Category: Financial Terms

Understanding Collusion: Definition, Examples, and Prevention Key takeaways * Collusion is a secret agreement between competitors to manipulate market conditions for mutual benefit; it is typically illegal. * Common forms include price fixing, coordinated marketing, and sharing nonpublic information. * Antitrust laws, the risk of defection, and whistleblower protections deter collusion. * High-profile enforcement (for…

Collection Agency: Definition, How It Works, and Regulations Key takeaways A collection agency is a company hired by lenders or creditors to recover overdue funds or manage accounts in default. Creditors may hire agencies or sell debt to them; if sold, the agency becomes the new creditor. Collection agencies are regulated by the Fair Debt…

Understanding Collateralized Mortgage Obligations (CMOs) What is a CMO? A collateralized mortgage obligation (CMO) is a type of mortgage-backed security made by pooling many individual mortgages and slicing the cash flows into separate classes, called tranches. CMOs repackage principal and interest payments from the underlying mortgages into securities with different maturities, payment priorities, and risk…

Collateralized Loan Obligation (CLO) Key takeaways * CLOs are structured securities that pool primarily below-investment-grade corporate loans and sell interests in the pool in ranked slices called tranches. * Tranches determine payment priority and risk: senior tranches get paid first and carry lower yield and lower risk; mezzanine and equity tranches absorb more loss and…

Collateralized Debt Obligation (CDO) A collateralized debt obligation (CDO) is a structured financial product that pools various debt instruments—such as mortgages, corporate loans, bonds, or credit card receivables—and repackages them into tranches with different risk-and-return profiles. Investors buy tranches according to the level of credit exposure they are willing to accept. Key takeaways CDOs bundle…

Collateral: Definition, Types, and How It Works Key takeaways Collateral is an asset pledged to secure a loan; it reduces lender risk and often results in lower interest rates. If a borrower defaults, the lender can seize and sell the collateral to recover losses. Common collateralized loans include mortgages, auto loans, home equity loans, and…

Collar (options strategy) A collar is a conservative options strategy that limits downside risk on a long stock position while capping upside potential. It combines a protective put (buy a put) with a covered call (sell a call), typically using out-of-the-money strikes that expire in the same month. The strategy can be structured for little…

Coinsurance What is coinsurance? Coinsurance is the portion of a covered claim that an insured person pays, expressed as a percentage, after the deductible has been met. It most commonly appears in health insurance (e.g., an 80/20 split where the insurer pays 80% and the insured pays 20%), but it can also apply to property…

Coefficient of Variation (CV): Definition and How to Use It What is the coefficient of variation? The coefficient of variation (CV) is a standardized measure of dispersion that expresses the standard deviation relative to the mean. It shows the extent of variability in a data set in proportion to its average value and is useful…

Coefficient of Determination (R-squared) What it is The coefficient of determination, commonly called R-squared (R²), quantifies how much of the variability in a dependent variable (e.g., a stock’s price) can be explained by an independent variable (e.g., a market index). R² ranges from 0 to 1 (or 0%–100%): R² = 1.0: 100% of variability explained…

Key Takeaways * A code of ethics is a set of guiding principles that help organizations and professionals act with integrity, fairness, and accountability. * Common types are compliance-based (rules and penalties) and value-based (principles and self‑regulation); many organizations use a hybrid. * Codes protect reputation, guide decision‑making, and may include industry‑specific legal and professional…

Coase Theorem Key takeaways The Coase Theorem states that when transaction costs are zero and parties have perfect information, private bargaining will lead to an efficient allocation of resources regardless of the initial assignment of property rights. Real-world frictions — transaction costs, asymmetric information, unequal bargaining power, and many affected parties — typically prevent Coasian…

What is the Chicago Mercantile Exchange (CME)? The Chicago Mercantile Exchange (CME) is a major organized exchange for trading futures and options across a wide range of markets, including agriculture, energy, stock indices, foreign exchange, interest rates, metals, real estate, and weather. It is a publicly traded, shareholder-owned corporation and a central part of the…

Chicago Board Options Exchange (CBOE) The Chicago Board Options Exchange (CBOE) is the world’s largest options exchange, founded in 1973 and headquartered in Chicago. It lists options on individual stocks, indexes, ETFs, ETNs and other assets, and is the originator of the CBOE Volatility Index (VIX), the most widely used gauge of U.S. equity-market volatility….

Cloud computing delivers computing resources—servers, storage, databases, networking, software, and analytics—over the internet on demand. Instead of keeping data and applications on local hardware, users and organizations access them from remote, provider-managed servers, enabling flexibility, scalability, and faster deployment. Key takeaways Cloud services are delivered on demand and typically billed by usage or subscription. Three…

Closed-End Funds: What They Are and How They Work Key takeaways * Closed-end funds (CEFs) issue a fixed number of shares in a one-time public offering and then trade on a stock exchange like stocks. * Market price can differ from net asset value (NAV), creating premiums or discounts that present opportunities and risks. *…

Closed Economy What is a closed economy? A closed economy is an economic system in which a country produces all goods and services domestically and does not engage in international trade — no imports and no exports. In practice, a truly closed economy is a theoretical construct rather than a realistic model in today’s globalized…

