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F

Banker's Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Face or face value
See current face and original face.


Facsimile
An exact copy of something, such as a signature.


Factor
(1) The percent of the original face of an MBS pool that remains outstanding at any given time is called the current factor. Principal payments, made by the borrowers, reduce the original face every month. Thus there is a new current factor each month. The current face is always equal to the product of the original face times the current factor.

(2) An individual or firm that purchases accounts receivable from firms in need of working capital. Usually, a specialized financial firm engaged exclusively or almost exclusively in factoring.


Factoring
Providing working capital to businesses by buying their receivables (usually at a discount) rather than lending against them. Factoring is not lending; it is an outright purchase of the receivable assets, usually on a nonrecourse basis.


Fail
The event of a securities purchase or sale transaction not settling as intended by the parties.


Fair and Accurate Transactions Act (FACT Act)
Consumer protection legislation enacted in 2003. The FACT Act, permanently established the Fair Credit Reporting Act's federal pre-emption to those areas typically governed by the Fair Credit Reporting Act. Other portions of FACT Act also amended the Fair Credit Reporting Act to provide consumers with a free annual credit report, new identification protections, medical privacy rights and restrictions and the ability to opt out of information sharing among affiliated companies for marketing and solicitation purposes. Section 112 provides a fraud alert system for identity theft victims and consumers that are on active duty in the military. Section 212 requires lending institutions to provide home loan applicants with a copy of their credit score that was obtained from a consumer credit reporting agency. Section 311 imposes a requirement on lenders to provide additional disclosures when risk based pricing affects the rate provided to the borrower.


Fair Credit Reporting Act (FCRA)
Consumer protection legislation enacted in 1968 as part of the Consumer Credit Protection Act to ensure that the banking system in the United States would have a reliable credit reporting system. The stated purpose of the Fair Credit Reporting Act was to require that consumer reporting agencies adopt reasonable procedures to meet the needs of commerce for consumer credit, personnel, insurance, and other information that was fair and equitable to the consumer with respect to the confidentiality, accuracy, relevancy and proper utilization of such information. One of the most prominent requirements of the Act was to establish the permissible purposes of the information contained in a consumer report.

In 2003 Congress updated the Fair Credit Reporting Act when it passed the Fair and Accurate Transactions Act, FACT Act. FACT made significant changes and expansions to the Fair Credit Reporting Act. See Fair Credit Reporting Act.


Fair value
An accounting term defined by FASB. The amount at which an asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Quoted market prices in active markets are the best evidence of fair value and should be used as the basis for the measurement, if available. If a quoted market price is available, the fair value is the product of the number of trading units times that market price. If a quoted market price is not available, the estimate of fair value should be based on the best information available in the circumstances. The estimate of fair value should consider prices for similar assets and the results of valuation techniques to the extent available in the circumstances. Examples of valuation techniques include the present value of estimated expected future cash flows using a discount rate commensurate with the risks involved, option-pricing models, matrix pricing, option-adjusted spread models, and fundamental analysis. Valuation techniques for measuring assets should be consistent with the objective of measuring fair value. Those techniques should incorporate assumptions that market participants would use in their estimates of values, including assumptions about interest rates, default, prepayment, and volatility. (Note that the FASB definition in FAS 115 is replaced by the definition in FAS 133.


Fair value hedge
A type of hedge defined by FAS 133. An entity may designate a derivative instrument as hedging the exposure to changes in the fair value of an asset or a liability, or a portion of an asset or a liability. Certain requirements must be met to qualify for fair value hedge accounting. Changes in the fair market value of the derivative instrument in qualifying fair value hedges are recorded and reported in earnings. At the same time, gains or losses associated with the hedged risk are also recognized in current earnings. The carrying value (book value) of hedged asset/liability must be adjusted commensurately with resulting basis adjustment, producing a prospective yield adjustment thus offsetting the related derivative loss/gain in the same accounting period. See FAS 133.


