Category: Financial Terms

Understanding Expiration Time Expiration time is the exact moment when a derivative—such as an options or futures contract—ceases to be valid and must be settled. It is more specific than the expiration date and can differ from the last time the contract can be traded. At expiration: * In-the-money (ITM) options retain value and are…

Expiration Date Key takeaways * An expiration date is set by the manufacturer and indicates when a product is expected to be at its best quality. For most food, these dates reflect quality, not safety. * Infant formula and all prescription and over-the-counter (OTC) drugs must carry date labels by federal rules; most other foods…

What Are Experience Ratings in Insurance Experience ratings compare an insured party’s past loss history with that of similar insureds to estimate future risk. They are most commonly used in workers’ compensation insurance and form the basis of an experience modification factor (modifier) that adjusts a policyholder’s premium. Key points Experience ratings measure a policyholder’s…

Expense Ratio An expense ratio measures the annual cost of owning a mutual fund or ETF, expressed as a percentage of the fund’s assets. It represents the portion of a fund’s assets used to cover operating and administrative expenses and, therefore, directly reduces investors’ returns. Definition Expense ratio = Total fund operating expenses / Total…

Expense: Definition, Types, and How It’s Recorded Key takeaways * An expense is a cost a business incurs to generate revenue. Expenses are recorded under either cash-basis (when paid) or accrual-basis (when incurred) accounting. Major classifications include operating vs nonoperating expenses and capital expenditures (CapEx), which are capitalized and depreciated. * For tax deductibility, expenses…

Expenditure Method The expenditure method is a common way to calculate a country’s gross domestic product (GDP) by totaling all spending on final goods and services within an economy. It yields nominal GDP, which can be adjusted for inflation to produce real GDP. How it works The method treats GDP as the sum of aggregate…

Expedited Funds Availability Act (EFAA): What it is, How it Works The Expedited Funds Availability Act (EFAA) governs how long banks can delay access to deposited funds. Enacted by Congress in 1987 and implemented by the Federal Reserve as Regulation CC, the EFAA standardizes deposit-hold practices and requires banks to disclose their hold policies to…

Expected Utility: Understanding, Calculating, and Applying It Definition Expected utility is a measure of the anticipated satisfaction (utility) an individual or group assigns to uncertain outcomes. Rather than valuing outcomes by their monetary amounts, expected utility weights each possible outcome by its probability and by how much utility that outcome provides. Calculation The expected utility…

Expected Return: A Guide to Investment Profitability Key takeaways Expected return is an estimate of the average profit or loss an investment is likely to produce, typically based on historical outcomes. It is not a guarantee. It is calculated as the expected value of possible returns, using probabilities or portfolio weights. Expected return is a…

Expected Value: Definition, Formula, and Examples What is expected value? Expected value (EV), also called the expectation or mean, is the probability-weighted average of all possible outcomes of a random variable. It represents the long-run average value you would expect if an experiment were repeated many times. EV quantifies the center of a probability distribution…

Expected Loss Ratio (ELR) Method What it is The Expected Loss Ratio (ELR) method estimates future claim amounts relative to earned premiums when historical claim data are limited or unreliable. It’s commonly used for new products, lines with sparse data, or long-tail business where past experience is not sufficiently predictive. Core concept ELR is the…

Expectations Theory — Predicting Short-Term Interest Rates Expectations theory links current long-term interest rates to investors’ expectations of future short-term rates. Under the theory’s core assumption, holding a long-term bond yields the same expected return as rolling over a series of short-term bonds of equivalent total maturity. It is often called the pure (or unbiased)…

Expatriate (Expat): Definition, Taxes, and Pros & Cons What is an expatriate? An expatriate (expat) is someone who moves from their country of origin to live in another country for an extended period — for work, retirement, or lifestyle reasons. Expats include company assignees, remote or “digital nomad” workers, retirees, students, and long‑term residents. Key…

Expansionary Policy What it is Expansionary policy refers to fiscal or monetary measures designed to stimulate economic activity by increasing aggregate demand. Governments use fiscal tools (spending, tax changes, transfers) and central banks use monetary tools (lowering interest rates, increasing money supply) to encourage consumer spending, business investment, and job creation. It’s a core recommendation…

Expansion Expansion is the phase of the business cycle in which real GDP rises for two or more consecutive quarters as the economy moves from a trough toward a peak. It is commonly called an economic recovery and is typically marked by rising employment, stronger consumer confidence, and buoyant equity markets. Key takeaways Expansion is…

Expanded Accounting Equation The expanded accounting equation extends the basic accounting equation to show the components of shareholders’ (or owners’) equity in more detail. It clarifies how equity changes from period to period by separating contributed capital, retained earnings, revenues, expenses, dividends, and other equity transactions. This makes it useful for financial analysis and for…

Exotic Options Key takeaways Exotic options are customized derivatives that deviate from standard calls and puts by altering payoff formulas, exercise rules, or underlying references. They are typically more complex, often traded over-the-counter (OTC), and suit tailored hedging or speculative needs. Common types include barrier, binary, look-back, Asian, Bermuda, and quanto options—each with distinct risk/reward…

Exogenous Growth Definition Exogenous growth is an economic theory that attributes long‑run increases in output primarily to factors outside the economic system—most notably technological progress. In this view, technical change is treated as an independent, unexplained driver of productivity rather than something produced by the economy itself. How the theory works Output growth depends on…

Exit Strategy Key takeaways An exit strategy is a preplanned method for liquidating or transferring ownership of an investment or business when preset conditions are met. Purpose: remove emotion from decisions, limit losses, capture gains, enable succession planning and prepare for unexpected events. Common startup exits: IPO, strategic acquisition, management buyout, liquidation. Common exits for…

Exercise Price: Overview, Puts and Calls, In and Out of the Money Key takeaways The exercise price (also called the strike price) is the price at which the underlying security can be bought (call) or sold (put) if the option is exercised. An option’s value depends on the relationship between the exercise price and the…

Exercise: Definition and How It Works (Options) What is exercise? To exercise an option means to put into effect the contract right to buy or sell the underlying security at the contract’s specified strike price. An option holder has the right—but not the obligation—to buy (call) or sell (put) the underlying asset on or before…

Exemption An exemption reduces the amount of income that is subject to federal income tax. While several exemption types exist, changes from the Tax Cuts and Jobs Act (TCJA) effectively suspended the personal exemption through 2025 and replaced its effect with larger standard deductions. Other exemptions—dependent exemptions, income exclusions, and special-category exemptions—remain important tools for…