Promotes economic revitalization in distressed communities throughout the United States by providing financial assistance and information to community development financial institutions (CDFI).
The factor market is also called the input market. It consists of companies that buy raw materials and labor to produce final products that are sold to consumers (output market). Factors are the purchased raw materials and labor. Consumers also participate in the factor market. When a consumer applies for a job, they are a seller, since they are selling their services. The company that hires them is a buyer since the company is buying labor, which is a factor.
Firms leverage these factors to generate economic profits by generating revenues from the sale of a good or service that exceeds the costs of producing or maintaining these factors.
Fannie Mae is the more common alias of The Federal National Mortgage Association (FNMA) is a publicly traded
The Federal Deposit Insurance Corporation is an independent federal agency tasked with insuring customer deposits at US banks and thrifts. Created in 1933, the FDIC seeks to maintain public confidence and stability throughout financial crises by promoting sound banking practices.
The federal budget is an itemization of the various expenses the U.S. government must pay to keep the country running on an annual basis. The budget begins on Oct. 1 and ends on Sept. 30 of the following year. Government expenditures that the budget must cover include employee salaries, military, infrastructure maintenance, subsidies, and more.
Government spending is divided into two categories: Mandatory and discretionary. Mandatory spending is designated by law and includes entitlement programs such as Medicare and social security, which consume 37% of the federal budget. Estimates for the budget are created by the Office of Management and Budget. Discretionary spending requires the approval of individuals appropriation bills.
The Federal Deposit Insurance Corporation (FDIC) was created in 1933, during the Great Depression. It was created due to all the bank failures from the 1929 stock market crash. The FDIC is an independent government agency. It insures depositor funds for up to $250,000 per depositor. If a depositor has more than $250,000 to deposit, they can spread funds across multiple banks, never exceeding $250,000 per bank, to get more FDIC protection.
Banks pay for FDIC insurance. Depositors must check that a bank is a member of the FDIC. If not, their funds will not be FDIC insured. As of 2018, there were over 4,700 FDIC insured banks.
The interest rate at which banks lend reserve balances to each other on an overnight basis. Depository institutions are required by law to maintain a certain percentage of their customer’s money in reserves, causing banks to lend money back and forth to maintain an acceptable level of cash on hand. Banks will try to stay as close to the minimum reserve limit as possible, as excess reserves earn a rate of return of zero and can lose value over time due to inflation.
The U.S. federal income tax is a tax levied on the income of individuals, corporations, trusts, and other legal entities. The federal income tax is a source of revenue for the federal government. The government uses money from the tax to build and improve the country’s infrastructure, fund entitlement programs, and disaster relief.
The federal income tax is different from local and state taxes. Local taxes create revenue for cities and counties. State taxes do the same at the state level. Local and state taxes are also levied on the income and purchases of individuals and corporations. Not all states have an income tax. There are currently nine that do not.
The Federal Reserve is comprised of the Board of Governors and 12 Federal Reserve Banks in cities around the United States.
The most absolute type of ownership of land. The owner has complete rights over the property, and may possess, use, and dispose of the land as he or she desires. Contrary to a leasehold ownership, an owner of a fee simple interest in a property has taken title, and owns both the land and any improvements that exist on the land indefinitely. Expect for a few unique situations, no one can legally take ownership of land from someone with pre-existing fee simple ownership.
An FHA loan is a Federal Housing Administration loan issued by an FHA-approved lender (generally a bank) and is insured by the FHA. FHA loans are issued to low-to-moderate income borrowers. These borrowers are unlikely to get approved by a bank. To help the borrower get a home loan, the FHA steps to reduce some of the bank's risk. The bank ultimately determines if the borrower is qualified for the loan. Down payments on an FHA loan are smaller than those for a conventional mortgage. Borrower credit scores are also lower than those found on conventional mortgages.
Unlike a commodity currency, fiat money is not backed by any physical asset such as gold or silver. Instead, it relies on the faith people have in the currency and the government behind it. The U.S. dollar is a fiat currency and is considered the least risky currency of all the other fiat currencies. The U.S. dollar has become a global safe haven because of the U.S. government’s stability. It is backed by the "full faith and credit" of the U.S. government.