Fannie Mae
An informal name for the Federal National Mortgage Association (FNMA) or for securities issued by it.


Farm products
A category of goods defined by Article 9 of the UCC. Farm products are crops, livestock, or supplies used or produced in farming operations. In addition, this category includes products of crops or livestock (such as milk and eggs or other things in the possession of a farmer) in their unprocessed state.


FAS 80
An accounting rule formerly applicable to futures contracts. See FAS 133.


FAS 87
Financial Accounting Standard No. 87. A rule promulgated by the AICPA that requires firms to report prepaid pension assets or accrued pension liabilities on their balance sheets. It also requires that financial statement footnotes disclose a "statement of funded status" and a "reconciliation of funded status" for those plans.


FAS 95
Financial Accounting Standard No. 95, Statement of Cash Flows. A rule promulgated by the AICPA that requires all audited financial statements to include a statement of cash flows in the audited reports. Under FAS 95 rules, firms may elect to prepare the required statement of cash flows using either the direct or the indirect method defined in the rule.


FAS 105
An accounting rule that previously required disclosures of information about financial derivatives. Superseded by FAS 133.


FAS 106
Financial Accounting Standard No. 106, Employers' Accounting for Post Retirement Benefits Other Than Pensions. A rule promulgated by the AICPA . that requires firms to accrue postretirement benefit costs during the periods of the active service of the covered employees.


FAS 107
Financial Accounting Standard No. 107, Disclosures About Fair Value of Financial Instruments. A rule promulgated by the AICPA that requires mark- to-market value disclosure of financial instruments. These disclosures are made in footnotes to published financial statements. FAS 133 amended FAS 107 to include the disclosure provisions about concentrations of credit risk that were formerly in FAS 105.


FAS 109
Financial Accounting Standard No. 109, Accounting for Income Taxes. A rule promulgated by the AICPA that requires the recognition of unrealized income tax benefits as deferred tax assets on a firm’s balance sheet. Also provides for the establishment of a valuation reserve to offset some or all of the deferred tax assets when the tax benefits are not likely to be realized.


FAS 115
Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities. A rule promulgated by the AICPA that requires different accounting treatment for unrealized gains and losses incurred for securities held in portfolios. Unrealized gains and losses from trading account securities must be reflected in reported earnings. Unrealized gains and losses from securities deemed available for sale must be netted to a single number that is shown as a component of shareholders’ equity until realized. Gains and losses for securities deemed to be held to maturity are not reflected in either the income statements or balance sheets of the holders.


FAS 119
An accounting rule that used to govern disclosures of financial derivatives. Superseded by FAS 133.


FAS 130
Statement of Financial Accounting Standard No. 130, Reporting Comprehensive Income. A rule promulgated by the AICPA that creates new procedures for reporting certain changes in selected financial assets and liabilities. Under FAS 130, these changes are not reflected in the traditional income statement. See other comprehensive income.


FAS 133
Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities. A rule promulgated by the AICPA that establishes accounting and reporting standards for derivative instruments. The scope of the rule includes some derivative features embedded in other contracts. The rule establishes specific accounting and reporting requirements for derivatives used for each of two kinds of hedging activities - fair value hedges and cash flow hedges. This rule supersedes FAS 80, FAS 105, and FAS 119. See cash flow hedge, comprehensive income, embedded option and fair value hedge.


FAS 138
Statement of Financial Accounting Standard No. 138, Accounting for Certain Derivative Instruments Certain Hedging Activities A rule promulgated by the Financial Accounting Standards Board (FASB) that makes major changes to FAS 133.


FAS 149
Statement of Financial Accounting Standard No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities A rule promulgated by the Financial Accounting Standards Board (FASB) that makes major changes to FAS 133.


FASB
See Financial Accounting Standards Board.


Fast pools or fast pay
An informal name for MBS pools that prepay rapidly.


Fat tail
Informal descriptive term used to describe the portions of a probability distribution that have a larger than normal number of values that are far from the mean. The formal name is kurtosis.


