Finance Dictionary
Accounting, investing, and financial metrics.
Accrual
An accounting method where revenue or expenses are recorded when a transaction occurs rather than when payment is received or made.
Amortization
The process of spreading out a loan into a series of fixed payments over time, or the gradual write-off of an asset’s value.
Annuity
A financial product that pays out a fixed stream of payments to an individual, typically used as an income stream for retirees.
Arbitrage
The simultaneous purchase and sale of an asset to profit from an imbalance in the price.
Asset
Anything of value that is owned by an individual or corporation.
Audit
An official inspection of an individual’s or organization’s accounts, typically by an independent body.
Balance Sheet
A financial statement that reports a company’s assets, liabilities, and shareholders’ equity at a specific point in time.
Bankruptcy
A legal proceeding involving a person or business that is unable to repay their outstanding debts.
Bear Market
A market condition in which securities prices fall and widespread pessimism causes the stock market’s downward spiral to be self-sustaining.
Beta
A measure of the volatility, or systematic risk, of a security or portfolio in comparison to the market as a whole.
Blue Chip
A nationally recognized, well-established, and financially sound company.
Bond
A fixed income instrument that represents a loan made by an investor to a borrower.
Bull Market
A financial market of a group of securities in which prices are rising or are expected to rise.
Capital Gain
An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price.
Cash Flow
The net amount of cash and cash-equivalents being transferred into and out of a business.
Collateral
Something pledged as security for repayment of a loan, to be forfeited in the event of a default.
Commodity
A basic good used in commerce that is interchangeable with other goods of the same type.
Compound Interest
Interest calculated on the initial principal, which also includes all of the accumulated interest.
Credit Score
A statistical number that evaluates a consumer’s creditworthiness and is based on credit history.
Cryptocurrency
A digital or virtual currency that uses cryptography for security.
Debit
An accounting entry that either increases an asset or expense account, or decreases a liability or equity account.
Debt-to-Income Ratio
A personal finance measure that compares an individual’s monthly debt payment to their monthly gross income.
Default
Failure to fulfill an obligation, especially to repay a loan or appear in a court of law.
Deflation
A general decline in prices for goods and services, typically associated with a contraction in the supply of money and credit.
Depreciation
The reduction in the value of an asset over time, due in particular to wear and tear.
Derivative
A financial security with a value that is reliant upon or derived from an underlying asset or group of assets.
Diversification
A risk management strategy that mixes a wide variety of investments within a portfolio.
Dividend
The distribution of some of a company’s earnings to a class of its shareholders, as determined by the company’s board of directors.
Dow Jones Industrial Average
A stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States.
Equity
The value of the shares issued by a company, or the value of an ownership interest in property.
Escrow
A legal arrangement in which a third party holds money or property until a particular condition has been met.
ETF (Exchange-Traded Fund)
A type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges.
Fiduciary
A person or organization that acts on behalf of another person or persons, putting their clients’ interest ahead of their own.
Fiscal Policy
The means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy.
Fixed Rate
An interest rate on a liability, such as a loan or mortgage, that remains the same either for the entire term of the loan or for part of the term.
Forex
The foreign exchange market, where currencies are traded.
Futures
Financial contracts obligating the buyer to purchase an asset or the seller to sell an asset at a predetermined future date and price.
GDP (Gross Domestic Product)
The total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.
Hedge Fund
A limited partnership of investors that uses high risk methods, such as investing with borrowed money, in hopes of realizing large capital gains.
Inflation
A general increase in prices and fall in the purchasing power of money.
Initial Public Offering (IPO)
The process of offering shares of a private corporation to the public in a new stock issuance.
Interest Rate
The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.
Investment
The action or process of investing money for profit or material result.
Junk Bond
A high-yield, high-risk security, typically issued by a company seeking to raise capital quickly in order to finance a takeover.
Leverage
The use of various financial instruments or borrowed capital to increase the potential return of an investment.
