Glossary
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A
Absolute Advantage
A person, company or country has an absolute advantage if its output per unit of input of all goods and services produced is higher than that of another person, company or country.
Accounts Payable
A category of liabilities that represents funds due to creditors. Usually, accounts payable is due to trade creditors who have supplied goods or services without requiring immediate payment. Accounts payable is sometimes simply called payables. Accounts payable to trade creditors are sometimes called accounts payable trade, due to trade, or trade payments.
Acquisition
One company taking control of another by purchasing a majority or all of the target company's outstanding shares. An "unfriendly" or "hostile" acquisition attempt is usually characterized by an offer far in excess of the market value of the shares, which is meant to induce current stockholders into selling, The target company's management may retaliate by soliciting competing offers from other companies in hope that a bidding war will frighten off the attacker.
Agreement Corporation
Corporation chartered by a state to engage in international banking: so named because the corporation enters into an "agreement" with the Fed's Board of Governors that it will limit its activities to those permitted and Edge Act Corporation.
American Depository Receipt (ADR)
A receipt that is issued by a U.S. Depositary Bank which represents shares of a foreign corporation held by the bank. Because ADRs are quoted in U.S. dollars and trade just like any other stock, they make it simple for investors to diversify their holdings internationally.
American Stock Exchange (AMEX)
An open auction market similar to the NYSE where buyers and sellers compete in a centralized marketplace. The AMEX typically lists small to medium cap stocks of younger or smaller companies. Until 1921 it was known as the New York Cumulative Exchange.
Amortization
The process of fully paying off indebtedness by installments of principal and earned interest over a definite time.
Annual Percentage Rate (APR)
The cost of credit on a yearly basis expressed as a percentage.
Appraisal Fee
The charge for estimating the value of property offered as security.
Appreciation
Increase in the value of an asset.
Automated Clearing House (ACH)
Electronic clearing and settlement system for exchanging electronic transactions among participating depository institutions; such electronic transactions are substitutes for paper checks and are typically used to make recurring payments such as payroll or loan payments. The Federal Reserve Banks operate an automated clearinghouse, as do some private sector firms.
Automated Teller Machine (ATM)
Computer-controlled terminal located on the premises of financial institutions or elsewhere, through which customers may make deposits, withdrawals or other transactions as they would through a bank teller. Other terms sometimes used to describe such terminals are customer-bank communications terminal (CBCT) and remote service unit (RSU). Groups of banks sometimes share ATM networks located throughout a region of the country that may include portions of several states.
Automatic Transfer Service (ATS) Account
A depositor's savings account from which funds may be transferred automatically to the same depositor's checking account to cover a check written or to maintain a minimum balance.
Balance of Payments
An accounting statement of the money value of international transactions between one nation and the rest of the world over a specific time period. The statement shows the sum of transactions of individuals, businesses and government agencies located in one nation, against those of all other nations.
Balance of Trade
That part of a nation's balance of payments dealing with imports and exports, that is trade in goods and services, over a given period. If exports of goods exceed imports, the trade balance is said to be favorable; if imports exceed exports, the trade balance if said to be unfavorable.
Bankers' Automated Clearing Services (BACS)
BACS (originally an acronym for Bankers' Automated Clearing Services) is responsible for bulk electronic clearing and the management and provision of related payment services to the UK banking industry. It has been operating for over thirty years and is among the largest automated clearing houses in the world.
Bank for International Settlements (BIS)
International organization established in 1930 and based in Basle, Switzerland, that serves as a forum for central banks collecting information, developing analyses and cooperating on a wide range of policy-related matters.
Bank Holding Company (BHC)
Company that owns, or has controlling interest in, one or more banks. A company that owns more than one bank is known as a multibank holding company. The Board of Governors is responsible for regulating and supervising bank holding companies, even if the bank owned by the holding company is under the primary supervision of a different federal agency (the Comptroller of the Currency or the Federal Deposit Insurance Corporation).
Bank Note
A term used synonymously with paper money or currency issued by a bank. Notes are, in effect, a promise to pay the bearer on demand the amount stated on the face of the note. Today, only the Federal Reserve Banks are authorized to issue bank notes, i.e. Federal Reserve notes, in the United States.
Bank Regulation
The formulation and issuance by authorized agencies of specific rules or regulations, under governing law, for the conduct and structure of banking.
Bankwire
An electronic communications network owned by an association of banks and used to transfer messages between subscribing banks. Bankwire also offers a clearing service called cashwire that includes a settlement facility.
