Foreign Debt

Money owed by a nation to foreign investors, banks, or governments.

Foreign Direct Investment (FDI)

The act of building productive capacity directly in a foreign country.

Foreign Equity Requirements

Investment rules that limit foreign ownership to a minority holding in a company.

Foreign Exchange

Currency of another country, or a financial instrument that facilitates payment from one currency to another.

Foreign Exchange Broker

Brokers serving as matchmakers in the foreign exchange market that do not put their own money at risk.

Foreign Exchange Dealer

A financial institution making a market in foreign exchange.

Foreign Exchange Markets

Networks of commercial banks, investment banks, and other financial institutions that convert, buy, and sell currencies in the global economy.

Foreign Exchange Rate

The price of one nation's currency in terms of another nation's currency. The foreign exchange rate is specified as the amount of one currency that can be traded per unit of another.

Foreign Exchange Risk

The risk of unexpected changes in foreign currency exchange rates. Also known as currency risk.

Foreign Remittances

The transfer across national boundaries of any kind of funds.

Foreign Sales Corporation (FSC)

In the U.S. tax code, a specialized sales corporation whose income is lumped into the same income basket as that of a domestic international sales corporation.

Foreign Tax Credit (FTC)

In the U.S. tax code, a credit against domestic U.S. income taxes up to the amount of foreign taxes paid on foreign-source income.

Foreign Trade Zone

A physical area in which the government allows firms to delay or avoid paying tariffs on imports.

Foreign-source Income

Income earned from foreign operations.

Forfaiting

A form of factoring in which large, medium- to long-term receivables are sold to buyers (forfaiters) that are willing and able to bear the costs and risks of credit and collections.

Forward Contract

A commitment to exchange a specified amount of one currency for a specified amount of another currency on a specified future date.

Forward Discount

A currency whose nominal value in the forward market is lower than in the spot market (contrast with forward premium).

Forward Foreign Exchange

An agreement to purchase or sell a defined amount of forward currency in the future at a certain fixed rate.

Forward Market

A market for forward contracts in which trades are made for future delivery according to an agreed-upon delivery date, exchange rate, and amount.

Forward Parity

When the forward rate is an unbiased predictor of future spot exchange rates.

Forward Premium

A currency whose nominal value in the forward market is higher than in the spot market (contrast with forward discount).

Foul Bill of Lading

A receipt issued by a carrier to the exporter making use of its services which, to reduce the carrier's liability, notes that the goods were in some way damaged, short in quantity, or improperly packaged.

Franchise Agreement

An agreement in which a domestic company (the franchiser) licenses its trade name and/or business system to an independent company (the franchisee) in a foreign market.

Franchising

A parent company grants another independent entity the privilege to do business in a pre-specified manner, including manufacturing, selling products, marketing technology and other business approach.

Free Cash Flow

Cash flow after all positive-NPV projects have been exhausted in the firm’s main line of business.

Free Market

The type of market in which goods and services cross borders freely, unrestrained by tariffs or any other sort of barrier to trade.

Free On Board (FOB)

A trade term requiring the seller to deliver goods via a method of transportation designated by the buyer. The seller fulfills its obligations to deliver when the goods have passed through the seller's ownership and prepared for delivery to the buyer.

Free Port

An area such as a port city into which merchandise may legally be moved without payment of duties.

Free Trade Area of the Americas (FTAA)

A proposed hemispheric trade zone that would cover all of the countries in North, South, and Latin America. The FTAA is highly controversial.

Free Trade Zone

An area designated by the government to which goods may be imported for processing and subsequent export on duty-free basis. Merchandise may be stored, used or manufactured in the zone and reexported without duties being paid.

Freely Floating Exchange Rate System

An exchange rate system in which currency values are allowed to fluctuate according to supply and demand forces in the market without direct interference by government authorities.

Freight Forwarder

An independent business that handles export shipment on behalf of the shipper without vested interest in the products. A freight forwarder is a good source of information and assistance on export regulations and documentation, shipping methods, and foreign import regulations.

Freight Shippers

Also know as freight forwarders. Freight shippers are agents used to coordinate the logistics of transportation.

Frequency Distribution

The organization of data to show how often certain values or ranges of values occur.

Full Payout Lease

A lease in which the lessor recovers, through the lease payments, all costs incurred in the lease plus an acceptable rate of return, without any reliance upon the leased equipment's future residual value.

Fundamental Analysis

A method of predicting exchange rates using the relationships of exchange rates to fundamental economic variables such as GNP growth, money supply, and trade balances.

Future Value

Value of a sum after investing it over multiple periods. Also called compound value.

Futures Commission Merchant

A brokerage house that is authorized by a futures exchange to trade with retail clients.

Futures Contract

A commitment to exchange a specified amount of one currency for a specified amount of another currency at a specified time in the future. Futures contracts are periodically marked-to-market, so that changes in value are settled throughout the life of the contract. Exchange-traded currency futures are marked-to-market on a daily basis.