FBAR
Report of Foreign Bank and Financial Accounts. Each United States person who has a financial interest in, or signature authority over, any financial accounts including bank, securities or other types of financial accounts, in a foreign country must report that relationship by filing an FBAR if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year. The deadline to file the FBAR with the Department of the Treasury for each calendar year is on or before June 30th of the following year. The term "United States person" means a citizen or resident of the United States, domestic partnership, domestic corporation, or a domestic estate or trust.


FDICA 305
See Federal Deposit Insurance Corporation Improvement Act 305.


Federal Deposit Insurance Corporation Improvement Act (FDICIA) 305
A section in the FDICIA that requires the FDIC, the Office of the Comptroller of Currency (OCC), Office of Thrift Supervision (OTS), and the Federal Reserve to add an interest rate risk component to bank and thrift capital requirements.


Fed float
The time lag between when the proceeds of a check are available to a bank according to the availability schedule and when the check is actually presented for payment (clears against the payer’s bank). The fed float represents the difference between available and collected balances.


Fed funds
See federal funds.


Fed wire
An informal name for the Federal Reserve Communications System. This is the electronic communication network interconnecting Federal Reserve offices, the Federal Reserve Board, member banks, the U.S. Treasury, and other government agencies. The Fed wire is used for transferring member bank reserve account balances and government securities, as well as for transmitting information from the Federal Reserve System. See Clearing House Interbank Payment System (CHIPS) and Society for Worldwide Interbank Financial Telecommunication (SWIFT).


Federal Emergency Management Agency (FEMA)
See flood insurance.


Federal Financial Institutions Examination Council (FFIEC)
A body comprising representatives from all of the federal banking regulatory organizations (the Federal Reserve System, the FDIC, the OCC, the OTS, and the National Credit Union Administration). The FFIEC issues policy statements but has no power to mandate any actions. Its policy decisions must be approved by its member organizations.


Federal funds
Short-term investments/borrowings between banks, usually called fed funds. The investing/lending bank refers to the transaction as fed funds sold while the borrowing bank refers to the transaction as fed funds purchased. Despite its name, these transactions are not loans to or from the federal government. Nor do they include any guarantee or backing from the federal government. They are only called federal funds because the parties exchange the funds by transferring balances from the lender's account with its Federal Reserve District Bank to the borrower's account with its Federal Reserve District Bank. Fed funds investments are usually overnight loans. See term fed funds.


Federal funds rate
The rate for which overnight federal funds are traded.


Federal Home Loan Bank System (FHLB)
A U.S. government-sponsored enterprise. Twelve district banks and a Federal Housing Finance Board created by the U.S. government and owned by member financial institutions. The main purpose of the system is to provide loans to members for the accommodation of home lending.


Federal Home Loan Mortgage Corporation (FHLMC)
A U.S. government-sponsored enterprise. FHLMC is owned by member financial institutions and is not an agency of the U.S. government. It provides financial products and services in the mortgage market that enhance liquidity. Informally but widely known as Freddie Mac.


Federal Housing Administration (FHA)
An agency within the Department of Housing and Urban Development (HUD) that provides insurance for single-family and multifamily residential mortgages.


Federal National Mortgage Association (FNMA)
A U.S. government sponsored enterprise. FNMA is a private corporation created by the U.S. government to facilitate financing for housing. Informally but widely known as Fannie Mae.


Fee appraiser
An individual qualified under federal rules to perform real estate appraisals. Unlike a staff appraiser, a fee appraiser is not employed by the financial institution contemplating the extension of credit to be secured by the property to be appraised.


Fee trading
See adjusted trading.


FEMA
Federal Emergency Management Agency. See flood insurance.


FFIEC
See Federal Financial Institutions Examination Council.


FHA
See Federal Housing Administration.


FHA experience
A statistical publication of the FHA that shows the proportion of FHA-insured and VA mortgage loans that terminate each year. Mortgage loan mortality tables.


