Dictionary

FACE VALUE	See also Par Value.

FAIR MARKET VALUE	The price a willing buyer would pay a willing seller if neither were under any compulsion to buy or sell.

FALLEN ANGEL	These are bonds that were investment-grade when issued but have been downgraded in quality below investment grade.

FALLING KNIFE	A stock whose price has been dropping quickly. The implication is that the investor believes the stock will continue to fall and should not be bought until the stock is finished falling.

FAMILY TRUST	Arrangements that allow property to be held in trust for the benefit of beneficiaries under the trust. Family trusts are used for many reasons such as when a child is under the age of minority or if a family member is disabled.

FCIA	See Fellow of the Canadian Institute of Actuaries

FCSI	See Fellow of Canadian Securities Institute

FED BIAS	It is a statement that indicates the direction the Federal Reserve Board (the Fed) is leaning towards in its next interest rate move.

FEDERAL DEBT (NET PUBLIC DEBT)	The accumulated total of all past federal deficits and surpluses since Confederation. Canada's federal debt reached $574.3 billion on March 31, 1996. Two decades prior, the federal debt was about $25 billion. In 2002 this had declined to approximately $530 billion. The gross debt is the total amount the government owes. It consists of both market debt in the form of outstanding securities such as Treasury bills and Canada Savings Bonds, and internal debt owed mainly to the superannuation fund for government employees. The net debt is the gross debt minus the government's financial assets such as loans, investments and foreign exchange accounts. Interest payments on the debt are often called debt charges.

FEDERAL FUNDS RATE	An interest rate controlled by the Bank of Canada, it indicates what banks charge each other for the use of Federal funds. It fluctuates daily and is a good indicator of general interest rate trends.

FEDERAL RESERVE BOARD	Known as the Fed, it is the 7-member Board that oversees the activities of the Federal Reserve Banks, establishes monetary policy (interest rates, credit, etc.), and monitors the economic health of the country. Its members are appointed by the President subject to Senate confirmation, and serve 14-year terms.

FEE-BASED ACCOUNTING	A type of financial planning service that is used to eliminate potential conflicts of interest. It is paid for either on a flat fee or on an hourly basis, rather than from commissions.

FELLOW OF CANADIAN INSTITUTE OF ACTUARIES (FCIA)	A designation awarded by the Canadian Institute of Actuaries in recognition of completing the examinations of the Society of Actuaries.

FELLOW OF CANADIAN SECURITIES INSTITUTE (FCSI)	A designation awarded by the Canadian Securities Institute in recognition of completing the Canadian Securities Course and the Certified Investment Manager (CIM) designations. The individual must be working in the securities industry to obtain the FCSI.

FIDELITY BOND	Insurance companies and securities firms are often required to have this type of bond, where an employer acquires a debt obligation in the interest of protecting themselves from loss in the event that its employees cause damages through dishonest or negligent actions.

FIDUCIARY	An individual or institution holding assets in trust for a beneficiary. A fiduciary has the responsibility of competently investing on behalf of the beneficiary. An example of a fiduciary would be an executor of an estate.

FIFO	See First In First Out.

FILL OR KILL	An order that must be executed entirely or else cancelled all together.

FINANCE CHARGES	Interest charged on loans. For example, the interest rate on a credit card or the interest rate on a car loan is a finance charge.

FINANCIAL ACCOUNTING STANDARDS BOARD (FASB)	The Financial Accounting Standards Board is a U.S. based independent body whose mission is to to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information. The FASB is part of a structure that is independent of all other business and professional organizations.

FINANCIAL ADVISOR	A person or organization that offers financial counsel and/or manages assets. Financial advisors can either charge flat fees or earn commissions on the products they sell.

FINANCIAL ANALYST	An employee of an investment firm who studies companies and makes buy and sell recommendations. These analysts often specialize in a single sector or industry.

FINANCIAL ASSET	A non-physical asset, such as stocks, bonds, rights and other security instruments. These types of assets are different than physical assets, such as property.

FINANCIAL INSTITUTION	This is an institution that collects funds from the public for purposes of putting them into financial assets such as bank deposits, stocks, bonds, mutual funds, etc. Financial institutions include commercial banks, trust companies, brokerage houses, insurance companies, credit unions or caisse populaires. The primary role of these institutions is to provide a means of financing investments, from home mortgages to raising funds to finance megaprojects. They also provide insurance, take on fiduciary responsibilities and store cash and securities for safekeeping.

FINANCIAL INTERMEDIARY	An institution such as a bank, life insurance company, credit union or mutual fund that receives cash, which it invests, from suppliers of capital.

FINANCIAL LEVERAGE	The degree to which an investor or business is utilizing borrowed money.

FINANCIAL MARKET	A market for the exchange of capital and credit, including money markets for short-term debt and the capital markets for longer term debt.

FINANCIAL PLANNING	Planning an individual’s finances in order to achieve financial security. Planning areas include: tax, retirement, risk protection, estate, investment and cash management.

