Category: Financial Terms

Free Trade Key takeaways Free trade reduces or eliminates tariffs, quotas, and other barriers between participating countries to facilitate the flow of goods and services. Most modern free-trade arrangements include regulations, exceptions, and oversight rather than completely unrestricted trade. Economic arguments for free trade emphasize gains from specialization and comparative advantage; critics point to job…

Free Rider Problem What it is The free rider problem arises when a good or service is non-excludable (anyone can use it) and non-rivalrous (one person’s use doesn’t reduce availability for others), so individuals can benefit without contributing to its cost. Because some people can enjoy the benefits without paying, voluntary funding or provision tends…

Free on Board (FOB): Who’s Liable for Goods in Transit Free on Board (FOB) is a shipping term that specifies the point in the supply chain when responsibility for goods shifts between the seller and the buyer. It determines who bears the costs, risk of loss or damage, and which party handles transportation and insurance…

Free Market: Definition and Key Takeaways A free market is an economic system where supply, demand, prices, and exchanges are determined predominantly by voluntary transactions among individuals, not by coercive government control. Voluntary exchange and decentralized decision-making are central: buyers and sellers freely trade goods and services. No modern economy is a perfectly free market;…

Free Look Period Key takeaways * A free look period is a short timeframe—typically 10 to 30 days—during which a new life insurance or annuity buyer can cancel the policy without penalty and receive a full refund of premiums. * The period begins when the insured receives the executed policy (the delivery date), but exact…

Free-Float Methodology What it is The free-float methodology (also called float-adjusted capitalization) calculates a company’s market capitalization using only shares available for public trading. It excludes restricted or locked-in shares held by insiders, governments, or other large, non-tradable holders. Many major indexes (for example, the S&P 500, FTSE, and MSCI indexes) use free-float weighting to…

Free Enterprise What is free enterprise? Free enterprise (also called a free market) is an economic system where prices, production, and distribution of goods and services are determined mainly by market forces—private property rights, voluntary contracts, and competition—rather than direct government control. Businesses operate with minimal regulatory interference, and transactions arise from voluntary exchange between…

What is Free Cash Flow Yield? Free cash flow yield measures how much free cash flow a company generates relative to its market value. It shows the percentage return in cash terms that equity investors receive for each dollar invested in the company. Investors use it to gauge solvency, dividend sustainability, and overall capital efficiency….

Free Cash Flow to the Firm (FCFF) Free Cash Flow to the Firm (FCFF) measures the cash a company generates from operations that is available to all capital providers (both equity and debt holders) after paying operating expenses, taxes, and making necessary reinvestments in working capital and fixed assets. It is a key indicator of…

Free Cash Flow to Equity (FCFE) Free Cash Flow to Equity (FCFE) measures the cash a company can distribute to its equity shareholders after paying operating expenses, funding reinvestment, and meeting debt obligations. It’s a useful indicator of financial flexibility and dividend/buyback sustainability, especially for firms that do not regularly pay dividends. Core definition FCFE…

Free Cash Flow (FCF) What is Free Cash Flow? Free cash flow (FCF) is the cash a company generates from operations after paying for capital expenditures (CapEx) needed to maintain or expand its asset base. It represents the cash available to repay creditors, pay dividends, buy back shares, or reinvest in the business. Why FCF…

Free Carrier (FCA) Free Carrier (FCA) is an Incoterm that defines the seller’s and buyer’s responsibilities for delivering goods to a carrier. It is widely used for all modes of transport, including multimodal shipments. Key takeaways Seller delivers goods to a carrier or another named place and bears risk until delivery to that carrier/place. Buyer…

Freddie Mac (Federal Home Loan Mortgage Corporation) What it is Freddie Mac (the Federal Home Loan Mortgage Corporation, FHLMC) is a stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress in 1970 to support liquidity in the U.S. mortgage market. It helps make homeownership and rental housing more available to middle‑income Americans by purchasing mortgages from lenders,…

Fraud: Definition, Types, and Consequences Key takeaways * Fraud is an intentional deception to gain an illicit advantage or deprive another of their rights. * Common financial frauds include mortgage schemes, insurance scams, and securities fraud. * Legal response can be criminal or civil; penalties range from fines and restitution to imprisonment. * Prevention relies…

Franked Dividend: Definition and How It Works Key takeaways * A franked dividend is an Australian dividend that carries a franking credit — a tax credit representing tax the company has already paid — to prevent double taxation. * Shareholders include the dividend plus the franking credit in their assessable income and claim the franking…

Franchisee: Definition, How It Works, and What to Expect What is a franchisee? A franchisee is an independent business owner who purchases the right to operate a location using a franchisor’s brand, trademarks, products, and proven business methods. In exchange for this license, the franchisee pays initial fees, ongoing royalties, and must follow the franchisor’s…

Franchise Tax: Definition, Rates, Exemptions, and Example What is a franchise tax? A franchise tax is a state-level levy that businesses pay for the privilege of being legally chartered or doing business in a state. Despite the name, it is not a tax on franchising agreements. It is separate from federal and state income taxes…