FHLB
See Federal Home Loan Bank System.


FHLB advances
Loans granted to member financial institutions by Federal Home Loan Banks. FHLB advances are structured to meet a wide variety of borrower needs. Common structures include bullet advances, puttable advances, and principal reducing credit advances.


FHLMC
See Federal Home Loan Mortgage Corporation.


Fictitious name
A name used by a proprietorship, partnership, or corporation to conduct business that is different from the legal name of the proprietorship, partnership, or corporation.


Fidelity bond or fidelity insurance
Insurance protecting an employer from losses resulting from the deliberate misappropriation of the firm’s assets by one or more of its employees. Fidelity insurance is obtained by most financial institutions.


Field audits
Any on-site inspection of the bank's collateral may be referred to as a field audit. However the phrase is most often used to refer to on-site audits of a borrower's records related to sales, accounts receivable, accounts payable, customer records, and shipping documents. Field audits are often conducted by specially trained bank employees but may be done by internal bank auditors, external accounting firms hired by the bank, or firms specializing in this service. Written field audit reports contain significant information for secured lenders.


Field warehousing
A method of financing inventories in which the inventory is held in custody for the lender by an agent of the lender at the borrower's place of business.


FIFO
See first in, first out.


Final distribution date
The latest possible date on which an MBS holder receives payment. Because mortgage loans tend to be repaid sooner than their contractual maturity dates, the actual final payment is likely to occur earlier than the final distribution date.


Final maturity
The maturity date of the single loan in a pool of mortgage loans that has the maturity date furthest in the future. Because mortgage loans tend to be repaid sooner than their contractual maturity dates, the actual final payment is likely to occur earlier than the final maturity date.


Finance lease
A term used in UCC Article 2A. A lease in which the lessor is not the supplier or manufacturer of the leased goods. In a finance lease, the lessor must not have any involvement in the selection of the leased goods and it must be serving only as a conduit for the lessee to obtain the goods. Finally, the lessor must acquire the goods or the right to possess the goods in connection with the lease.


Financial Accounting Standards Board (FASB)
An accounting industry organization; part of the Financial Accounting Foundation. FASB issues Statements of Financial Accounting Standards that define and govern GAAP for nongovernment entities in the United States. FASB also publishes Interpretations and Technical Bulletins that govern the application of their accounting standards.


Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
A federal law enacted in 1989. FIRREA primarily addresses the operation of savings and loan associations; however, it includes a number of important provisions affecting commercial banks. Arguably the most important FIRREA provisions affecting banks are those that address requirements for real estate appraisals.


Financial instrument
Cash, evidence of ownership in an entity (e.g., stock), a contract that creates a right or obligation to receive or deliver cash (e.g., notes and bonds), or a contract that creates a right or obligation to receive or deliver another financial instrument or commodity (e.g., options and futures).


Financial intermediary
A party such as a bank or other financial institution that accepts funds from a provider and places those funds with a user. The intermediary's investment from the user is usually for a longer term, usually has less liquidity, and usually has more credit risk than the intermediary's liability to the provider.


Financial statements
Collective name for historical financial reports of assets, liabilities, capital, income, and expense.


Financing statements
Forms, usually standard UCC-1 forms, that are required by Article 9 of the UCC to be recorded in a designated public location in order to perfect a creditor’s lien in personal property collateral. The financing statement is used as a vehicle for a public recording that establishes lien priority — it does not normally constitute the actual agreement between the secured party and the debtor. For that reason, the financing statement by itself does not create a security interest and must therefore be supported by a separate security agreement or pledge agreement.


Firm commitment
An agreement with an unrelated party that is binding on both parties and that is usually legally enforceable. In FAS 133, FASB specifies that the following are both satisfied for a firm commitment: a) The agreement specifies all significant terms, including the quantity to be exchanged, the price at which the quantity will be exchanged, and the timing of the transaction. b) The agreement includes a disincentive for nonperformance that is sufficiently large to make performance probable.