FINANCIAL STATEMENT	A report that includes an income statement and a balance sheet, together which quantitatively describes the financial health of a company.

FIRST CALL DATE	The first date on which a callable bond may be redeemed that is specified in its indenture.

FIRST IN FIRST OUT (FIFO)	An accounting method of valuing the cost of goods sold assuming that inventory is purchased in the chronological order in which it has come in, using the cost of the oldest items in inventory first.

FISCAL POLICY	Federal taxation and spending policies that establish the level and composition of government surpluses or deficits such as those incorporated into the fiscal plans presented in the annual budget of the Federal Government. However, these policies are not limited to the Federal government, they are very much used in provincial budget policies as well. Fiscal policy is designed to attain the lowest possible levels of unemployment, high economic growth and stability of the economy’s inflation rate.

FISCAL YEAR	The financial or accounting year of an organization, which covers 12 consecutive months or 52 consecutive weeks at which time the books are "closed" and profits and losses are calculated for that year. The fiscal year does not necessarily correspond to the calendar year ending at December 31st. For instance, the fiscal year of Canada's federal and provincial governments runs from April 1st to March 31st.

FIXED ANNUITY	A contract in which a life insurance company promises to pay the investor a fixed dollar amount on a regular basis (generally monthly) for a specified time period.

FIXED ASSETS	Assets of a long-term nature, such as land and buildings.

FIXED CHARGE COVERAGE RATIO	Measurement of profits before payment of income taxes and interest payments, divided by long-term interest charges, for a given period of time. It determines how many times interest charges have been covered by the company before taxes.

FIXED COST	A cost that remains constant regardless of production or sales levels, such as rent, property tax, insurance or interest expense.

FIXED-COUPON MARKETABLE BOND OR CANADA BOND	Government bond available in denominations ranging from $1,000 to $1,000,000. Fixed-coupon marketable bonds are interest-bearing securities with stated coupon rates, interest payable semiannually and are non-callable. In the Canadian bond market, Government of Canada bonds are the benchmark for these type of bonds.

FIXED DOLLAR WITHDRAWAL PLAN	A plan that provides a mutual fund investor with fixed-dollar payments at specified intervals, usually monthly or quarterly.

FIXED EXCHANGE RATE REGIME	A country whose central bank maintains the domestic currency at a fixed level against another currency or a composite of other currencies.

FIXED EXPENSES	Expenses related to basic lifestyle needs (such as shelter and food), debt payment and income tax.

FIXED INCOME	A security that generates a predictable stream of interest or dividends, such as bonds, money market instruments or preferred stock.

FIXED-INCOME FUNDS	Investment funds that invest in mortgages or bonds, or a combination of both.

FIXED-INCOME INVESTMENTS	Investments that generate a fixed amount of income that do not vary over the life of the investment. Examples of these are mortgages and bonds.

FIXED LIABILITY	Any corporate liability that will not mature within the following fiscal period. For example, long-term mortgages or outstanding bonds.

FIXED-PERIOD WITHDRAWAL PLAN	A plan through which a mutual fund investor's holdings are fully depleted through regular withdrawals over a set period of time. A specific amount of capital, together with accrued income, is systematically paid out until the fund is exhausted.

FIXED-RATE DEBT	Debt instruments that have a maturity or retractable date of more than one year.

FLAT BENEFIT PENSION PLAN	This is a formula used by defined benefit pension plans to determine the benefit amount earned. Usually it involves salary and years of service (for example, a certain percentage of the worker’s final or average salary multiplied by the number of years of service) or a flat benefit amount per year of service. The actual dollar amount will depend on such factors as age at retirement, earnings (in plans that use salary to compute benefits) and years of service under the plan.

FLAT TAX	A tax system that imposes the same rate on all income for all individual taxpayers with only a limited number of deductions.

FLAT YIELD CURVE	A yield curve where the yield for short-maturity and long-maturity bonds is the same. Also called an even yield curve.

FLIGHT TO QUALITY	The allocation of funds from riskier to safer investments, such as bonds and money markets, in times of marketplace uncertainty or fear.

FLOATING EXCHANGE RATE	Currency exchange rate determined by changes in the market forces of supply and demand, rather than being fixed by a government. Also called flexible exchange rate.

FLOATING RATE BOND	Debt instrument that is tied to a variable interest rate determined by a money-market index such as Treasury Bill rates.

FLOTATION COSTS	The costs of issuing a new security, including the money investment bankers earn from the spread between their cost and the price offered to the public, and the accounting, legal, printing and other costs associated with the issue.

FLOW-THROUGH SHARE	A term meaning that tax deductions and other credits may flow through to the owners of a corporation in order to help fund exploration and development projects eligible for deductions. A flow-through share is available for: mining, petroleum and certain types of renewable energy companies to facilitate these development activities. Eligible companies issue these equity shares to new investors. Investors receive an equity interest in the company and income tax deductions associated with new expenditures incurred by the company on exploration and development. Flow-through shares are of the greatest benefit to non-taxpaying junior resource companies.