Banker's Acceptance
Negotiable time drafts, or bills of exchange, that have been accepted by a bank which, by accepting, assumes the obligation to pay the holder of the draft the face amount of the instrument on the maturity date specified. They are used primarily to finance the export, import, shipment or storage of goods.
Batch-Processing
The transmission or processing of a group of related payment instructions.
Board of Governors
Central, governmental agency of the Federal Reserve System, located in
Washington, D.C., and composed of seven members who are appointed by the President and confirmed by the Senate. The Board of Governors is responsible for domestic and international economic analysis; with other components of the System, for the conduct of monetary policy; for supervision and regulation of certain banking organizations; for operation of much of the nation's payments system; and for administration of most of the nation's laws that protect consumers in credit transactions.
Book-Entry Securities
Securities that are recorded in electronic records called book entries, rather than as paper certificates. Ownership of U.S. government book-entry securities is transferred over Fedwire.
Broker-Dealer
Any person, other than a bank, engaged in the business of buying or selling securities on its own behalf or for others.
Capital Market
The market in which corporate equity and longer-term debt securities (those maturing in more than one year) are issued and traded.
Central Bank
The principal monetary authority of a nation, which performs several key functions, including issuing currency and regulating the supply of credit in the economy. The Federal Reserve is the central bank of the United States.
Central Bank Intervention
The buying or selling of currency, foreign or domestic, by central banks in order to influence market conditions or exchange rate movements.
Check Clearing
The movement of a check from the depository institution at which it was deposited back to the institution on which it was written; the movement of funds in the opposite direction and the corresponding credit and debit to the involved accounts. The Federal Reserve operates a nationwide check-clearing system.
Clearinghouse
An institution where mutual claims are settled between accounts of member depository institutions. Clearinghouses among banks have traditionally been organized for check-clearing purposes, but more recently have cleared other types of settlements, including electronic fund transfers.
Clearing House Automated Payment System (CHAPS) An electronic transfer system for sending same day value payments from bank to bank. It operates in partnership with the Bank of England in providing a payment and settlement service for banks. The CHAPS Clearing Company had operated two separate Clearings, CHAPS Sterling and CHAPS Euro until 16 May 2008 when CHAPS Euro was terminated.
The CHAPS Sterling payment system, developed in 1984, is one of the largest real-time gross settlement systems in the world, second only to Fedwire in the United States. CHAPS offers its members and their participants an efficient, risk-free, reliable same-day payment mechanism. Every CHAPS payment is unconditional, irrevocable and guaranteed.
Clearinghouse Interbank Payments System (CHIPS)
An automated clearing system used primarily for international payments. This system is owned and operated by the New York Clearinghouse banks and engages Fedwire for settlement.
Collateral
Property that is offered to secure a loan or other credit and that becomes subject to seizure on default (also called security).
Commercial Bank
Bank that offers a broad range of deposit accounts, including checking, savings and time deposits and extends loans to individuals and businesses. Commercial banks can be contrasted with investment banking firms, such as brokerage firms, which generally are involved in arranging for the sale of corporate or municipal securities.
Community Reinvestment Act (CRA)
Enacted by Congress in 1977, the CRA encourages banks to help meet the credit needs of their communities for housing and other purposes, particularly in neighborhoods with low or moderate incomes, while maintaining safe and sound operations.
Comparative Advantage
Describes the ability of a person, company or country to produce a good or service at a lower cost relative to other goods and services. Even though a country may have an absolute advantage over another country, it still will be better off specializing in the good or service in which it has a comparative advantage and trading for goods and services it doesn't produce as efficiently.
Competitive Bidders
One of two categories of bidders on Treasury securities: competitive and noncompetitive. Competitive bidders are usually financial institutions.
Comptroller of the Currency
An officer of the Treasury Department responsible for chartering national banks and has primary supervisory authority over them. All national banks are required to be members of the Federal Reserve System and are insured by the Federal Deposit Insurance Corporation.
Consumer Advisory Council (CAC)
A statutory body established by Congress in 1976. The Council, with 30 members who represent a broad range of consumer and creditor interests, advises the Federal Reserve Board on the exercise of its responsibilities under the Consumer Credit Protection Act and on other matters on which the Board seeks its advice.
Correspondent Bank
Bank that accepts deposits of, and performs services for, another bank (called a respondent bank); in most cases, the two banks are in different cities.
Credit
The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.