FIRREA
See Financial Institutions Reform, Recovery, and Enforcement Act.


First in, first out
A method of accounting for business inventory permitted by GAAP.


Fixed-period ARM
MBSs that are fixed-rate instruments for an initial period and floating-rate securities thereafter. The initial, fixed-rate period may be 3, 5, 7, or 10 years. After the expiration of the fixed-rate period, a typical fixed-period ARM may adjust annually at a margin over the one-year Treasury index. Some fixed-period ARMs have rates tied to LIBOR.


Fixtures
Fixtures are items that become attached to real property. Examples are heating and air conditioning systems, wall-mounted shelving, and security alarm systems. Lenders must be extremely cautious about what constitutes a fixture. As a general rule, an item may be considered goods before it becomes attached to a building, but becomes a fixture after it is attached. Once affixed to real property, goods may be subject to laws governing real estate collateral rather than rules under Article 9 of the UCC.


Flat yield curve
See yield curve slope.


Flex repo
A term repo/reverse transaction that allows for the investor to sell some of the collateral securities back to the borrower before the final maturity date of the transaction. Flex repos are well suited to construction projects for which bond proceeds need to be invested until payment is due for each stage of construction. Usually, the timing of the loan payments is subject to considerable uncertainty. The flex repo investment has a draw-down schedule for reducing the size of the investment; however, the investor is not required to adhere to it rigidly. In return for the added flexibility, investors in flex repos almost always receive slightly lower rates of return than investors in repos with terms that are more traditional.


Flight to quality
The situation in which many investors sell or reduce purchases of less creditworthy investments and simultaneously buy or increase purchases of the most creditworthy investments. Flights to quality often occur suddenly after a major unexpected default or a major political event.


Float
The use of funds generated as a result of timing differences in the check-clearing system. For banks, float occurs because debits given by the Federal Reserve to a bank's reserve account for checks being cleared can be received prior to the time that the bank allows the customer who presented the check to use the funds. For depositors, float occurs because credits may be given for checks deposited or tendered for payment before the depositor's accounts are debited. See bank float, check-clearing float, collection float, delivery float, disbursement float, fed float and processing float.


Float analysis
An analysis of an organization’s disbursements to determine the approximate number of days between issuance of a check and presentation of the check for payment at the organization’s bank.


Floater
An informal name for a security with a variable coupon rate. Particularly used to refer to floating-rate CMO tranches.


Floating lien
The name for and the nature of a creditor's interest in a debtor's accounts receivable and inventory. In the natural operation of any business, the specific receivables and inventory owned at one point in time are replaced over time by new receivables and new inventory. Thus a creditor’s security interest in accounts receivable and inventory floats from the specific accounts and inventory held today to that held next week, next month, and thereafter.


Floating-rate note (FRN)
A medium-term instrument with a coupon rate that floats up or down based upon changes to an index or reference rate. Often, FRNs are tied to LIBOR.


Flood hazard zone
A geographic area officially designated under Federal law as an area that might experience damage from flooding. Under the National Flood Insurance Reform Act of 1994, lenders taking an interest in real property are required to complete a standard flood hazard determination form developed by the Federal Emergency Management Agency (FEMA). Flood hazard forms must be retained in the lender’s records. If the form indicates that the property is in a designated flood hazard zone, the lender is required to have flood insurance protection. Lenders may also have notice requirement obligations for collateral located in flood hazard zones.


Flood insurance
Insurance protection against damage caused by floods. For applicable parcels of real estate, lenders with a security interest in that real estate are required by law to either require that borrowers obtain flood insurance or to obtain flood insurance for their borrowers. See flood hazard zone.


Floor
A lower limit for a variable, such as the lower limit on an interest rate paid or received in a transaction. For example, an adjustable-rate loan may have a floor of 5 percent. In that example, the rate can adjust however loan terms provide, but it can never fall below 5 percent. The term "floor" is often used with its converse, a cap. A floor may be an embedded option, such as the floor on the rate for a floating-rate loan, or a stand-alone option contract.