FORCE MAJEURE	A form of legal protection used when unforeseen events such as natural disasters or war impede a company's ability to continue with normal development and operation of a project.

FORECAST	To estimate future trends by examining and analyzing all available information.

FOREIGN DEBT	Debt owed to foreign lenders by Canadians. Foreign debt is not limited to the federal government. Provincial governments and Canada's private sector also have large foreign debt loads.

FOREIGN EXCHANGE	A collective term for the currencies of sovereign states, other than the domestic currency.

FOREIGN EXCHANGE RESERVES	Stashes of foreign exchange assets (e.g. interestearning bonds) held by self-governing states to support the value of the domestic currency. Canada's foreign exchange reserves are held in a special account called the Exchange Fund Account.

FOREIGN PROPERTY	This includes: funds held outside Canada (including a foreign bank account, a security held outside Canada, or a share of a Canadian company deposited with a foreign broker); tangible property located outside Canada (including real estate and equipment), shares in non-resident corporations; non-resident trusts (including foreign mutual fund trusts); intangible property located outside Canada (such as rights to royalties), and debts (such as notes, bonds or debentures) owed or issued by a non-resident.

FOREIGN TRUSTS	An entity organized outside Canada set up to hold and administer funds or property on behalf of its beneficiaries.

FORMULA INVESTING	An investment technique eliminating emotional decisions by following a predetermined timing schedule or asset allocation model. Dollar cost averaging is a good example of this type of investing.

FORWARD	A forward contract is similar to a futures contract but trades over-the-counter, as opposed to on an exchange. The seller agrees to deliver a specified commodity or financial instrument at a specified price in the future. Terms are negotiated, not standardized.

FORWARD INTEREST RATE	An interest rate that is locked-in for a loan that will occur at a specified future date.

FORWARD P/E	A price/earnings ratio, using earnings estimates for the next four quarters and the current price of the security.

FORWARD PRICING	A requirement that open-end investment companies set their common share price based on net asset value and base all incoming buy and sell orders on the immediately subsequent net asset value.

FORWARD RATE AGREEMENT (FRA)	Short-term interest rate guarantee that specifies when an obligation will be paid on a future date.

FREE CASH FLOW	Operating cash flow minus capital expenditures and dividends.

FRIENDLY TAKEOVER	A merger supported by the management and board of directors of the target company, when the takeover represents a fair market value for the company’s common shares.

FRONT-END LOAD (OR COMMISSION OR SALES CHARGE)	Fee applied to the initial purchase of a mutual fund. Most mutual funds offer both a front-end and back-end commission option. Historically, most mutual fund agents charged an acquisition fee based on the total value of the units purchased. The commissions ranged from 2% to 9% but often averaged from 4% to 5% on most purchases. Today, the vast majority of transactions are done on a back-end basis.

FRONT RUNNING	An unethical broker practice where an equity trade is executed in response to information from their research department before their clients have been given the information. One example of front running are analysts and brokers that buy up shares in company XYZ just before the brokerage is about to recommend the stock as a strong buy. Another example is a broker who purchases 200 shares of XYZ stock for his own portfolio just before his brokerage was planning to buy a large block of 400,000 shares.

FTSE	The Financial Times Stock Exchange 100 Stock Index, a market cap weighted Index of stocks traded on the London Stock Exchange.

FULL COUPON BOND	A bond with a coupon rate above, at or just slightly below current market interest rates.

FULL DISCLOSURE	An obligation to divulge all information relevant to a transaction to ensure the investor has all pertinent information necessary to participate in the buying and selling of securities.

FULL-SERVICE BROKERAGE	The most traditional type of brokerage. It offers advice on building portfolios, on the types of securities to buy and sell and asset allocation. In general, full-service brokerages charge higher commissions in exchange for this advice.

FULLY DILUTED EARNINGS PER SHARE	Common stock earnings per share assuming that all warrants and stock options were exercised and all convertible bonds and preferred shares were converted.

FULLY INVESTED	Allocation of low or no minimal cash (or cash equivalents) in a portfolio of investments. To be fully invested implies that the investor has an optimistic view of the market.

FUND FAMILY	A mutual fund company offering many mutual funds with a wide scope of various investment objectives.

FUND MANAGER	The individual responsible for making investment decisions for a pooled money fund, such as a mutual fund, pension fund or insurance fund. The fund manager’s goal is to optimize returns while keeping investment risk low.

FUNDAMENTAL ANALYSIS	A method of security valuation which involves examining a company's financial statements and economic conditions that may affect its business operations, especially sales, earnings, growth potential, assets, debt, management, products and competition.

FUNDING POLICY	This determines the amount and timing of contributions made toward the commitments under a pension plan.

FUTURES (OR FUTURES CONTRACTS)	An agreement to buy or sell a specified commodity or financial instrument at a particular price on a stipulated future date. Fixed income futures contracts are traded in the futures market.

FUTURE VALUE	The amount that an investment will be worth at some future time if invested at a constant rate of interest.