Category: Financial Terms

Allocated Loss Adjustment Expenses (ALAE) Key takeaways * ALAE are costs directly tied to handling a specific insurance claim (e.g., outside counsel, investigators, expert witnesses). * ULAE (unallocated loss adjustment expenses) cover general claims-handling overhead such as salaries and office expenses. * Insurers establish reserves for ALAE to ensure funds are available to investigate, defend,…

All Risks Insurance Explained What “All Risks” Means All risks (also called open perils or comprehensive insurance) is a type of property insurance that covers any peril except those specifically excluded in the policy. Instead of listing covered events, an all risks policy lists exclusions. If a cause of loss is not on the exclusion…

Algorithmic Trading Overview Algorithmic trading uses computer programs and mathematical models to automate trade decisions and executions in financial markets. Algorithms react to price, volume, timing, and other inputs to place orders faster and more precisely than human traders, improving efficiency while introducing new operational and systemic risks. How it changed markets Adoption began with…

Aleatory Contract — Definition and Overview An aleatory contract is an agreement whose performance depends on the occurrence of an uncertain event. One party’s obligation (often a large payment or benefit) only arises if a particular, unpredictable event happens. These contracts are common in insurance and annuities, where the timing and occurrence of the triggering…

Alan Greenspan: Brief Bio, Policies, Legacy Key takeaways * Alan Greenspan is an American economist who served as Chair of the Federal Reserve from 1987 to 2006. * His tenure coincided with the Great Moderation—an extended period of relatively stable inflation and growth—and is credited by supporters for the economic stability of the 1990s. *…

What is an Aktiengesellschaft (AG)? An Aktiengesellschaft (AG) is a German public limited company whose shares can be offered to the general public and traded on a stock exchange. Shareholders’ liability is limited to their capital contribution; they are not personally responsible for the company’s debts. Key features Abbreviated as “AG” and appended to the…

Air Waybill (AWB) What is an AWB? An air waybill (AWB), also called an air consignment note, is the document that accompanies goods transported by air. It functions as: * A receipt issued by the carrier confirming acceptance of the goods. * A contract of carriage between the shipper and the carrier. The AWB is…

Agribusiness: Definition, Trends, and Challenges What is agribusiness? Agribusiness covers the full economic chain of farming and related commerce — production, processing, distribution, and services that support those activities. It includes small family farms and multinational companies involved in machinery, seeds, agrochemicals, food processing, biofuels, animal feed, and agritourism. The sector is essential for food…

Aggressive Investment Strategy: High-Risk Portfolio Management Explained Key takeaways An aggressive investment strategy prioritizes capital appreciation over income and principal safety, typically by allocating heavily to equities and other high‑risk assets. Best suited for investors with a long time horizon and high risk tolerance who can withstand short‑term volatility. Requires active management, frequent rebalancing, and…

Aggregation: Meaning, Importance, Effects What is aggregation? Aggregation has two common meanings in finance: * In futures markets: the process of combining all futures positions owned or controlled by a single trader or group into one aggregate position for reporting and regulatory purposes. * In financial planning/accounting: the consolidation of an individual’s financial data from…

Aggregate Supply Aggregate supply is the total quantity of goods and services that producers in an economy are willing and able to sell at different price levels during a given period. It is commonly shown as the aggregate supply (AS) curve, which relates the overall price level to real output (real GDP). Key points *…

Aggregate Stop-Loss Insurance Aggregate stop-loss insurance protects employers that self-fund employee health benefits by limiting total claim exposure for a plan year. It reimburses the employer if cumulative claims exceed a predetermined aggregate attachment point (threshold). This differs from specific stop-loss, which covers unusually large claims for an individual enrollee. Key takeaways Designed for self-funded…

Aggregate Demand What is aggregate demand? Aggregate demand (AD) is the total dollar value of spending on finished goods and services in an economy over a given period. It sums spending by households, businesses, governments, and foreign buyers (net of imports). While GDP measures production, aggregate demand measures the demand or spending for that production….

Agent: Definition, Types, Duties, and Examples Key takeaways An agent is authorized to act on behalf of another person or entity (the principal). Agents may have broad or limited authority: universal, general, or special. Agents owe duties of loyalty, care, obedience, disclosure, confidentiality, and separation. Agents can be liable for breaches of duty, unauthorized acts,…

Agency Theory Agency theory explains the relationship between principals (those who delegate authority) and agents (those who act on the principals’ behalf). It addresses how to manage this relationship, the conflicts that can arise when interests diverge, and mechanisms to reduce those conflicts. Key takeaways Principals delegate decision-making authority to agents; differing goals create the…

Agency Problem An agency problem is a conflict of interest that arises when one party (the agent) is expected to act on behalf of another (the principal) but has incentives to pursue personal goals instead. It is common in relationships where principals delegate decisions or tasks to agents who have different objectives, information, or access….