A fiat currency provides a country’s central bank with more control over the money supply — credit supply, liquidity, interest rates, and money velocity. Because central banks can print money, unless there are checks and balances, the situation can get out of control, leading to hyperinflation, as was the case in Zimbabwe and the Weimar Republic of Germany.
FICO is short for Fair Isaac Corporation, the company that created the FICO score. FICO scores are used by lenders to determine an individual's creditworthiness. The score ranges from 350-800, with a higher score being better. The higher an individual’s score, the better rate they will get on a loan, and the more credit they can receive.
A FICO score is made up of five components: payment history, the current level of indebtedness, types of credit used, length of credit history, and new credit accounts. Individuals with scores above 650 generally receive good interest rates. Those with scores below 620 will struggle to get loans and good rates on those loans.
Finance is a term that describes the study and system of money, investments and various other financial instruments. Generally, finance is broken into three categories: public finance, corporate finance and personal finance.
Finance charges provide lenders an incentive to provide funds to consumers and businesses. Without the, lenders would receive no compensation for providing liquidity to individuals and businesses.
Financial accounting is the accounting activity performed from business operations. It includes recording, reporting, and summarizing the transactions of a business at specific times and across periods of time. Specifically, financial accounting requires the preparation of the income statement, cash flow statement, and balance sheet. Financial accounting follows the accrual basis accounting system rather than the “cash basis.” In the U.S., financial accounting follows the Generally Accepted Accounting Principles (GAAP). Internationally, it follows International Financial Reporting Standards (IFRS). GAAP and IFRS are compatible, which allows financial accounting between companies in different countries to be compared.
A financial advisor is someone who provides financial advice and guidance to individuals. Financial advisors can provide advice on a broad range of financial topics, including retirement, insurance, investing, and various money matters. Financial advisors must have a valid Series 65 license. Many also carry the Certified Financial Planner (CFP) designation. While financial advisors are not purely portfolio managers, they can help create a portfolio based on a client’s risk tolerance and goals. Financial advisors may also execute orders in the portfolio to keep it aligned with the client’s financial objectives.
Financial institutions are entities such as banks, insurance companies, brokerages, and even auto dealers and the United States Postal Service. Financial institutions engage in the business of financial and monetary transactions. Banks make money by earning more interest loans than the interest paid on deposits. Brokerages make money through investor trading commissions.
Financial institutions are an important component of the economy. Given the importance of their role, they are heavily regulated by the government. Risk and other metrics critical to the proper functioning of these institutions are closely monitoring through these regulations. Part of their importance is because businesses and consumers depend on financial institutions for loans and other financial transactions.
Financial leverage is the use of borrowed funds to acquire an investment. In the context of commercial real estate, this typically involves the use of a mortgage
Financial literacy is the knowledge and ability to successfully manage one’s finances. The lack of financial literacy can be a detriment to a person getting ahead financially. Being financially literate consists of a number of components but generally includes financial planning, budgeting, paying off debt, investing, planning for college, estate planning, and understanding how interest is calculated. Financial literacy is also about our attitude toward money, which ultimately affects our decisions about spending and saving money. Financial literacy can be obtained by reading about personal finance and working with a financial advisor.
A financial plan is a roadmap for an individual to achieve specific financial goals. It is a long-term plan. Financial planning is the process of creating, updating, and following this roadmap. A financial plan can be created by the individual or with a financial planner.
Creating a financial plan involves an analysis of your current financial state. Adding up all of your assets and deducting all your liabilities equals your net worth. A financial plan will often ensure you have enough money for retirement and other needs years from now. For many, it should also increase their net worth. Some elements of a financial plan include retirement, tax strategies, risk management, investment strategies, and estate planning.
The term financial security represents a stake in a publicly-traded company, whether through stocks, bonds, or options. Owning stock in a company means the holder of the stock has an equity stake in the company. Bonds represent a creditor relationship. Options are rights to ownership. Stockholders have voting rights in the company, usually dependent on the number of shares they own. Creditors (bondholders) don’t have voting rights. For giving up their voting rights and any potential appreciation in the company’s value, bondholders are paid a consistent interest on their bonds. Bondholders are also one of the first in line (before stockholders) to be repaid their principal if the company files for bankruptcy.
Financial statements are a uniform set of financial documents that are periodically released throughout the year and provide a view of a company’s financial performance. There are three financial statements. The balance sheet provides a snapshot of assets, liabilities, and equity. The income statement shows a specific period of revenue and income generation. The cash flow statement is also based on a particular timeframe and shows changes in the cash account.