Closing a Position in Trading Closing a position means executing the opposite transaction of an open position to remove market exposure. It’s a fundamental trading action used to realize profits, limit losses, free up capital, or adjust exposure. What it means Closing a long position: sell the security (sell to close). Closing a short position:…

What Is a Clearinghouse? Essential Role in Financial Markets A clearinghouse is a financial intermediary that validates, finalizes, and settles trades between buyers and sellers. By stepping in as the counterparty to both sides of a transaction, it reduces settlement risk, enforces margin requirements, and helps ensure market stability. Examples of major clearing organizations: *…

Clearing: Definition and Overview Clearing is the process that finalizes a financial transaction by reconciling buy and sell orders, validating funds or assets, and ensuring their transfer between parties. It often involves a third-party intermediary—typically a clearinghouse or a clearing bank—that acts as the central counterparty to reduce counterparty and settlement risk and to streamline…

Clayton Antitrust Act: Overview and Key Provisions What the Clayton Antitrust Act Does The Clayton Antitrust Act, enacted in 1914, strengthens U.S. antitrust law by outlawing specific business practices that substantially lessen competition or tend toward monopoly. It supplements the Sherman Act by targeting conduct the Sherman Act did not clearly prohibit and by providing…

What Is a Clawback? A clawback is a contractual provision that requires a person or entity to return money or benefits already paid, sometimes with penalties. Clawbacks most often apply to incentive-based pay—bonuses, stock awards, or carried interest—and are used to recover compensation after misconduct, accounting errors, restatements, poor performance, or other specified triggers. Key…

Classical Economics: Origins, Core Ideas, and Legacy What is classical economics? Classical economics is a school of thought that developed in the late 18th and 19th centuries as a response to mercantilism and the economic changes of the Industrial Revolution. It provided the first systematic explanation of market behavior, prices, distribution, and economic growth, and…

Circular Flow of Income What it is The circular flow model is a simplified representation of how money moves through an economy. It shows how income flows from producers (businesses) to households as wages and returns to businesses when households spend on goods and services. Adding other sectors and transactions transforms the basic model into…

Churning: Definition, Types, Detection, Prevention, and Penalties What is churning? Churning is the unethical or illegal practice by a broker or salesperson of executing excessive or unnecessary transactions in a client’s account primarily to generate commissions or fees. Even when trades are profitable, excessive turnover can harm investors through higher costs, adverse tax consequences, and…

Churn Rate Definition Churn rate (customer attrition rate) is the percentage of customers or subscribers who stop doing business with a company during a specific period. It’s a primary measure of customer retention and is also applied to employee turnover. Why it matters High churn reduces revenue and profit and slows or reverses growth. For…

Ethical Wall (formerly “Chinese wall”) — Definition and Purpose An ethical wall is an internal information barrier within an organization that prevents the flow of sensitive or non-public information between teams or departments. Its purpose is to avoid conflicts of interest, protect client confidentiality, and reduce the risk of insider trading or other unethical conduct….

Child Tax Credit The Child Tax Credit (CTC) is a federal tax benefit for taxpayers with qualifying children under age 17 at the end of the tax year. For the 2023 tax year, the credit is $2,000 per qualifying child. The credit reduces your federal income tax liability dollar for dollar; part of it may…

Chief Technology Officer (CTO) What a CTO Does A chief technology officer (CTO) is a senior executive responsible for an organization’s technology strategy, product engineering, and research and development. The CTO aligns technology initiatives with business goals, evaluates new technologies, oversees technical teams, and—in companies without a separate CIO—may also manage internal IT operations. Core…

Chief Operating Officer (COO) What is a COO? A chief operating officer (COO) is a senior executive responsible for overseeing a company’s day-to-day administrative and operational functions. Reporting to the chief executive officer (CEO), the COO translates strategy into execution, manages internal operations, and ensures the organization runs efficiently. Core responsibilities COO duties vary by…

What is a Chief Financial Officer (CFO)? A chief financial officer (CFO) is the senior executive responsible for a company’s financial management and strategy. The CFO oversees cash flow, financial planning, reporting, and analysis, and advises the CEO and executive team on financial decisions that shape the company’s direction. Core responsibilities Manage all financial operations,…

Chief Executive Officer (CEO) A chief executive officer (CEO) is the highest-ranking executive in an organization. The CEO sets overall direction, makes major corporate decisions, manages senior leadership, and serves as the principal link between the board of directors and company operations. In many organizations the CEO is also the public face of the company….

Chi-Square (χ²) Statistic Definition The chi-square (χ²) statistic measures how well observed categorical data match expected values under a specified model. It is commonly used to test relationships between categorical variables (test of independence) and to assess how well a sample distribution matches a theoretical distribution (goodness-of-fit). Key takeaways Applies to categorical (especially nominal) data…

Checks and Balances: Definition, Examples, and How They Work Definition Checks and balances are rules, procedures, and institutional arrangements that allow one person or body to limit, reject, or modify the actions of another. Their purpose is to reduce mistakes, prevent abuse of power, and avoid excessive centralization by requiring cooperation and oversight within an…

Checking Accounts A checking account is a deposit account meant for everyday spending and transactions — receiving paychecks, paying bills, withdrawing cash at ATMs, and using a debit card for purchases. Banks and credit unions (including online-only institutions) offer checking accounts with varying features, fees, and protections. Key takeaways Designed for day-to-day use: deposits, withdrawals,…