Definition of Federal funds market

Federal funds market

The market where banks can borrow or lend reserves, allowing banks temporarily
short of their required reserves to borrow reserves from banks that have excess reserves.

12b-1 funds

Mutual funds that do not charge an upfront or back-end commission, but instead take out up to
1.25% of average daily fund assets each year to cover the costs of selling and marketing shares, an
arrangement allowed by the SEC's Rule 12b-I (passed in 1980).

Auction markets

markets in which the prevailing price is determined through the free interaction of
prospective buyers and sellers, as on the floor of the stock exchange.

Bear market

Any market in which prices are in a declining trend.

bear market

A market in which stock or bond prices are generally
falling.

Bear Market

A prolonged period of falling stock market prices.

Beta equation (Mutual Funds)

The beta of a fund is determined as follows:
[(n) (sum of (xy)) ]-[ (sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[ (sum of x) (sum of x)]
where: n = # of observations (36 months)
x = rate of return for the S&P 500 Index
y = rate of return for the fund

Beta (Mutual Funds)

The measure of a fund's or stocks risk in relation to the market. A beta of 0.7 means
the fund's total return is likely to move up or down 70% of the market change; 1.3 means total return is likely
to move up or down 30% more than the market. Beta is referred to as an index of the systematic risk due to
general market conditions that cannot be diversified away.

Black market

An illegal market.

Brokered market

A market where an intermediary offers search services to buyers and sellers.

Bull market

Any market in which prices are in an upward trend.

bull market

A market in which stock or bond prices are generally rising.

Bull Market

A prolonged period of rising stock market prices.

Bulldog market

The foreign market in the United Kingdom.

Capital market

The market for trading long-term debt instruments (those that mature in more than one year).

Capital market

The market in which investors buy and sell shares of companies, normally associated with a Stock Exchange.

Capital Market

A market that specializes in trading long-term, relatively high risk
securities

Capital Market

The market in which savings are made available to those needing funds to undertake investment projects. A financial market in which longer-term (maturity greater than one year) bonds and stocks are traded.

Capital market efficiency

Reflects the relative amount of wealth wasted in making transactions. An efficient
capital market allows the transfer of assets with little wealth loss. See: efficient market hypothesis.

Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.

Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio.

capital markets

markets for long-term financing.

Cash markets

Also called spot markets, these are markets that involve the immediate delivery of a security
or instrument.
Related: derivative markets.

Common market

An agreement between two or more countries that permits the free movement of capital
and labor as well as goods and services.

Common stock market

The market for trading equities, not including preferred stock.

Complete capital market

A market in which there is a distinct marketable security for each and every
possible outcome.

Corner A Market

To purchase enough of the available supply of a commodity or stock in order to
manipulate its price.

Cost of funds

Interest rate associated with borrowing money.

Dealer market

A market where traders specializing in particular commodities buy and sell assets for their
own accounts.

Debt market

The market for trading debt instruments.

Derivative markets

markets for derivative instruments.

Direct search market

Buyers and sellers seek each other directly and transact directly.

Dividend yield (Funds)

Indicated yield represents return on a share of a mutual fund held over the past 12
months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not
redemption charges.

DLOM (discount for lack of marketability)

an amount or percentage deducted from an equity interest to reflect lack of marketability.

Domestic market

Part of a nation's internal market representing the mechanisms for issuing and trading
securities of entities domiciled within that nation. Compare external market and foreign market.

Efficient capital market

A market in which new information is very quickly reflected accurately in share
prices.

efficient capital markets

Financial markets in which security prices rapidly reflect all relevant information about asset values.

Efficient Market Hypothesis

In general the hypothesis states that all relevant information is fully and
immediately reflected in a security's market price thereby assuming that an investor will obtain an equilibrium
rate of return. In other words, an investor should not expect to earn an abnormal return (above the market
return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis
exist: weak form (stock prices reflect all information of past prices), semi-strong form (stock prices reflect all
publicly available information) and strong form (stock prices reflect all relevant information including insider
information).