Liability
A company’s financial debt or obligations that arise during the course of its business operations.
Limit Order
An order to buy or sell a stock at a specific price or better.
Liquidity
The efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price.
Macroeconomics
The branch of economics concerned with large-scale or general economic factors, such as interest rates and national productivity.
Margin
The money borrowed from a brokerage firm to purchase an investment.
Market Cap
The total value of all a company’s shares of stock.
Microeconomics
The branch of economics concerned with single factors and the effects of individual decisions.
Monetary Policy
The policy adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply.
Money Market
The trade in short-term loans between banks and other financial institutions.
Mortgage
A legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor’s property.
Mutual Fund
An investment program funded by shareholders that trades in diversified holdings and is professionally managed.
Nasdaq
A global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks.
Net Income
A company’s total earnings (or profit); calculated by taking revenues and subtracting the costs of doing business.
Net Worth
The total assets minus total liabilities of an individual or a company.
Option
A financial derivative that represents a contract sold by one party to another party.
Overhead
An ongoing expense of operating a business.
Penny Stock
A common stock valued at less than one dollar and therefore highly speculative.
Portfolio
A range of investments held by a person or organization.
Preferred Stock
A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock.
Premium
The amount paid for an insurance policy.
Principal
The original sum of money borrowed in a loan or put into an investment.
Private Equity
Capital that is not listed on a public exchange.
Profit Margin
The amount by which revenue from sales exceeds costs in a business.
Prospectus
A formal document that is required by and filed with the Securities and Exchange Commission that provides details about an investment offering.
Quantitative Easing
A monetary policy whereby a central bank buys government bonds or other financial assets in order to inject money into the economy.
Recession
A period of temporary economic decline during which trade and industrial activity are reduced.
Refinancing
The process of replacing an existing debt obligation with another debt obligation under different terms.
Retained Earnings
The amount of net income left over for the business after it has paid out dividends to its shareholders.
Return on Investment (ROI)
A performance measure used to evaluate the efficiency of an investment.
Revenue
The income that a business has from its normal business activities, usually from the sale of goods and services to customers.
Roth IRA
An individual retirement account allowing a person to set aside after-tax income up to a specified amount each year.
S&P 500
A stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States.
Securities
A fungible, negotiable financial instrument that holds some type of monetary value.
Short Selling
The sale of a security that is not owned by the seller, or that the seller has borrowed.
Solvency
The ability of a company to meet its long-term debts and financial obligations.
Spread
The difference between the bid and the ask price of a security or asset.
Stock
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.
Tax Haven
A country or independent area where taxes are levied at a low rate.
Technical Analysis
A trading discipline employed to evaluate investments and identify trading opportunities in price trends and patterns.
Treasury Bill
A short-term government debt obligation backed by the Treasury Department with a maturity of one year or less.
Trust
A fiduciary arrangement where a third party, or trustee, holds assets on behalf of a beneficiary or beneficiaries.
Underwriting
The process through which an individual or institution takes on financial risk for a fee.
Valuation
The analytical process of determining the current (or projected) worth of an asset or a company.
Variable Rate
An interest rate on a loan or security that fluctuates over time, because it is based on an underlying benchmark interest rate or index.
Venture Capital
A form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential.
Volatility
A statistical measure of the dispersion of returns for a given security or market index.
Yield
The income return on an investment, such as the interest or dividends received from holding a particular security.
Zero-Coupon Bond
A bond that is issued at a deep discount to its face value but pays no interest.
401(k)
A retirement savings plan sponsored by an employer.
52-Week High/Low
The highest and lowest price at which a stock has traded during the previous year.
Adjustable-Rate Mortgage (ARM)
A type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan.
Annuity Due
An annuity whose payment is due immediately at the beginning of each period.
Asked Price
The price a seller is willing to accept for a security.
Bid Price
The price a buyer is willing to pay for a security.
Book Value
The value of a security or asset as entered in a company’s books.