Credit Union
Financial cooperative organization of individuals who have a common bond, such as place of employment or residence or membership in a labor union. Credit unions accept deposits from members, pay interest (in the form of dividends) on the deposits out of earnings and use their funds to provide consumer installment loans to members.
Currency Appreciation
An increase in the value of one currency relative to another currency. Appreciation occurs when, because of a change in exchange rates, a unit of one currency buys more units of another currency.
Currency Depreciation
A decline in the value of one currency relative to another currency. Depreciation occurs when, because of a change in exchange rates, a unit of one currency buys fewer units of another currency.
Currency Devaluation
A deliberate downward adjustment in the official exchange rate established, or pegged, by a government against a specified standard, such as another currency or gold.
Currency Revaluation
A deliberate upward adjustment in the official exchange rate established, or pegged, by a government against a specified standard, such as another currency or gold.
Current Account Balance
The difference between the nation's total exports of goods, services and transfers and its total imports of them. Current account balance calculations exclude transactions in financial assets and liabilities.
Deficit
The amount each year by which government spending is greater than government income.
Demand Deposit
A deposit that may be withdrawn at any time without prior written notice to the depository institution. A checking account is the most common form of demand deposit.
Depository Institution
A financial institution that obtains its funds mainly through deposits from the public. This includes commercial banks, savings and loan associations, savings banks and credit unions. Although historically they have specialized in certain types of credit, nonbank depository institutions have broadened their powers in recent years. For example, NOW accounts, credit union share drafts and other services similar to checking accounts may be offered by thrift institutions.
Depreciation
A non-cash expense that provides a source of free cash flow. Amount allocated during the period to amortize the cost of acquiring long-term assets over the useful life of the assets.
Euro Banking Association (EBA)
The Euro Banking Association is an association consisting of 190 European banks. It serves as a forum for the European payments industry and plays a major role in the development of payment infrastructure solutions at a pan-European level. Through its industry initiatives and the euro payment systems it has delivered, the EBA has been and continues to be a key contributor to the creation of a standardised Single Euro Payments Area (SEPA).
Economic Growth
An increase in the nation's capacity to produce goods and services.
Economic Shocks
Events that impact the economy, come from outside it, and are unexpected and unpredictable (e.g., Hurricane Andrew in 1991, the rise in oil prices by OPEC).
Electronic Data Interchange (EDI)
The direct exchange of information electronically, from one firm's computer to another firms's computer in a structures format.
Electronic Funds Transfer (EFT)
Transfer of funds electronically rather than by check or cash. The Federal Reserve's Fedwire and automated clearinghouse services are EFT systems.
Electronic Fund Transfer Systems (EFTS)
A variety of systems and technologies for transferring funds (money) electronically rather than by check. Includes Fedwire, automated clearinghouses (ACHs) and other automated systems.
Eurodollars
Deposits denominated in U.S. dollars at banks and other financial institutions outside the United States. Although this name originated because of the large amounts of such deposits held at banks in Western Europe, similar deposits in other parts of the world are also called Eurodollars.
European Committee on Banking Standards (ECBS)
The European Committee for Banking Standards (ECBS) was formed in 1992 by the European Credit Sector Associations (ECSAs) to represent the interests of banks of the European banks from the countries of the European Union (EU), the European Economic Area (EEA), and the European Free Trade Association (EFTA). It develops technical reports and standard implementation guidelines and represents the European banking sector to the various standards and industry bodies.
Excess Reserves
Amount of reserves held by an institution in excess of its reserve requirement and required clearing balance. Also see reserves.
Exchange Rate
The price of a country's currency in terms of another country's currency.
Federal Advisory Council (FAC) Advisory group made up of one representative (in most cases a banker) from each of the 12 Federal Reserve districts. Established by the Federal Reserve Act, the council meets periodically with the Board of Governors to discuss business and financial conditions and make recommendations.
Federal Deposit Insurance Corporation (FDIC) An independent deposit insurance agency created by Congress in 1933 to maintain stability and public confidence in the nation's banking system. The FDIC promotes safety and soundness of insured depository institutions and the U.S. financial system by identifying, monitoring and addressing risks to the deposit insurance funds; minimizes disruptive effects from the failure of banks and savings associations; and ensures fairness in the sale of financial products and the provision of financial services.