Floor planning
A form of inventory financing involving loans or advances for specific items of inventory.


Floortion
An option that grants the holder the right to purchase a floor.


Flower bonds
U.S. Treasury bonds that can be applied at par toward the payment of U.S. inheritance taxes. The Treasury stopped issuing flower bonds in 1977. The last flower bond matured in 1998.


Flux
A measure of the sensitivity of CMO cash flows to changes in the prepayment rate of the underlying MBS collateral. Derived from flow uncertainty index. Developed by the National Association of Insurance Commissioners to create a standard measure of CMO volatility. A flux score is a composite of two elements that indicate the impact of six prepayment scenarios on a bond’s present value and on the timing of its cash flows. That impact is expressed in terms of variation from a base case. Flux scores are calculated once each year in January. A flux score of 0 indicates no cash flow uncertainty. (Rather than a lack of interest rate risk, this score indicates that the amount and timing of the cash flows are known.) There is no upper limit for flux scores.


FNMA
See Federal National Mortgage Association.


Food Security Act of 1985
A Federal law that preempts state laws including the UCC as they apply to farm products. The law allows certain buyers to obtain clear title to farm products regardless of security interests that the seller previously granted to secured lenders.


Forbearance agreement
An agreement between a creditor and a debtor. A forbearance agreement is utilized when a debtor has defaulted or is likely to default. Under the terms of the forbearance agreement, the debtor is given more time to make loan payments, a reduction in the amount of loan payments due each month or both. Typically, the lender agrees not to exercise rights to foreclose or accelerate during the forbearance period. In return, the debtor agrees not to contest any actions taken by the creditor to collect the debt in the event that the debtor fails to comply with the payment schedule or other terms specified in the forbearance agreement. In some forbearance agreements, the debtor may grant the creditor a deed in lieu of foreclosure if the terms of the forbearance agreement are not met. Sometimes called a drop dead agreement.


Forced placed insurance
Insurance purchased by a creditor covering personal or real property owned by debtor. In some cases, forced placed flood insurance is required by law. In other cases, creditors are granted the right to force place insurance by provisions in loan agreements, security agreements, and/or mortgages. Forced placed insurance is almost exclusively purchased when the debtor refuses to obtain or renew required insurance coverage.


Forecasted transaction
An accounting term defined by FASB in FAS 133. A transaction that is expected to occur but for which there is no firm commitment. Because no transaction or event has yet occurred and because the transaction or event, when it occurs, will be at the current prevailing market price, a forecasted transaction does not give an entity any present rights to future benefits or a present obligation for future sacrifices.


Foreclosure
A remedy provided by state law for creditors secured by an interest in real property to obtain title to the property under certain conditions.


Foreign exchange risk
One of nine risks defined by the OCC. The risk to earnings or capital arising from adverse movement of foreign exchange rates. The Federal Reserve includes this risk in its definition of market risk.


Forward cash exposure (FCE)
A term sometimes used to describe the quantity of a financial institution's liquidity risk. See counter balancing capacity.


Forward delivery
The transfer of commodities or foreign exchange at a specified date subsequent to the date of the contract that provides for the transfer.


Forward market
The informal (nonexchange) trading of foreign exchange or commodities to be delivered at a future date. Contracts for forward delivery are not standardized. Instead, the delivery time and amount are negotiated by the parties.


Forward rate
The interest rate for a specified maturity of a fixed-income security for a future date. For example, the forward rate for six-month Treasury bills one month from today. See spot rate for contrast.


Forward rate agreement (FRA)
A customized agreement between two parties specifying the rate to be paid at some future date. Usually tied to LIBOR.


Forward roll
The sale of an investment position when the sale proceeds are used to acquire a new position that is very similar to the one that was sold.


Forward yield curve
See yield curve.