Efficient Markets Hypothesis

The hypothesis that securities are typically in equilibrium--that they are fairly priced in the sense that the price reflects all publicly available information on the security.

EFT (electronic funds transfer)

funds which are electronically credited to your account (e.g. direct deposit), or electronically debited from your account on an ongoing basis (e.g. a pre-authorized monthly bill payment, or a monthly loan or mortgage payment). A wire transfer is a form of EFT.

Either-way market

In the interbank Eurodollar deposit market, an either-way market is one in which the bid
and offered rates are identical.

Electronic Federal Tax Payment Systems (EFTPS)

An electronic funds transfer system used by businesses to remit taxes to the government.

Emerging markets

The financial markets of developing economies.

Endowment funds

Investment funds established for the support of institutions such as colleges, private
schools, museums, hospitals, and foundations. The investment income may be used for the operation of the
institution and for capital expenditures.

Equilibrium market price of risk

The slope of the capital market line (CML). Since the CML represents the
return offered to compensate for a perceived level of risk, each point on the line is a balanced market
condition, or equilibrium. The slope of the line determines the additional return needed to compensate for a
unit change in risk.

Equity market

Related:Stock market

Eurocurrency market

The money market for borrowing and lending currencies that are held in the form of
deposits in banks located outside the countries of the currencies issued as legal tender.

Excess return on the market portfolio

The difference between the return on the market portfolio and the
riskless rate.

External market

Also referred to as the international market, the offshore market, or, more popularly, the
Euromarket, the mechanism for trading securities that (1) at issuance are offered simultaneously to investors
in a number of countries and (2) are issued outside the jurisdiction of any single country. Related: internal
market

Fair market price

Amount at which an asset would change hands between two parties, both having
knowledge of the relevant facts. Also referred to as market price.

Fair market value

The price that an asset or service will fetch on the open market.

Fair Market Value

The highest price available, expressed in terms of cash, in an open and unrestricted market between informed, prudent parties acting at arm's length and under no compulsion to transact.

Farm Improvement and Marketing Cooperatives Loans Act

See here

Federal agency securities

Securities issued by corporations and agencies created by the U.S. government,
such as the federal Home Loan Bank Board and Ginnie Mae.

Federal credit agencies

Agencies of the federal government set up to supply credit to various classes of
institutions and individuals, e.g. S&Ls, small business firms, students, farmers, and exporters.

Federal Deposit Insurance Corporation (FDIC)

A federal institution that insures bank deposits.

Federal Employer Identification Number

A unique identification number issued
by the federal government used for payroll purposes to identify the company
when it deals with the Internal Revenue Service.

Federal Financing Bank

A federal institution that lends to a wide array of federal credit agencies funds it
obtains by borrowing from the U.S. Treasury.

Federal funds

Non-interest bearing deposits held in reserve for depository institutions at their district federal
Reserve Bank. Also, excess reserves lent by banks to each other.

Federal funds rate

This is the interest rate that banks with excess reserves at a federal Reserve district bank
charge other banks that need overnight loans. The Fed funds rate, as it is called, often points to the direction
of U.S. interest rates.

Federal Funds Rate

The interest rate at which banks lend deposits at the federal Reserve to one another overnight.

Federal Home Loan Banks

The institutions that regulate and lend to savings and loan associations. The
federal Home Loan Banks play a role analogous to that played by the federal Reserve Banks vis-à-vis
member commercial banks.

Federal Insurance Contributions Act of 1935 (FICA)

A federal Act authorizing the government to collect Social Security and Medicare payroll taxes.

Federal Open Market Committee (FOMC)

Fed committee that makes decisions about open-market operations.

Federal Reserve Banks

The twelve district banks in the federal Reserve System.

Federal Reserve Board

Board of Governors of the federal Reserve System.