Federal Open Market Committee (FOMC) Twelve-member committee made up of the seven members of the Fed's Board of Governors; the president of the Federal Reserve Bank of New York; and, on a rotating basis, the presidents of four other Reserve Banks. The FOMC meets eight times a year to set Federal Reserve guidelines regarding the purchase and sale of government securities in the open market as a means of influencing the volume of bank credit and money in the economy. It also establishes policy relating to System operations in the foreign exchange markets.
Federal Reserve Bank One of the 12 operating arms of the Federal Reserve System, located throughout the nation, that together with their 25 branches carry out various System functions, including operating a nationwide payments system, distributing the nation's currency and coin, supervising and regulating member banks and bank holding companies and serving as banker for the U.S. Treasury.
Federal Reserve District (Reserve District or District) One of the twelve geographic regions served by a Federal Reserve Bank.
Federal Reserve System The central bank of the United States, created by Congress and made up of a seven-member Board of Governors in Washington, D.C., 12 regional Federal Reserve Banks, and their 25 branches.
Fedwire Electronic funds transfer network operated by the Federal Reserve. Fedwire is usually used to transfer large amounts of funds and U.S. government securities from one institution's account at the Federal Reserve to another institution's account. It is also used by the U.S. Department of the Treasury and other federal agencies to collect and disburse funds.
Financial Institution An institution that uses its funds chiefly to purchase financial assets (loans, securities) as opposed to tangible property. Financial institutions can be classified according to the nature of the principal claims they issue.
Fiscal Policy The federal government's decisions about the amount of money it spends and collects in taxes to achieve a full employment and noninflationary economy.
Fixed Rate A traditional approach to determining the finance charge payable on an extension of credit. A predetermined and certain rate of interest is applied to the principal.
Foreign Currency Operations Purchase or sale of the currencies of other nations by a central bank for the purpose of influencing foreign exchange rates or maintaining orderly foreign exchange markets. Also called foreign-exchange market intervention.
Government Securities Securities issued by the U.S. Treasury or federal agencies.
Gross Domestic Product (GDP) Total value of goods and services produced by labor and property located in the United States during a specific period. In 1991, GDP became the U.S. government's primary measure of economic activity in the nation, replacing gross national product (GNP), which is the total value of goods and services produced by labor and property supplied by U.S. residents (but not necessarily located within the country).
International Bank Account Number (IBAN) The IBAN concept was developed by the European Committee for Banking Standards (ECBS) and the International Standards Organisation (ISO) and is an internationally agreed standard ISO 13616: 1997. It was created as a viable and practical international bank identifier, used internationally to uniquely identify the account of a customer at a financial institution, to assist error-free cross-border payments and to improve the potential for payments STP.
Inflation A rise, over time, in the average level of prices.
Interest Payments The return expressed in percentage earned on an investment each year. These payments are issued every six months based on an annual rate.
International Banking Facility (IBF) Facilities which, in general, can accept time deposits from foreign customers free of reserve requirements and interest rate limitations, and can lend to foreigners if the funds are for the conduct of foreign business outside of the United States. Net borrowing from these facilities by domestic banking offices is subject to reserve requirements.
International Monetary Fund (IMF) An international organization with 146 members, including the United States. The main functions of the IMF are to lend funds to member nations to finance temporary balance of payments problems, to facilitate the expansion and balanced growth of international trade and to promote international monetary cooperation among nations. The IMF also creates special drawing rights (SDRs), which provide member nations with a source of additional reserves. Member nations are required to subscribe to a Fund quota, paid mainly in their own currency. The IMF grew out of the Bretton Woods Conference of 1944.
International Organization for Standardization ISO is not an acronym but the name of a standards setting organization chartered by the United Nations. The name ISO is derived from Greek and connotes equality, i.e. each member country regardless of size or wealth gets only one vote. The ISO 4217 are the standard three letter currency codes. These codes are usually composed of the ISO 3166 two letter country code plus a third letter representing the name of the currency.
Investment Bank Also known as underwriters, investment banks serve as middlemen between corporations issuing new securities and the buying public. Normally one or more investment banks buy the new issue of securities from the issuing company for a negotiated price. The company walks away with this new supply of capital, while the investment banks form a syndicate and resell the issue to their customer base and the investing public. Investment banks perform a variety of other financial services, such as merger and acquisition advice and market analysis.
Liquidity Quality that makes an asset easily convertible into cash with relatively little loss of value in the conversion process. Sometimes used more broadly to encompass credit in hand and promises of credit to meet needs for cash.
