Category: Financial Terms

Five-Year Rule (IRAs) The “5-year rule” refers to several IRS timing rules that affect when IRA funds can be withdrawn tax- and penalty-free. It’s most commonly associated with Roth IRAs, but it also applies to conversions and certain inherited IRAs. Below is a concise guide to how these rules work and when they matter. Key…

Five Cs of Credit The five Cs of credit are the five factors lenders use to evaluate a borrower’s creditworthiness: Character, Capacity, Capital, Collateral, and Conditions. Lenders weigh these elements to estimate the likelihood a borrower will repay a loan and to set interest rates and loan terms. Key takeaways Character = credit history and…

Fitch Ratings Explained What is Fitch Ratings? Fitch Ratings is a major credit rating agency that assesses the creditworthiness of governments, corporations, financial institutions, and other issuers of debt. Its ratings estimate the likelihood that an issuer will meet its debt obligations and influence how much return investors demand for taking on that risk. Fitch…

Fisher Transform Indicator Key takeaways The Fisher Transform converts price data into a form that approximates a Gaussian (normal) distribution to make extremes—and potential turning points—more visible. Common uses: spotting reversal candidates, identifying short-term turning points, and isolating price waves within a trend. The indicator is unbounded; “extreme” values vary by asset and must be…

Fisher Effect Definition The Fisher effect describes how nominal interest rates adjust in response to changes in expected inflation so that the real interest rate (the return after accounting for inflation) remains stable. In simple form: real interest rate ≈ nominal interest rate − expected inflation The exact relationship is: (1 + nominal) = (1…

Fiscal Year-End Definition Fiscal year-end is the last day of an entity’s 12-month accounting period. It marks the close of the reporting cycle used for financial statements, budgeting, and tax filings. A fiscal year may align with the calendar year (ending December 31) or follow any other 12-month period chosen to suit the business or…

Fiscal Year (FY): Definition and Practical Guide What is a fiscal year? A fiscal year (FY) is any consecutive 12-month period an organization uses for accounting, budgeting, and financial reporting. Unlike the calendar year (Jan 1–Dec 31), a fiscal year can begin on any date. Organizations label a fiscal year by the year in which…

Fiscal Policy Key takeaways Fiscal policy uses government spending and tax decisions to influence aggregate demand, employment, inflation, and economic growth. Its modern practice is rooted in Keynesian ideas: governments can stabilize the business cycle by offsetting private-sector shortfalls or excesses. Expansionary fiscal policy (lower taxes or higher spending) aims to boost demand and growth…

Fiscal Multiplier The fiscal multiplier measures how much a change in government spending or tax policy affects national output (GDP). It helps policymakers estimate the likely impact of fiscal stimulus or austerity on economic activity and is central to Keynesian macroeconomic analysis. Key takeaways The fiscal multiplier is the ratio of a change in GDP…

Fiscal Deficit What a fiscal deficit is A fiscal deficit occurs when a government’s spending exceeds its revenue during a fiscal period. It represents the shortfall that must be financed by borrowing or drawing on reserves. Deficits are commonly expressed as a dollar amount or as a percentage of gross domestic product (GDP). Key points:…

First World: Meaning, Characteristics, and Criticisms Key takeaways * “First World” originated during the Cold War to describe countries aligned with the United States and its Western allies. * Today the term is commonly used to mean developed or industrialized nations with high standards of living, strong institutions, and advanced infrastructure. * Common metrics for…

First Notice of Loss (FNOL): What It Is and How to File Definition A First Notice of Loss (FNOL) is the initial report you make to your insurance company when an insured asset is lost, stolen, or damaged. Filing an FNOL officially starts the claims process and puts the insurer on notice to investigate and…

First Mover: What It Means, Examples, Advantages, and Disadvantages A first mover is a company that gains a competitive advantage by being the first to introduce a new product or service to the market. Being first can allow a firm to establish brand recognition, build customer loyalty, set industry standards, secure supplier and distribution relationships,…

First Mortgage: Definition, Requirements, and Example What is a first mortgage? A first mortgage is the primary lien placed on a property to secure the original loan used to buy (or refinance) that property. It has priority over any later liens or claims (such as a second mortgage) if the borrower defaults and the property…

First In, First Out (FIFO) What is FIFO? First In, First Out (FIFO) is an inventory valuation method that assumes the oldest inventory items are sold first. Under FIFO, costs of the earliest purchases are recognized in Cost of Goods Sold (COGS) when sales occur, and the most recent purchases remain in ending inventory. A…

Firms: Definition, How They Work, and Types Key takeaways * A firm is a for‑profit business organization—often a partnership, corporation, or LLC—that provides goods or professional services. * The theory of the firm holds that firms exist to organize production and maximize profit, though modern views also emphasize sustainability and long‑term value. * Firms use…

Fire Insurance: Basics, Coverage, and Key Considerations What is fire insurance? Fire insurance is a form of property insurance that covers loss or damage to a home and its contents caused by fire and related perils (for example, smoke or water damage from firefighting). Many homeowners policies include fire coverage, but a stand‑alone fire insurance…

FINRA BrokerCheck Key takeaways * FINRA BrokerCheck is a free online tool to research brokers, brokerage firms, and investment advisers. * It draws mainly from the Central Registration Depository (CRD) and the SEC’s Investment Adviser Registration Depository (IARD). * Reports include registrations, qualifications, employment history, and disclosures such as customer complaints, regulatory actions, and arbitration…