Federal Reserve System

The central bank of the U.S., established in 1913, and governed by the federal
Reserve Board located in Washington, D.C. The system includes 12 federal Reserve Banks and is authorized
to regulate monetary policy in the U.S. as well as to supervise federal Reserve member banks, bank holding
companies, international operations of U.S.banks, and U.S.operations of foreign banks.

Federal Reserve System

The central banking authority responsible for monetary policy in the United States.

Federal Reserve (the Fed)

The central bank in the United States, responsible for setting interest rates.

Federal Unemployment Tax Act (FUTA)

A federal Act requiring employers to pay a tax on the wages paid to their employees, which is then used to create a
pool of funds to be used for unemployment benefits.

Federally related institutions

Arms of the federal government that are exempt from SEC registration and
whose securities are backed by the full faith and credit of the U.S. government (with the exception of the
Tennessee Valley Authority).

Financial market

An organized institutional structure or mechanism for creating and exchanging financial assets.

financial markets

markets in which financial assets are traded.

Fixed-income market

The market for trading bonds and preferred stock.

Foreign banking market

That portion of domestic bank loans supplied to foreigners for use abroad.

Foreign bond market

That portion of the domestic bond market that represents issues floated by foreign
companies to governments.

Foreign equity market

That portion of the domestic equity market that represents issues floated by foreign companies.

Foreign Exchange Market

A worldwide market in which one country's currency is bought or sold in exchange for another country's currency.

Foreign market

Part of a nation's internal market, representing the mechanisms for issuing and trading
securities of entities domiciled outside that nation. Compare external market and domestic market.

Foreign market beta

A measure of foreign market risk that is derived from the capital asset pricing model.

Forward Exchange Market

A market in which foreign exchange can be bought or sold for delivery (and payment) at some specified future date but at a price agreed upon now.

Forward Fed funds

Fed funds traded for future delivery.

Forward market

A market in which participants agree to trade some commodity, security, or foreign
exchange at a fixed price for future delivery.

Fourth market

Direct trading in exchange-listed securities between investors without the use of a broker.

Freddie Mac (Federal Home Loan Mortgage Corporation)

A Congressionally chartered corporation that
purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and
securitizes these mortgages for sale into the capital markets.

Funds From Operations (FFO)

Used by real estate and other investment trusts to define the cash flow from
trust operations. It is earnings with depreciation and amortization added back. A similar term increasingly
used is funds Available for Distribution (FAD), which is FFO less capital investments in trust property and
the amortization of mortgages.

Futures market

A market in which contracts for future delivery of a commodity or a security are bought or sold.

Gray market

Purchases and sales of eurobonds that occur before the issue price is finally set.

growth funds

Mutual funds that seek long-term capital growth. This type of fund invests primarily in equity securities.

income funds

Mutual funds that seek regular income. This type of fund invests primarily in government, corporate and other types of bonds, debt securities, and other income producing securities and in certain circumstances can also hold common and preferred shares.

Index and Option Market (IOM)

A division of the CME established in 1982 for trading stock index
products and options. Related: Chicago Mercantile Exchange (CME).

index funds

Mutual funds that aim to track the performance of a specific stock or bond index. This process is also referred to as indexing and passive management.

Intermarket sector

spread The spread between the interest rate offered in two sectors of the bond market for
issues of the same maturity.

Intermarket spread swaps

An exchange of one bond for another based on the manager's projection of a
realignment of spreads between sectors of the bond market.

Internal market

The mechanisms for issuing and trading securities within a nation, including its domestic
market and foreign market.
Compare: external market.

Internally efficient market

Operationally efficient market.

internally generated funds

Cash reinvested in the firm; depreciation plus earnings not paid out as dividends.

International market

Related: See external market.

International Monetary Market (IMM)

A division of the CME established in 1972 for trading financial
futures. Related: Chicago Mercantile Exchange (CME).

Intramarket sector spread

The spread between two issues of the same maturity within a market sector. For
instance, the difference in interest rates offered for five-year industrial corporate bonds and five-year utility
corporate bonds.

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