|Federal funds rate
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Definition of Federal funds rate
Federal funds rate
This is the interest rate that banks with excess reserves at a federal Reserve district bank
Federal Funds Rate
The interest rate at which banks lend deposits at the federal Reserve to one another overnight.
the rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value.
Schedule of depreciation rates allowed for tax purposes.
Any depreciation method that produces larger deductions for depreciation in the
A strategy that uses available information and forecasting techniques to seek a
Publicly traded issues that may be collateralized by mortgages and MBSs.
Money after-tax rate of return minus the inflation rate.
The discount rate that reflects only the business risks of a project and abstracts from the
Swap in which the principal or national amount rises (falls) as interest rates
The periodic rate times the number of periods in a year. For example, a 5%
Arithmetic mean return.
Floating rate preferred stock, the dividend on which is adjusted every
The ratio of the average cash inflow to the amount invested.
Taxes as a fraction of income; total taxes divided by total taxable income.
A strategy in which the maturities of the securities included in the portfolio are concentrated
Related: Benchmark interest rate.
Basic business strategies
Key strategies a firm intends to pursue in carrying out its business plan.
Benchmark interest rate
Also called the base interest rate, it is the minimum interest rate investors will
Beta (Mutual Funds)
The measure of a fund's or stocks risk in relation to the market. A beta of 0.7 means
Beta equation (Mutual Funds)
The beta of a fund is determined as follows:
Break-even payment rate
The prepayment rate of a MBS coupon that will produce the same CFY as that of
Break-even tax rate
The tax rate at which a party to a prospective transaction is indifferent between entering
Broker loan rate
Related: Call money rate.
A strategy in which a portfolio is constructed so that the maturities of its securities are highly
A passive investment strategy with no active buying and selling of stocks from the
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance
A strategy in which a put and with the same strike price and expiration are either both
A firm engaged in two or more unrelated businesses.
A merger involving two or more firms that are in unrelated businesses.
The acquisition of one firm by anther firm.
Debt obligations issued by corporations.
A legal document creating a corporation.
One of the three areas of the discipline of finance. It deals with the operation of the firm
Corporate financial management
The application of financial principals within a corporation to create and
Corporate financial planning
Financial planning conducted by a firm that encompasses preparation of both
Corporate processing float
The time that elapses between receipt of payment from a customer and the
Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes
Corporate taxable equivalent
rate of return required on a par bond to produce the same after-tax yield to
Cost of funds
Interest rate associated with borrowing money.
In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually
Covered call writing strategy
A strategy that involves writing a call option on securities that the investor
Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the
The interest rate offered on an investment type insurance policy.
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates
The return at which two alternative projects have the same net present value.
Current rate method
Under this currency translation method, all foreign currency balance-sheet and income
Refers to multi-period cash flow matching.
The interest rate that the federal Reserve charges a bank to borrow funds when a bank is
The fixed or floating rate paid on preferred stock based on par value.
Dividend yield (Funds)
Indicated yield represents return on a share of a mutual fund held over the past 12
Dollar-weighted rate of return
Also called the internal rate of return, the interest rate that will make the
Effective annual interest rate
An annual measure of the time value of money that fully reflects the effects of
A measure of the time value of money that fully reflects the effects of compounding.
Investment funds established for the support of institutions such as colleges, private
Equilibrium rate of interest
The interest rate that clears the market. Also called the market-clearing interest
The price of one country's currency expressed in another country's currency.
Exchange Rate Mechanism (ERM)
The methodology by which members of the EMS maintain their
Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency
Federal agency securities
Securities issued by corporations and agencies created by the U.S. government,
Federal credit agencies
Agencies of the federal government set up to supply credit to various classes of
Federal Deposit Insurance Corporation (FDIC)
A federal institution that insures bank deposits.
Federal Financing Bank
A federal institution that lends to a wide array of federal credit agencies funds it
Non-interest bearing deposits held in reserve for depository institutions at their district federal
Federal funds market
The market where banks can borrow or lend reserves, allowing banks temporarily
Federal Home Loan Banks
The institutions that regulate and lend to savings and loan associations. The
Federal Reserve System
The central bank of the U.S., established in 1913, and governed by the federal
Federally related institutions
Arms of the federal government that are exempt from SEC registration and
A country's decision to tie the value of its currency to another country's currency, gold
A loan on which the rate paid by the borrower is fixed for the life of the loan.
In an interest rate swap the counterparty who pays a fixed rate, usually in exchange for a
Floating exchange rate
A country's decision to allow its currency value to freely change. The currency is not
A guaranteed investment contract where the credit rating is tied to some variable
Floating-rate note (FRN)
Note whose interest payment varies with short-term interest rates.
In an interest rate swap, the counterparty who pays a rate based on a reference rate,
Preferred stock paying dividends that vary with short-term interest rates.
Forward exchange rate
Exchange rate fixed today for exchanging currency at some future date.
Forward Fed funds
Fed funds traded for future delivery.
Forward interest rate
Interest rate fixed today on a loan to be made at some future date.
A projection of future interest rates calculated from either the spot rates or the yield curve.
Forward rate agreement (FRA)
Agreement to borrow or lend at a specified future date at an interest rate
Freddie Mac (Federal Home Loan Mortgage Corporation)
A Congressionally chartered corporation that
Funds From Operations (FFO)
Used by real estate and other investment trusts to define the cash flow from
Compound annual growth rate for the number of full fiscal years shown. If there is a negative
Historical exchange rate
An accounting term that refers to the exchange rate in effect when an asset or
The required return in capital budgeting.
A bond portfolio strategy whose goal is to eliminate the portfolio's risk against a
Implied repo rate
The rate that a seller of a futures contract can earn by buying an issue and then delivering
Import-substitution development strategy
A development strategy followed by many Latin American
Incremental internal rate of return
IRR on the incremental investment from choosing a large project
Interest rate agreement
An agreement whereby one party, for an upfront premium, agrees to compensate the
Interest rate cap
Also called an interest rate ceiling, an interest rate agreement in which payments are made
Interest rate ceiling
Related: interest rate cap.
Interest rate floor
An interest rate agreement in which payments are made when the reference rate falls
Interest rate on debt
The firm's cost of debt capital.
Interest rate parity theorem
Interest rate differential between two countries is equal to the difference
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
Interest rate swap
A binding agreement between counterparties to exchange periodic interest payments on
Internal growth rate
Maximum rate a firm can expand without outside source of funding. Growth generated
Internal rate of return
Dollar-weighted rate of return. Discount rate at which net present value (NPV)
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