Business Encyclopedia

An employer-sponsored defined-contribution retirement plan, allowing employees to defer pre-tax income into investments, often with employer matching contributions.

The systematic recording, classifying, summarizing, and interpreting of financial transactions.

Investments outside of the conventional categories of public stocks, bonds, and cash, including private equity, hedge funds, real estate, and commodities.

1. The gradual writing off of the initial cost of an intangible asset. 2. The process of paying off debt over time through regular payments.

A behavioral finance bias where an individual relies too heavily on the first piece of information offered (the "anchor") when making decisions.

The annual rate charged for borrowing or earned by investing, expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan.

A financial product sold by financial institutions designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual later on.

The simultaneous purchase and sale of an asset in different markets to profit from a tiny difference in the asset's quoted price.

A resource owned or controlled by an individual or entity that is expected to provide future economic benefit.

An investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance, and investment horizon.

A financial statement that provides a snapshot of a company's assets, liabilities, and equity at a specific point in time.

A legal process involving a person or business that is unable to repay outstanding debts. The process may involve liquidation or reorganization.

A unit of measure equal to one one-hundredth of one percentage point (0.01%). It is used to denote changes in interest rates and bond yields.

A condition in which security prices fall 20% or more from recent highs over a sustained period, accompanied by widespread pessimism.

A field of finance that proposes psychologically based theories to explain stock market anomalies, such as why investors make seemingly irrational decisions.

A measure of the volatility—or systematic risk—of an investment in comparison to the market as a whole. A Beta of 1 means the asset moves in line with the market.

An unpredictable, rare event that is beyond what is normally expected of a situation and has potentially severe consequences.

Stock of a large, well-established, and financially sound company that has operated profitably for many years.

A debt security under which the issuer owes the holder a debt and is obliged to pay interest (coupon) and/or repay the principal at a later date (maturity).

A market situation characterized by asset prices rising quickly and above their fundamental value, often driven by investor exuberance, until a sudden, sharp collapse.

A condition of a financial market where prices are rising or are expected to rise.

Wealth in the form of money or other assets owned by a person or organization, available for starting a company or investing.

The profit realized when a capital asset (like a stock or property) is sold for a price higher than its purchase price.

A strategy in which an investor borrows money in a low-interest rate country and invests it in a high-interest rate country, profiting from the differential.

A group of independent market participants who collude to improve their profits by limiting competition through price-fixing, limiting supply, or other means.

A demand deposit account used for day-to-day money management and transactions, offering high liquidity.

An asset that a borrower offers to a lender to secure a loan. If the borrower defaults, the lender can seize the collateral.

Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods.

A measure that examines the weighted average of prices of a basket of consumer goods and services, used as the most common measure of Inflation.

A financial derivative contract that allows an investor to "swap" or offset their credit risk with that of another investor. It is essentially insurance against a bond default.

A three-digit number representing the creditworthiness of an individual, usually based on a model like FICO.

A deliberate government action to influence the exchange rate of its currency to gain a competitive advantage in international trade, often by keeping its currency undervalued.

The failure to meet the legal obligations (or conditions) of a loan, for example, failing to make a required interest or principal payment.

An employer-sponsored retirement plan where the benefit received by the employee is computed using a formula that considers factors like salary history and length of employment.

A retirement plan in which the employee and/or employer contributes to the employee's individual account. The final payout depends entirely on investment performance (e.g., 401(k)).

An accounting method used to allocate the cost of a tangible asset (like machinery) over its useful life, reflecting wear and tear.

A financial contract (such as a future or option) whose value is derived from an underlying asset, group of assets, or benchmark.

The amount of money that individuals or households have available for spending and saving after income taxes and mandatory government fees have been deducted.

A risk management strategy that mixes a wide variety of investments within a portfolio. The goal is to smooth out unsystematic risk events.

A distribution of a portion of a company's earnings to its shareholders, decided by the board of directors.

The value of an owner's stake in an asset or business; calculated as the difference between assets and liabilities ( A - L = E )

A security that tracks an index, sector, commodity, or other assets, but trades like a regular stock on a stock exchange.

A specific type of credit score created by the Fair Isaac Corporation, used by lenders to assess credit risk.

The target interest rate that U.S. commercial banks charge one another for overnight borrowing to maintain their reserve requirements.

The central banking system of the United States, responsible for conducting monetary policy and supervising the nation's banking system.

A person or organization that acts on behalf of another person or persons, legally bound to act solely in their best interest.

A financial movement focused on aggressive savings and investment to achieve Financial Independence (having enough Capital to cover living expenses) and retire decades earlier than traditional retirement ages.

The use of government spending and taxation to influence the economy.

A standardized legal agreement to buy or sell a specific commodity or security at a predetermined price at a specified time in the future.

