Category: Financial Terms

Unemployment — Definition, Causes, Types, Measurement, and Impact Key takeaways * Unemployment occurs when people who are actively seeking work cannot find jobs. * The unemployment rate is a core indicator of economic health: high rates signal weakness, extremely low rates can indicate overheating. * Common types of unemployment are frictional, structural, cyclical, and institutional….

Uneconomic Growth: What It Is and How It Works Uneconomic growth occurs when additional economic output produces more harm than benefit — when the marginal social and environmental costs of expanding production outweigh the marginal gains in well‑being. Also described as unsustainable growth, it highlights situations where rising GDP coincides with declining quality of life…

Unearned Revenue Unearned revenue (also called deferred revenue) is cash a company receives before delivering goods or performing services. Because the company still owes the customer product or service, the payment is recorded as a liability until the obligation is fulfilled and revenue can be recognized. Why it matters Improves near‑term cash flow by providing…

Unearned Premium Key points * Unearned premium is the portion of a paid insurance premium that covers future periods and has not yet been earned by the insurer. * It is recorded as a liability on the insurer’s balance sheet because it may need to be returned if coverage ends early. * As time passes…

Unearned Interest: What it Is, How It Works, and How to Calculate It Definition Unearned interest (also called unearned discount) is interest that a lender has collected but has not yet recognized as income. Initially recorded as a liability, it is recognized as income over time as the interest is earned. If a borrower repays…

Unearned Income: What It Is and How It’s Taxed Unearned income is money you receive without working for it. Unlike earned income (wages, salaries, tips, self-employment earnings), unearned income comes from investments or other passive sources. Common examples include interest, dividends, rental income, inheritances, and certain government benefits. Key takeaways Unearned income is passive income—not…

Unearned Discount: Meaning, Calculation, Example What is an unearned discount? An unearned discount (more commonly called unearned interest) is interest or a financing fee that a lender collects up front but has not yet recognized as income. When collected in advance, the amount is recorded as a liability on the lender’s balance sheet and is…

Undue Influence: Definition, Examples, and How to Prevent It What is undue influence? Undue influence occurs when one person uses power, authority, or a close relationship to pressure another into decisions that are not in the latter’s best interest. It undermines free and informed consent and can produce agreements or actions that benefit the influencer…

Undivided Profit: What It Is, How It Works, and an Example Key takeaways * Undivided profits are corporate earnings that have not been transferred to a surplus account or paid out as dividends. * They remain part of shareholders’ equity until allocated to retained earnings, surplus, or dividend distributions. * For banks, undivided profits are…

Undivided Account: What It Is and How It Works Key takeaways An undivided account (also called an eastern account) is an IPO syndicate arrangement in which each underwriter shares responsibility for selling any unsold portion of the offering. In a western account, each underwriter is liable only for the shares it was assigned. Eastern accounts…

Undisclosed Reserves: What They Are and How They Work Undisclosed reserves are real capital items that a bank holds on its books but does not present in public financial statements such as the balance sheet. They typically arise through internal provisions or charges to profit and loss (P&L) that reduce reported earnings or retained earnings,…

Underwriting Standards: Meaning, Overview, Example Underwriting standards are the guidelines financial institutions use to determine whether to extend credit and on what terms. They set benchmarks for borrower qualification, loan amounts, interest rates, collateral, and other terms to manage credit risk and protect lenders from excessive losses. Key takeaways Underwriting standards define how lenders evaluate…

Underwriting Spread An underwriting spread is the difference between what underwriters (typically investment banks) pay an issuing company for its securities and the price at which those securities are sold to the public. It represents the underwriter’s gross profit margin and is commonly expressed as a percentage or as points per share/unit. Key takeaways The…

What is underwriting risk? Underwriting risk is the risk of loss faced by an underwriter when assuming financial exposure. In insurance, it arises when an insurer misprices coverage or faces unexpected losses (for example, a catastrophe). In securities, it arises when an underwriter overestimates demand for a new issue or when market conditions shift suddenly,…

Underwriting Income: What It Is and How It Works What is underwriting income? Underwriting income is the profit an insurance company earns from its core insurance operations. It equals the premiums collected from policyholders minus the costs of running the business and the claims paid out. When claims and expenses exceed premiums, the insurer records…

Underwriting Group: What It Is, How It Works An underwriting group is a temporary association of investment banks and broker-dealers that jointly purchase a new securities issue from an issuer and then distribute it to investors. Also called a purchase group, distributing syndicate, or syndicate, the group shares the financial risk and the work of…

Underwriting Fees in Insurance: Meaning and Examples Underwriting fees are payments to underwriters for assessing, pricing, and taking on risk. Underwriters operate across capital markets, mortgages, and insurance, and the fee compensates them for services such as evaluating risk, structuring offerings, and assuming financial exposure. What an underwriter does Assesses and quantifies risk (for loans,…

Underwriting Expenses: What They Are, How They Work Underwriting expenses are the costs incurred to evaluate, issue, and manage insurance policies or to underwrite securities. These expenses are a major operating cost for insurers and investment banks; keeping them low relative to revenue improves profitability. Key takeaways Underwriting expenses are the costs of performing underwriting…