Franchise: What It Is and How It Works Definition A franchise is a business arrangement where a franchisor grants a franchisee the right to operate using the franchisor’s brand, systems, and proprietary knowledge in exchange for fees. The franchisee runs a business under the franchisor’s trademark and established operating model rather than creating a brand…

Fractional Share: Definition, Examples, How to Buy and Sell What is a fractional share? A fractional share is any portion of a single full share of stock. Instead of owning one full share, an investor might own 0.25 or 0.5 shares, for example. Fractional shares let investors gain exposure to expensive stocks or diversify with…

Understanding Fractional Reserve Banking: How It Fuels Economic Growth What is fractional reserve banking? Fractional reserve banking is the system most modern economies use in which banks hold only a portion of customer deposits as reserves and lend out the remainder. By turning otherwise idle deposits into loans, banks increase the availability of credit, support…

Fractal Indicator The fractal indicator identifies recurring five-bar price patterns that can signal potential trend reversals. It highlights local highs and lows that are higher or lower than the two bars on each side, applying the concept of self-similarity across time frames to price action. What is a fractal? A fractal is a specific five-bar…

Fourth World The Fourth World is a historical term used to describe the most marginalized, poverty‑stricken, and politically excluded peoples and regions—often stateless indigenous, tribal, or nomadic communities living largely outside the global market system. The phrase is now considered outdated and potentially offensive; contemporary discourse favors terms such as “indigenous peoples,” “marginalized communities,” or…

The Four Ps of Marketing The Four Ps—product, price, place, and promotion—form the classic marketing mix used to plan and execute how a product or service is brought to market. Originating from mid-20th-century marketing theory, this framework helps businesses align their offering with customer needs and competitive context. Modern marketers often extend the model to…

Four Percent Rule What it is The 4% rule is a simple retirement-withdrawal guideline: withdraw 4% of your retirement account balance in the first year of retirement and then increase that dollar amount each subsequent year to keep pace with inflation. The rule was designed to provide a steady income stream while preserving portfolio longevity—originally…

The Four Asian Tigers: Hong Kong, Singapore, South Korea, and Taiwan The “Four Asian Tigers” (also called the Asian Dragons) are Hong Kong, Singapore, South Korea, and Taiwan — economies that achieved rapid industrialization and sustained high growth from the 1960s onward. Driven largely by export-oriented policies, investment in human capital, and wide adoption of…

Forward Rate Agreement (FRA) What is an FRA? A forward rate agreement (FRA) is an over-the-counter (OTC) derivative contract that fixes an interest rate to be paid on a notional amount for a specified future period. One party agrees to pay a fixed rate (the long side/borrower) and the other pays a floating rate tied…

Forward Rate Explained: Definitions, Calculations, and Uses What is a forward rate? A forward rate is an interest rate or exchange rate agreed today for a financial transaction that will occur at a specified future date. It is derived from current (spot) rates and reflects market expectations and the cost of carry. Forward rates are…

Forward Price-to-Earnings (Forward P/E) What it is Forward P/E measures a stock’s current price relative to its expected future earnings per share (EPS). It uses analyst or company forecasts—typically for the next 12 months or next fiscal year—to estimate how expensive a stock is based on projected earnings. Formula Forward P/E = Current share price…

Forward price What is a forward price? A forward price is the pre-agreed price at which an asset (commodity, currency, or financial instrument) will be delivered at a specified future date under a forward contract. It is set so the contract has zero value at inception and is used primarily to hedge or lock in…

Forward Premium What it is A forward premium exists when a currency’s forward (future) exchange rate is higher than its current spot rate. It signals that the market expects the currency’s quoted value to rise relative to the other currency. When the forward rate is lower than the spot rate, the condition is called a…

Forward Points Forward points (also called forward spread or swap points) are the basis-point adjustment added to or subtracted from a currency pair’s spot rate to determine the forward rate for a specified value date. When points are added to the spot rate it is a forward premium; when points are subtracted it is a…

Forward Market Key takeaways * A forward market is an over-the-counter (OTC) market where parties agree today on the price of an asset for delivery at a future date. * Forward contracts are customizable (size, maturity) and commonly used for foreign exchange, commodities, interest rates, and securities. * Forward pricing is driven by interest-rate differentials;…

Forward Integration What is forward integration? Forward integration is a vertical growth strategy in which a company expands its operations downstream in the value chain to take direct control of distribution, marketing, sales, or after-sales service. The goal is to move closer to end customers—often described as “cutting out the middleman”—to increase market control, capture…

Forward Exchange Contract (FEC): Definition and Overview A forward exchange contract (FEC) is an over-the-counter (OTC) agreement between two parties to exchange a specified amount of one currency for another at a predetermined exchange rate on a future date. FECs are used to lock in exchange rates and protect participants from adverse currency movements. They…

Forward Dividend Yield What it is Forward dividend yield estimates a stock’s expected annual dividend income as a percentage of its current share price. It projects future income based on the most recent dividend information and expectations about how often dividends will be paid. How it’s calculated Forward dividend yield = (Expected annual dividends /…