Agency Costs Key takeaways Agency costs arise when an agent acts on behalf of a principal and their interests diverge. They include expenses tied to resolving conflicts of interest and aligning incentives (often called agency risk). Common consequences are reduced shareholder value, management upheaval, and transaction or monitoring expenses. Mitigation focuses on better alignment of…

Agency by Necessity: Meaning in Estate Planning What it is Agency by necessity is a temporary legal relationship that allows one person to act on behalf of another when the latter cannot give explicit authorization. Courts recognize this doctrine in urgent or emergency situations where immediate action is required and no formal agent (such as…

Agency Bond: Definition, Types, How They Work, and Tax Rules Key takeaways * Agency bonds are debt securities issued by federal government agencies or government‑sponsored enterprises (GSEs). * They generally pay slightly higher yields than U.S. Treasuries but can carry varying degrees of government backing and credit risk. * Most agency bond interest is exempt…

After-Tax Income: Overview and Calculations Key takeaways After-tax income (net income) is the amount available to spend after deducting federal, state, local, and withholding taxes from gross income. For individuals, after-tax income is calculated from gross pay minus deductions and income taxes. For businesses, start with total revenues and subtract expenses, deductions, and taxes. After-tax…

After-Tax Contribution: Definition and How It Works An after-tax contribution is money you put into a retirement or investment account after income taxes have already been paid on that income. It contrasts with pre-tax contributions (traditional accounts), which reduce your taxable income in the year of the contribution and are taxed when withdrawn. Two common…

After-Hours Trading Key takeaways * After-hours trading refers to buying and selling securities after the regular U.S. market session ends (after 4:00 p.m. ET) and typically runs into the evening; premarket trading occurs before the opening bell. * Extended-hours trading can provide opportunities to act on news outside regular hours, but it carries higher risks:…

After‑Tax Real Rate of Return Definition The after‑tax real rate of return is the profit (or loss) an investment produces after accounting for taxes, inflation, and other costs. It shows the actual change in purchasing power an investor keeps from an investment, expressed as a percentage. Why it matters Reflects the true increase (or decrease)…

Affordable Care Act (ACA): Overview, Key Features, and Recent Updates What the ACA Is The Affordable Care Act (ACA), signed into law in 2010, is a comprehensive U.S. health reform designed to expand access to health insurance, strengthen consumer protections, and improve the quality and affordability of care. Commonly called “Obamacare,” the law created the…

Affirmative Action What it is Affirmative action refers to policies and practices designed to increase opportunities in education, employment, and government contracting for groups historically underrepresented or subject to discrimination. It has addressed race, sex, religion, national origin, disability, and veteran status by encouraging or requiring organizations to consider these characteristics in admissions, hiring, contracting,…

Affiliated Companies: Definition, Criteria, and Examples What is an affiliated company? Affiliated companies (or affiliates) are businesses that are related because one company holds a minority ownership stake in another or because both are controlled by the same third party. Typically, the parent owns less than 50% of the affiliate, which preserves separate operations and…

Affiliate marketing is an advertising model in which a company pays third-party publishers (affiliates) to drive traffic, leads, or sales to the company’s products or services. Affiliates promote offerings through links, ads, content, email, or social media and earn commissions when their referrals convert. Key takeaways * Performance-based: companies typically pay only when an affiliate’s…

Affiliate: Definition in Corporate, Securities, and Markets An affiliate describes a business relationship in which one company is related to another but does not have a controlling interest. The term applies across corporate ownership, securities, capital markets, and commerce (notably retail and e-commerce). Affiliates also refer to companies that cooperate commercially—such as sites or partners…

Advertising Budget: Definition, How to Set One, and Goals What is an advertising budget? An advertising budget is the amount of money a company allocates for marketing and promotional activities over a set period. It represents the resources a business is willing to invest to reach marketing objectives, acquire customers, and drive revenue growth. Explore…

Adverse Selection: Definition, Effects, and the Lemons Problem Key takeaways * Adverse selection arises when one party in a transaction has more information than the other, creating an information asymmetry that can distort market outcomes. * It is common in insurance and used-car markets: higher-risk buyers or lower-quality goods are more likely to participate, driving…

Adverse Possession What is adverse possession? Adverse possession is a legal doctrine that allows a person who occupies another’s land to acquire legal title to it if specific conditions are met for a statutory period. Often called “squatter’s rights” in everyday language, adverse possession transfers ownership only when the occupation is continuous, open, hostile (i.e.,…

Advanced Internal Rating-Based (AIRB) An Advanced Internal Rating-Based (AIRB) approach is a risk-measurement framework banks use to estimate credit risk internally and calculate required regulatory capital. Adopted under the Basel II capital standards, AIRB lets institutions use their own models for key risk inputs—making capital requirements more risk-sensitive than standardized approaches. Core concepts Probability of…

Advance Payment: Definition, How It Works, and Key Considerations Key takeaways * An advance payment is money paid before goods or services are received. * For the payer, advance payments are recorded as assets (prepaid expenses) and expensed when the good or service is delivered. * Sellers benefit from reduced nonpayment risk; buyers can seek…

Advance/Decline Line (A/D) The advance/decline (A/D) line is a market breadth indicator that tracks the cumulative difference between the number of advancing and declining stocks. It shows how many stocks are participating in a market move and is commonly used to confirm trends or identify potential reversals through divergence. Key takeaways The A/D line is…

Administrative Services Only (ASO) What is ASO? Administrative Services Only (ASO) is an arrangement in which an employer self-funds employee benefit claims but hires an outside vendor—often an insurance company or third‑party administrator (TPA)—to handle plan administration (claims processing, provider network access, billing, etc.). The employer remains responsible for paying claims; the vendor provides administrative…