Glossary f - moneymanager.com.au

Face Value
The value of a bond that appears on the face of the bond, unless the value is otherwise specified by the issuer. Face value is ordinarily the amount that the issuer promises to pay at maturity and is not an indication of current market value.

Factor
An aspect of the investment environment which influences returns on financial assets. (See also Common Factor).

Fair Market Value
a) The price at which a buyer and seller agree to conduct a transaction; b) The value of an option or futures premium according to a mathematical model.

FAST
Abbreviation for Flexible Accelerated Securities Transfer.

FBT
Abbreviation for Fringe Benefits Tax.

Federal Reserve
The Fed, as it is also known, was established by the US Congress in 1913 and comprises 12 regional Federal Reserve banks, the largest being the Federal Reserve Bank of New York. These regional banks are governed by the Federal Reserve Board, and together act as the US central bank.

Feeder Fund
See Master Fund

FID
Abbreviation for Financial Institutions Duty. Is currently .06% (NSW/VIC) and applies to amounts deposited. There is a max charge of $1200..

Fidelity Cover
A type of insurance against loss of money held in trust for or on behalf of investors. Fidelity cover must be maintained by all stock exchanges, funded by contributions from the exchange's members.

Fiduciary
A person or organisation entrusted with the responsibility of managing, holding or investing assets in the best interests of the owner of the assets. Trustees of superannuation funds are fiduciaries in respect of the members of their funds.

Fifty (50) Leaders Index
A share price index measuring price movements in 50 leading stocks listed on the Australian Stock Exchange. (See also All Ordinaries Index).

Financial Analyst
An expert trained to advise on the risk and return characteristics of investments and on the management of investment portfolios.

Financial Asset
Any asset that can be securitised, ie. represented by a written certificate (eg. a share certificate or bond) that establishes a claim on the issuing person or organisation.

Financial Futures
Futures contracts concerned with transactions of financial instruments, as distinct from physical commodities. Financial futures available in Australia include bank bill futures, Share Price Index (SPI) futures and Commonwealth bond futures. The essential value of financial futures is that they allow investors to hedge against adverse movements in interest rates or share prices. Financial futures can also be used by speculators who, while having no involvement as buyers or sellers in the underlying securities, can trade in futures as a means of profiting from expected price movements.

Financial Institutions Duty (FID)
A State Government charge on inflows into financial institutions.

Financial Market
A generic term for the markets in which financial securities are traded, eg. stock exchanges, futures exchanges, currency markets. (See also Capital Markets, Money Market).

Financial Planning
The process of providing comprehensive advice and assistance to a client for the purpose of meeting a client's financial needs and life goals. The process normally includes six steps: data gathering, goal setting, identification of financial issues, preparation of written options and recommendations implementation of the client's decision, and periodic review and revision of the plan.

Financial Planning Association of Australia (FPA)
The national body representing professionals who specialise in giving financial planning advice, with 700 members, including 320 principal members (licensed dealers or investment advisers). FPA funds an independent cost-free Complaints Code of Ethics and Rules of Professional Conduct and holds the exclusive licence in Australia to confer the international designation of Certified Financial Planner.

Firm Bid
A bid to buy a security at a definite price with the understanding that it will hold good for a certain period of time. (See also Firm Offer).

Firm Commitment
An arrangement under which the underwriter of an issue of securities undertakes to purchase all of the issue not taken up by the general public.

Firming of the Market
A period when security prices tend to rise from a depressed condition or to stabilise at current levels.

Firm Offer
An offer to sell a security at a definite price with the understanding that it will hold good for a certain period of time. (See also Firm Bid).

Firm Price
A stated price which the maker of a firm bid or firm offer is obliged to meet if the bid or offer is accepted within the specified time.

Fiscal Policy
The aspect of Government economic policy dealing with tax, welfare payments and government expenditure. (See also Monetary Policy).

Fixed Assets
See Assets.

Fixed Income
American term for Fixed Interest.

Fixed Interest
Referring to income which remains constant and does not fluctuate, such as income derived from bonds, annuities and preference shares. Any debt security which has a fixed flow of income is known as a fixed interest security.

Flexible Accelerated Securities Transfer (FAST)
The electronic share settlement system used by the Australian Stock Exchange prior to the introduction of the CHESS system in 1995.

Float
a) In relation to currencies, the exposure of the currency to fluctuations in market forces rather than having a fixed value set by government; b) In relation to companies, the decision to put a company's shares on offer to the public (See also Initial Public Offering, Placement).

Floating Rate
An interest rate which moves in line with market or benchmark rates instead of remaining constant for the life of a loan.

Floating Rate Notes
See FRNs.

Floor
The trading area where securities are bought and sold on an exchange. It is far less of the bull pit it used to be since the advent of screen trading.

Floor Price
The lowest price which a seller is prepared to accept, eg. the reserve price at an auction.