Magnetic Ink Character Recognition (MICR) A description comprising numbers and symbols printed in magnetic ink on documents for automated processing. For checks, this MICR line appears at the bottom of the check.
Margin With regard to securities, this term refers to a fractional amount of full value, or the equity outlay (down payment) required for an investment in securities purchased on credit.
Member Bank Depository institution that is a member of the Federal Reserve System. All federally chartered banks are automatically members of the System. State-chartered banks are divided into those that are members of the System (state member banks) and those that are not (nonmember banks).
Monetary Policy A central bank's actions to influence the availability and cost of money and credit, as a means of helping to promote national economic goals. Tools of monetary policy include open market operations, discount policy and reserve requirements.
Money Anything that serves as a generally accepted medium of exchange, a standard of value and a means to save or store purchasing power. In the United States, currency (the bulk of which is Federal Reserve notes), coin and funds in checking and similar accounts at depository institutions are examples of money.
Money Laundering
To move illegally acquired cash through financial systems so that it appears to be legally acquired.
National Association of Securities Dealers (NASD) A self-regulatory organization with jurisdiction over certain broker-dealers. The NASD requires member brokers to register and conducts examinations for compliance with net capital requirements and other regulations. It also conducts market surveillance of the over-the-counter (OTC) securities market. National Association of Securities Dealers Automated Quotations (NASDAQ) is a subsidiary of the NASD which facilitates the trading of approximately 5,000 most active OTC issues through an electronically connected network.
National Association of Securities Dealers Automated Quotations (NASDAQ ) A computerized system established by the NASD to facilitate trading by providing broker/dealers with current bid and ask price quotes on over-the-counter stocks and some listed stocks.
National Credit Union Administration (NCUA) The federal government agency that supervises, charters and insures federal credit unions. NCUA also insures state-chartered credit unions that apply and qualify for insurance. The NCUA also operates a credit facility for member credit unions.
Nonmember Bank Depository institution that is not a member of the Federal Reserve System. Specifically, a state-chartered commercial bank that has elected not to join the System.
Office of Foreign Assets Control (OFAC) A bureau of the Treasury Department that administers economic and trade sanctions. OFAC also targets and blocks the financial transactions and assets of terrorists, narcotics traffickers, and foreign countries posing a threat to our national security and economy. OFAC acts under Presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under US jurisdiction. Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments.
Office of the Comptroller of the Currency (OCC) An independent bureau of the Treasury Department and the oldest federal financial regulatory body. The OCC oversees the nation's federally chartered banks and through a system of bank supervision and regulation promotes safety and soundness by requiring that national banks adhere to sound management principles and comply with the law, and encourages banks to satisfy customer and community needs while remaining efficient competitors in the financial services market.
Office of Thrift Supervision (OTS) A bureau of the Treasury Department, established in August 1989, which has the authority to charter federal thrift institutions and serve as the primary regulator of approximately 2,000 federal and state-chartered thrifts.
Payments System Collective term for mechanisms (both paper-backed and electronic) for moving funds, payments and money among financial institutions throughout the nation. The Federal Reserve plays a major role in the nation's payments system through distribution of currency and coin, processing of checks, electronic transfer of funds and the operation of automated clearinghouses that transfer funds electronically among depository institutions; various private organizations also perform payments system functions.
Premium The amount by which the auction price of a bill, note, or bond is higher than its face value.
Productivity The amount of physical output for each unit of productive input.
Recession A significant decline in general economic activity extending over a period of time.
Regional Check Processing Center (RCPC) A Federal Reserve check processing operation that clears checks drawn on depository institutions located within a specified area. RCPCs expedite collection and settlement of checks within the area on an overnight basis.
Reserves A depository institution's vault cash (up to the level of its required reserves) plus balances in its reserve account (not including funds applied to its required clearing balance).
Required Reserve Balance Portion of its required reserves that a depository institution must hold in an account at a Federal Reserve Bank.
Savings Bank Depository institution historically engaged primarily in accepting consumer savings deposits and in originating and investing in securities and residential mortgage loans; now may offer checking-type deposits and make a wider range of loans.
Securities Paper certificates (definitive securities) or electronic records (book-entry securities) evidencing ownership of equity (stocks) or debt obligations (bonds).
Securities and Exchange Commission (SEC) An independent, nonpartisan, quasi-judicial regulatory agency with responsibility for administering the federal securities laws. The purpose of these laws is to protect investors and to ensure that investors have access to disclosure of all material information concerning publicly traded securities. The Commission also regulates firms engaged in the purchase or sale of securities, people who provide investment advice, and investment companies.