The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

The total value of all goods and services produced by a country's residents and businesses, regardless of where they are located.

An investment position intended to offset potential losses or gains that may be incurred by a companion investment.

A limited partnership of investors that uses highly sophisticated, often high-risk, trading strategies (like leveraging and short selling) to generate superior returns.

The behavioral tendency of investors to invest the majority of their portfolio in domestic assets, severely limiting their diversification benefits.

A tax-advantaged account that individuals can use to earmark funds for retirement savings. There are several types, including Traditional and Roth.

A financial statement that reports a company's financial performance over a specific period, summarizing revenues and expenses to determine net profit or loss.

A type of mutual fund or ETF designed to track the performance of a specific market index (like the S&P 500).

The rate at which the general level of prices for goods and services is rising, and, consequently, the purchasing power of currency is falling.

The first time a private company offers its stock to the public, typically to raise expansion capital.

The illegal buying or selling of a security by someone who has access to material, nonpublic information about the security.

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

(Largely discontinued) The benchmark interest rate at which major global banks offered to lend funds to one another in the international interbank market.

The use of borrowed money (debt) to finance the purchase of assets, with the expectation that the return on the assets will exceed the cost of the borrowing.

A legally enforceable obligation or debt owed to another party, requiring future payment or transfer of assets.

The degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price.

The tendency in behavioral finance where people feel the pain of a loss about twice as strongly as they feel the pleasure of an equivalent gain.

A demand from a broker that an investor deposit additional money or securities into a margin account to bring the account up to the minimum required maintenance margin.

Actions undertaken by a central bank (like the Federal Reserve) to manipulate the money supply and credit conditions to stimulate or contract economic activity.

A debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments.

A type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.

A company's total earnings (profit), calculated by taking revenues and subtracting the costs of goods sold, operating expenses, depreciation, interest, and taxes.

The total value of an individual's or company's assets minus their total liabilities.

A derivative financial contract that gives the holder the right, but not the obligation, to buy (call) or sell (put) an asset at a specific price on or before a certain date.

A valuation ratio that measures a company's current share price relative to its per-share earnings.

The original amount of money borrowed in a loan, or the initial amount of money invested, upon which interest is calculated.

Funds and investors that directly invest in private companies or conduct buyouts of public companies, taking them private.

A formal legal document that is required by the SEC and provided to potential investors, detailing the features, risks, and financial history of a security being offered for sale.

An index of the prevailing direction of economic trends in the manufacturing and service sectors, based on monthly surveys of private sector companies.

A form of unconventional monetary policy where a central bank purchases longer-term government bonds or other securities from the open market to increase the money supply and lower interest rates.

A company that owns, operates, or finances income-producing real estate. They allow individuals to invest in commercial real estate without direct property ownership.

A significant decline in general economic activity in a region, typically defined by two consecutive quarters of negative GDP growth.

The process of replacing an existing debt obligation with a new one under different terms, typically to secure a lower interest rate or reduce payments.

The chance that an investment's actual return will be different from the expected return, including the possibility of losing some or all of the original investment.

An IRA that receives after-tax contributions, allowing all future earnings and qualified withdrawals in retirement to be tax-free.

A stock market index that represents the performance of 500 of the largest U.S. publicly traded companies, widely considered the best gauge of large-cap U.S. stock market performance.

A deposit account at a bank that provides security for money while typically paying a small amount of interest.

An independent agency of the U.S. federal government responsible for protecting investors, maintaining fair and orderly functioning of the securities markets, and facilitating capital formation.

The sale of a stock or security that the seller does not own, hoping to buy it back later at a lower price to pocket the difference.

The act of conducting a financial transaction that has significant risk of losing value but also holds the expectation of a significant gain.

A condition of slow economic growth and relatively high unemployment, accompanied by rising prices (Inflation).

A security that represents part ownership in a corporation. Holders (shareholders) have a claim on the company's assets and earnings.

A type of loan granted to individuals with low credit scores who traditionally do not qualify for conventional mortgages.

The risk of collapse of an entire financial system or market, as opposed to the risk associated with any individual entity, resulting from the interdependency of participants.

The process of gradually slowing the pace of a central bank's purchases of assets, such as government bonds and mortgage-backed securities (a form of Quantitative Easing).

An investment strategy that involves picking stocks that appear to be trading for less than their intrinsic value.

A type of Private Equity financing provided to startup companies and small businesses with perceived long-term growth potential.

The amount of time an employee must work for an employer to be fully entitled to the employer-contributed money in their retirement plan.

A statistical measure of the dispersion of returns for a given security or market index. It is often used as a proxy for risk.

An employee who reports corruption, illegal activity, or unethical practices within an organization to authorities.

A line that plots the interest rates (yields) of bonds having equal credit quality but differing maturity dates. An inverted curve is often seen as a recession predictor.