Underwriting Cycle The underwriting cycle describes recurring fluctuations in the insurance market between “soft” and “hard” conditions. These swings—typically spanning several years—affect competition, capacity, pricing, profitability, and insurers’ underwriting standards. Key takeaways The cycle alternates between soft markets (high competition, low premiums, looser underwriting) and hard markets (reduced competition, higher premiums, stricter underwriting). Triggering events—large…

Underwriting Capacity Key takeaways Underwriting capacity is the maximum liability an insurer is willing and able to assume through its underwriting activities. It reflects an insurer’s ability to retain risk and pay claims without becoming insolvent. Regulators cap underwriting capacity to protect policyholders; insurers often apply stricter internal limits. Insurers increase capacity by improving profitability,…

Underwriting Agreements An underwriting agreement is a contract between an issuing corporation and an underwriting group (a syndicate of investment bankers) that sets the terms for purchasing and reselling a new securities offering. It defines each party’s responsibilities, the pricing and settlement terms, and the conditions under which the offering will proceed. Purpose and key…

Underwriting Explained: Types, Process, and Purpose What is underwriting? Underwriting is the process by which lenders, insurers, and investment banks evaluate and price financial risk. An underwriter decides whether to accept a loan, insurance policy, or securities offering and sets the terms—interest rates, premiums, or offering prices—so the institution can manage expected losses and earn…

Underwriters Laboratories (UL) Underwriters Laboratories (UL) is a global safety-science organization and the largest, oldest independent testing laboratory in the United States. UL evaluates products, systems, and materials for safety and compliance, issuing marks and certifications used by manufacturers and regulators worldwide. Key facts Founded in the late 19th century; evolved from an electrical testing…

Underwriter Syndicate: What it Is and How It Works An underwriter syndicate is a temporary group of investment banks and broker‑dealers that join forces to sell a large new issue of equity or debt securities. Syndicates pool resources to manage underwriting, distribution, and the risks associated with bringing a large offering to market. Why syndicates…

Underwriter — Definition and Overview An underwriter is a financial professional or firm that assesses, assumes, and prices risk for a fee. Underwriters operate across finance—mortgages, insurance, loans, equity offerings, and debt securities—helping determine which risks are acceptable and how they should be priced. They enable transactions to proceed smoothly by balancing potential gains against…

Underwithholding: What it Means and How It Works Definition Underwithholding occurs when an employer (or payor) does not withhold enough tax from a taxpayer’s wages or other income during the year to cover the taxes owed. The shortfall must be paid when the tax return is filed and may trigger an underpayment penalty. How withholding…

Underweight Underweight describes two related investing concepts: – A portfolio that holds a smaller percentage of a particular security than its benchmark does. – An analyst rating that expects a security to underperform its peers or the chosen benchmark. Key takeaways “Underweight” can refer to a portfolio allocation or an analyst recommendation. Underweight portfolio status…

Underwater Mortgage An underwater mortgage occurs when the outstanding principal on a home loan is greater than the home’s current market value. This situation—also called negative equity—can limit refinancing or selling options and increase financial vulnerability if home prices fall. Key takeaways An underwater mortgage means you owe more than the home is worth. Negative…

Underwater: What It Means and How It Works Key takeaways “Underwater” (or “upside-down”) describes an asset worth less than its outstanding loan or its original purchase price. Common examples include mortgages, car loans, and leveraged securities in margin accounts. Being underwater can be temporary if payments continue; it becomes problematic when selling, refinancing, or if…

Undervalued: Definition in Value Investing What “undervalued” means An asset is undervalued when its market price is believed to be below its intrinsic value — the present value of the cash flows the asset is expected to generate. For equities, intrinsic value is estimated by analyzing fundamentals such as free cash flow, profit margins, return…

Undertakings for Collective Investment in Transferable Securities (UCITS) Definition UCITS (Undertakings for Collective Investment in Transferable Securities) is a European regulatory framework for collective investment funds (typically mutual funds) that are authorised in an EU member state and can be marketed across the EU. UCITS standards aim to provide transparent, well-regulated, and liquid investment vehicles…

Undersubscribed: Meaning, Causes, and Implications What does undersubscribed mean? Undersubscribed (or underbooked) describes an offering of securities—commonly an IPO—where demand from investors is lower than the number of shares available. It signals that the issue failed to attract enough interest at the proposed price or that distribution and marketing were ineffective. Key takeaways Undersubscription occurs…

Underpricing: Definition, How It Works, and Why It’s Used What is underpricing? Underpricing occurs when an initial public offering (IPO) is priced below the price at which the stock ultimately trades in the open market. If a new stock closes above its IPO price on the first trading day, the offering is considered underpriced. The…

Underperform: Meaning and Examples An investment is said to underperform when it does not keep pace with relevant benchmarks or peer securities. In a rising market, a stock that gains less than the S&P 500 (or its peer group) is underperforming; in a declining market, a stock that falls faster than the broader market is…

Underpayment Penalty An underpayment penalty is a charge the IRS imposes when a taxpayer doesn’t pay enough tax during the year — either through insufficient withholding from wages or by failing to make required estimated tax payments. Penalties are calculated for the period the tax was unpaid and can be reduced or waived in certain…