Self-Regulatory Organizations (SRO) Nongovernment organizations that have statutory responsibility to regulate their own members such as the New York Stock Exchange (NYSE) and National Association of Securities Dealers (NASD).
Service Charge A component of some finance charges, such as the fee for triggering an overdraft checking account into use.
Settlement When payment is made for a trade.
Single European Payments Area (SEPA)
The Single Euro Payments Area (SEPA) initiative provides a unified STP payments system for all EU member states for direct debits, credits and card payments.
SEPA Credit Transfer (SCT)—SEPA instrument for Credit Transfers
SEPA Direct Debit (SDD)—SEPA instrument for Direct Debits
Society for Worldwide Interbank Financial Telecommunications (S.W.I.F.T. ) A message writing system that connects worldwide participating banks, primarily for the purpose of communicating payment information. Frequently, the S.W.I.F.T. message is only part of an international payment.
Special Drawing Rights (SDR) A type of international money created by the International Monetary Fund (IMF) and allocated to its member nations. SDRs are an international reserve asset, although they are only accounting entries (not actual coin or paper, and not backed by precious metal). Subject to certain conditions of the IMF, a nation that has a balance of payments deficit can use SDRs to settle debts to another nation or to the IMF.
Spot Transaction A foreign exchange transaction in which each party promises to pay a certain amount of currency to the other on the same day or within one or two days.
State Member Bank A bank that is chartered by a state and has elected to join the Federal Reserve System.
Straight Through Processing (STP) Allows transactions to move seamlessly through the processing cycle, without manual intervention or redundant handling.
Surcharge An extra charge imposed on those who purchase with a credit card instead of cash. (Currently, surcharges for credit card purchases are prohibited.)
Swap An arrangement between the central banks of two countries for standby credit to facilitate the exchange of each other's currencies.
Thrift Institution A general term encompassing savings banks, savings and loan associations, and credit unions.
Thrift Institutions Advisory Council (TIAC) A council, established following the passage of the Monetary Control Act of 1980, whose purpose is to provide information and views on the special needs and problems of thrifts. The group is comprised of representatives of savings banks, savings and loan associations, and credit unions.
Transaction Account A checking or similar account from which transfers can be made to third parties. Demand-deposit accounts, negotiable order of withdrawal (NOW) accounts, automatic transfer service (ATS) accounts, and credit union share draft accounts are examples of transaction accounts at banks and other depository institutions.
Treasury Bill (T-bill) Short-term U.S. Treasury security having a maturity of up to one year and issued in denominations of $10,000 to $1 million. T-bills are sold at a discount: Investors purchase a bill at a price lower than the face value (for example, the investor might buy a $10,000 bill for $9,700); the return is the difference between the price paid and the amount received when the bill is sold or it matures (if held to maturity, the return on the T-bill in the example would be $300). T-bills are the type of security most frequently used in Federal Reserve open market operations.
Treasury Bond Long-term security having a maturity of 10 years or longer issued in denominations of $1,000 or more. A 30-year bond is sometimes referred to as a long bond. Bonds pay interest semiannually, and the principal is payable at maturity.
Treasury Note Intermediate-term security having a maturity of one to 10 years and issued in denominations of $1,000 or more. Notes pay interest semiannually, and the principal is payable at maturity.
U.S. Treasury Securities Interest-bearing obligations of the U.S. government issued by the U.S. Department of the Treasury as a means of borrowing money to meet government expenditures not covered by tax revenues. There are three types of marketable Treasury securities—bills, notes and bonds.
Variable Rate A variable-rate agreement, as distinguished from a fixed-rate agreement, calls for an interest rate that may fluctuate over the life of the loan. The rate is often tied to an index that reflects changes in market rates of interest. A fluctuation in the rate causes changes in either the payments or the length of the loan term. Limits are often placed on the degree to which the interest rate or the payments can vary.
Velocity The rate at which money balances turn over in a period for expenditures on goods and services (often measured as the ratio of GNP—gross national product—to the money stock). A larger velocity means that a given quantity of money is associated with a greater dollar volume of transactions.
Wire Transfers One of the two major methods of electronic funds transfer. Only the payer can originate the remittance. A wire transfer's information format is completely flexible, but this flexibility adds significantly to the bank's labor costs and results in much higher fees.
Yield The return on a loan or investment, stated as a percentage of price.