Finder’s Fee A finder’s fee (also called a referral fee or referral income) is payment to an intermediary who connects parties and helps facilitate a business transaction. The fee rewards the person or entity that sourced the deal or introduced the buyer and seller, on the presumption the transaction might not have occurred without that…

Financing: What It Means and Why It Matters Key takeaways Financing raises cash to fund business activities, investments, or purchases. Two primary forms are debt (loans/bonds) and equity (selling ownership). Debt is often cheaper and tax-advantaged; equity does not require repayment and reduces near‑term cash pressure. Most firms use a mix of debt and equity…

Financial Times Stock Exchange Group (FTSE) The FTSE (pronounced “footsie”) refers to the FTSE Russell Group, a global provider of benchmark stock market indices, market data, and analytics. Owned by the London Stock Exchange Group, FTSE Russell creates and maintains indices that serve as performance benchmarks for investors and financial markets worldwide. Key points The…

Financial Technology (Fintech): Uses and Impact What is fintech? Financial technology, or fintech, refers to software, algorithms, and digital platforms that improve or automate financial services. Originally focused on backend systems for banks, fintech now spans consumer-facing apps, payments, lending, investing, insurance, and emerging crypto services. It aims to make financial activities faster, cheaper, more…

Financial System: Definition, Types, and Market Components What is a financial system? A financial system is the network of institutions, markets, instruments, rules, and practices that enable the flow of funds and credit across an economy. It connects borrowers, lenders, investors, and intermediaries to allocate capital for consumption, investment and risk management. Explore More Resources…

Financial Structure Financial structure (also called capital structure) is the mix of debt and equity a company uses to finance its operations. This mix shapes a company’s risk profile, cost of capital, and value. Financial managers choose a structure that balances financing needs, investor preferences, and the goal of minimizing overall capital costs. Understanding the…

Financial statements are standardized reports that summarize a company’s financial position and performance. They give investors, creditors, management, and other stakeholders a consistent way to evaluate a business’s health, profitability, liquidity, and changes in value over time. The four primary financial statements Balance sheet (statement of financial position): snapshot of what the company owns and…

Financial Statement Analysis Financial statement analysis is the process of examining a company’s financial reports to assess its performance, financial health, and future prospects. It helps internal managers make operational decisions and external stakeholders—investors, creditors, analysts—evaluate value, risk, and profitability. Key takeaways Analysis draws on three core statements: balance sheet, income statement, and cash flow…

Financial Sector Explained: Key Players, Importance, and Economic Impact What is the financial sector? The financial sector comprises firms and institutions that deliver financial services to businesses and individuals. It includes banks, investment companies, insurance firms, mortgage lenders, real estate firms and REITs, brokerages, payment processors, and other intermediaries that move capital, underwrite risk, and…

Financial Risk Manager (FRM): Overview, Exams, and Career Outlook Key takeaways * The FRM (Financial Risk Manager) is a globally recognized certification issued by the Global Association of Risk Professionals (GARP) for professionals who identify, measure, and manage financial risk. * Earning the FRM requires passing two exam parts and completing two years of relevant…

Financial Risk What is financial risk? Financial risk is the possibility of losing money or being unable to meet financial obligations. It can affect individuals, companies, markets, and governments. For firms, financial risk often shows up when cash flow is insufficient to service debt or fund operations. For investors, it reflects the chance that investments…

What Is a Financial Planner? A financial planner helps individuals manage money and reach long-term goals—such as paying off debt, saving for retirement or education, investing, protecting against risk, minimizing taxes, and planning estates. The title covers a range of roles; the most widely respected credential is Certified Financial Planner (CFP), which indicates training and…

Financial Plan: Definition and Purpose A financial plan documents your current financial situation, short- and long-term goals, and the strategies—spending, saving, investing, insurance, taxes, and estate arrangements—that help you reach those goals. It serves as a roadmap for prioritizing expenses, building emergency savings, reducing debt, and growing wealth. A good plan is practical, personalized, and…

Financial Performance: Definition, Measurement, and Analysis What is financial performance? Financial performance describes how well a company generates revenue and manages its assets, liabilities, and overall finances. It provides a snapshot of a firm’s economic health and the effectiveness of its management, used by stakeholders such as investors, creditors, employees, and management to assess stability,…

Financial Modeling What is financial modeling? Financial modeling is the process of building a numerical representation—usually a spreadsheet—of a company’s past, present, and forecasted financial performance. Models summarize revenues, expenses, assets, liabilities, and cash flows to help decision makers estimate outcomes of projects, valuation, budgets, or strategic changes. How it works Models translate assumptions (drivers)…

Financial Markets Financial markets are venues where financial instruments—such as stocks, bonds, currencies, derivatives, commodities, and cryptocurrencies—are bought and sold. They connect those who have capital (investors and lenders) with those who need it (businesses, governments, and individuals), enabling price discovery, liquidity, and the allocation of resources across the economy. Key takeaways Financial markets facilitate…

Financial Literacy: What It Is and Why It Matters Overview Financial literacy is the set of skills and knowledge needed to manage money wisely: budgeting, saving, borrowing, investing, and planning for the future. It reduces financial stress, lowers the risk of costly mistakes, and supports long-term goals such as buying a home, financing education, or…