Forwards
Contracts for the sale/purchase of a specified quantity of a financial instrument, currency, or commodity at an agreed-upon price on a given future date. Unlike an option, a forward contract obligates both parties to consummate the transaction. Forwards are very similar to futures - the principal difference is that futures are almost always exchange traded while forwards are traded over the counter.


FRA
See forward rate agreement.


Fraudulent conveyance/
Fraudulent transfer
A transfer of an interest of the debtor made within one year prior to the filing of bankruptcy that is either made by the debtor with the intent to defraud its creditors or for which the debtor receives less than reasonable consideration. A fraudulent transfer may be set aside (reversed) by a bankruptcy judge.


Freddie Mac
An informal name for the Federal Home Loan Mortgage Corporation (FHLMC) or for securities issued by it.


Free cash flow
Cash flow from operations minus capital expenditures and dividends. Cash flow from operations is reduced by those adjustments to generate a measure of cash available to meet other corporate purposes. While the above definition is commonly used by equity investors, bank credit analysts create similar measures of free cash flow that may involve more or different adjustments to cash flow from operations.


FRN
See floating-rate note.


Front-end load
A form of sales charge imposed by some mutual funds. A front-end load is an initial charge that is deducted from each investment made in the fund. The amount of the charge is usually a percentage of the amount of the investment. See back-end load, load and no-load.


FTP
See funds transfer pricing.


Full faith and credit
A pledge of the general taxing power for the payment of debt obligations. Bonds carrying such pledges are referred to as general obligation bonds or full-faith-and-credit bonds.


Full payout
A phrase used to describe personal property leases that are structured such that the bank/lessor receives its total repayment from one customer/lessee and that the total repayment comes from the proceeds of rents, tax advantages, and the residual value assumption.


Fund
A fiscal and accounting entity with a self-balancing set of accounts in which cash and other financial resources, all related liabilities and residual equities, or balances, and charges therein, are recorded and segregated to carry on specific activities or attain certain objectives in accordance with special regulations, restrictions, or limitations.


Funded status
A term used to describe either the excess or shortfall of pension assets in relation to pension liabilities. When pension liabilities exceed the assets, the funded status is a shortfall. When a plan liquidation or termination is being analyzed, the funded status is calculated using the accumulated benefit obligation (ABO) as the liability value. When a plan's funded status is calculated to analyze the plan on a going concern basis, the projected benefit obligation (PBO) is used as the liability value.


Funding gap
See liquidity mismatch.


Funding liquidity risk or funding risk
The potential that an institution will be unable to meet its obligations as they come due because of an inability to liquidate a sufficient quantity of assets or to obtain a sufficient quantity of new liabilities.


Funds pool
Funding pool
See pool.


Funds transfer pricing (FTP)
An internal cost accounting system or methodology that transfers a cost of funds expense to profit centers that generate assets and a credit for funds to profit centers that provide funding. Most funds transfer pricing systems are matched maturity systems that attempt to reflect the term structure of interest rates in their transfer rates. Transfer rates may be allocated to pools of similar assets or liabilities, may be specifically allocated to individual assets or liabilities, or may employ a combination of those two approaches.


Fungibles
Property that is indistinguishable from other property of the same type. Fungibles are completely substitutable or interchangeable. Two examples of fungibles are pork bellies and dollar bills.


Future advance clauses
Provisions in mortgages or security agreements that attempt to extend the secured party’s interest in the collateral to cover future extensions of credit made by that creditor to the debtor.


Futures
Contracts for the sale/purchase of a specified quantity of a financial instrument, currency, or commodity at an agreed-upon price on a given future date. First developed for agricultural commodities, actively traded futures are available for foreign currencies, stocks, stock indexes, U.S. Treasury debt, Eurodollar deposits, and other financial instruments. Futures are often used in hedging. Unlike an option, a futures contract obligates both parties to consummate the transaction. Futures are very similar to forwards - the principal difference is that futures are almost always exchange traded while forwards are traded over the counter.