Floor Return
An assured minimum investment return, which leaves the investor free to participate in higher returns should interest rates or investment performance exceed the floor level. Capital protected investment products typically offer a floor return. (See also Upside Capture).

Foreign Investment Funds (FIF) Tax
A tax on unrealised gains made by Australian investors in certain offshore investments. The aim of the tax, introduced in 1992, is to prevent perceived abuses of the taxation system during the 1980s, under which income could be earned overseas, taxed at favourable rates and never returned to Australia.

Foreign Securities
Securities issued by foreign governments or companies incorporated outside Australia.

Forward
Referring to future commitments with regard to prices (commodity, currency, or investment instrument) for which terms are established in the present.

Forward Contract
A cash market transaction in which two parties agree to the purchase and sale of a commodity at some future time under such conditions as the two agree. In contrast to futures contracts, the terms of forward contracts are not standardised, a forward contract is not transferable and there is no margin or collateral requirement to assure performance of the contract.

Forward Interest Rate
The prevailing interest rate for a contract in a specific future time period.

Forward Margin
The difference between the current (or spot) price and its projected future price (forward rate).

Forward Rate Agreement (FRA)
A contract for borrowing or lending at a stated interest rate over a stated time period that begins at some time in the future. FRAs are used by parties wishing to protect themselves against future interest-rate movements.

FPA
Abbreviation for Financial Planning Association of Australia.

FRA
Abbreviation for Forward Rate Agreement.

Franked Dividends
Dividends on shares with imputation credits attached. A company is able to declare that a percentage (up to 100%) of a dividend is franked depending on the amount of tax the company has already paid. If a company pays the full company tax rate, the dividends are fully franked. (See also Dividend Imputation, Imputation Credit).

Friendly Society
A type of mutual organisation first established in the nineteenth century. Many friendly societies have now come to operate in a similar manner to life insurance companies. Friendly Societies fall under the supervision of the Australian Financial Institutions Commission.

Friendly Society Bond
An investment product similar to an insurance bond, issued by a friendly society. Originally invested only in cash and similar investments, these bonds now include investments in fixed interest securities, equities, property and a whole range of risk assets. (See also Insurance Bond).

Fringe Benefits Tax (FBT)
A tax on non-salary benefits that is paid by employers on behalf of their employees. Such benefits may include everything from parking to company cars and subsidised home mortgage payments.

FRNs
Abbreviation for Floating Rate Notes, being long-term (5 years or more) debt securities whose interest rates are adjusted periodically in line with a benchmark rate. FRNs appeal to investors who might otherwise be reluctant to commit funds to fixed interest investments for lengthy periods in times of fluctuating interest rates.

Front End Fee
A fee charge to a borrower at the commencement of a loan, or a commission levied on an investor to buy into a unit trust. Also known as front-end load.

Front Office
A term that refers to the main business activities of a company, as opposed to the operational or 'back office' operations. For example, the front office of an investment bank comprises the analysts, dealers and traders, while the back office comprises the accounting, reporting and support operations. A clear demarcation between front office and back office helps ensure that appropriate Chinese Walls exist within a financial services organisation and that its business activities are properly accountable and appropriately monitored and recorded.

FT Index
Abbreviation for Financial Times Index, an index measuring movements in shares of 30 industrial companies listed on the London Stock Exchange.

FTSE
Abbreviation for Financial Times Stock Exchange Index, the United Kingdom equivalent of the US S&P500 Index and the Australian All Ordinaries Index. The FTSE lists the 100 largest public companies traded on the London Stock Exchange. Usually referred to in the trade as 'Footsie'.

Full Vesting
The inclusion in an employee's superannuation benefit of the total amount of the employer's contribution. (See also Vesting).

Fully Funded
Referring to a superannuation fund in which the assets and liabilities are at least equal. In other words, all obligations to members can be met at any point in time. Opposite of Unfunded Liabilities.

Fundamental Analysis
Analysis of share values based on factors such as sales, earnings and assets that are 'fundamental' to the enterprise of the company in question. These factors are considered in light of current share prices to ascertain any mispricing of the shares.

Fund Manager
See Investment Manager.

Fund of Funds
See Master Fund.

Fungibility
The characteristic of interchangeability. For instance, futures contracts for the same commodity and delivery month are fungible due to their standardised specifications for quality, quantity, delivery date and delivery locations.

Futures
See Futures Contract.

Futures Contract
An obligation to make or take delivery of a specified quantity and quality of an underlying asset at a particular time in the future and at a price agreed when the contract was executed. (See also Financial Futures).

Futures Exchange
A market in which futures contracts are transacted. A number of futures exchanges exist overseas for trading in physical commodity futures, eg. wheat, cotton, sugar, as well as financial futures. In Australia, the Sydney Futures Exchange has operated since 1960, dealing firstly in wool futures, then gold and other commodities including live cattle and finally moving into financial futures in the late 1970s after overcoming Commonwealth Treasury objections.