Public companies must follow GAAP (Generally Accepted Accounting Principles) standards, which allows investors to assess the investment viability of a stock. Financial statements also include explanatory notes or footnotes. These go into further details about operations, acquisitions, inventory method, owner’s equity, and other more.
FinTech, which is short for Financial Technology, is the word used to describe new technology that is developed to automate and improve the financial and banking services sectors. Typically delivered through different algorithms and software packages on computers and smartphones, FinTech looks to help corporations, business owners, and consumers facilitate and manage their financial operations and needs.
First loss position is an investment’s or security’s position that will suffer the first economic loss if the underlying assets lose value or are foreclosed upon.
A government can implement fiscal policy in the form of lower tax rates in order to influence higher levels of consumer spending. It could also promote economic expansion by building infrastructure such as public transportation or highways that will allow individuals and businesses higher levels of connectivity and ability to expand productivity.
The Internal Revenue Service dictates that a fiscal year consists of twelve consecutive months ending on the last day of any month with the exception of December. Thus, a firm can report its financial statements to various regulators and shareholders as of the fiscal year ending February 28.
A fixed asset is property, plant, and equipment that a company has owned for more than a year. These assets are listed on the company’s balance sheet. Unlike inventory, fixed assets are not resold. Fixed assets can be depreciated over their lifetime. How much depreciation is dependent on the kind of asset. For example, a $3,000 investment in equipment that has a three-year lifespan might depreciate at a rate of $1,000 per year. This means the company can expense $1,000 per year, reducing its overall net income and taxes.
A fixed cost is a critical input in a firm’s break-even analysis, which is used to determine pricing and production for the firm’s inputs and products.
A fixed income investment is usually a bond. It is a financial instrument that pays consistent cash flows on the invested principal. These cash flows are known in advance. At maturity, the bond’s principal is paid back to the investor and cash flows cease. Fixed income is not as volatile as equities (i.e., stocks). Preservation of capital is one of the main reasons people invest in fixed income, especially retirees. However, because cash flows are fixed, investor income can be eroded by increasing inflation. Also, there is a risk the bond can be called before maturity, discontinuing its cash flows.
A type of loan where the interest rate is predetermined, and does not fluctuate during the term of the loan. Fixed rate loans allow borrowers to accurately calculate future financial obligations, in the form of both principal and interest payments.
A fixture is something that is permanently attached to real property. Examples include items such as HVAC systems, ceiling lights, awnings, window shades,
Refers to a tax system that utilizes the same marginal tax rate across individual taxpayers or businesses. Opposite of the progressive tax structure, this method ensures that higher income earning entities don’t pay a proportionately higher amount of taxes.
A flexible payment plan allows consumers to purchase a product and pay for it over time. It’s similar to a credit card but is on-the-spot financing. Companies such as Affirm and Paypal Credit allow merchants to offer financing at checkout. Customers are often approved but those with the best credit get the best terms. Sometimes this means no interest for a specific period of time. Consumers with poorer credit will often have to pay high-interest rates (up to 30%). Missing a payment can mean high fees and may even void an interest-free period. Flexible payment plans can often lead to debt. Consumers are using the plan because they don’t have the cash to purchase the product. The alternative is to finance it. However, with a high-interest rate and late fees, payments can become difficult to pay while debt increases.
FAR stands for Floor Area Ratio and is the total usable floor space in a building compared to the building’s lot size. The formula for FAR is (total floor area of building) / (gross lot area). The total building floor space may also be based on permitting. A high FAR means more density. City governments use FAR for zoning.
Usable space varies across buildings. Elevator shafts, stairwells, pillars, and other occupiable spaces do not count as usable space. Developers desire a higher FAR, as it allows for more occupancy per lot. City planners must balance the desire for more usable space with the strains it can put on a city, known as a safe load factor.
If an investor holds its interest in the QOF for 10 years or more, for purposes of determining the gain or loss the investor recognizes from the sale or exchange of such QOF interest, the investor may elect for the basis of such QOF interest to be equal to its fair market value on the date such QOF interest is sold or exchanged.
A forbearance is a temporary postponement of mortgage payments in hopes of avoiding foreclosure. Foreclosure costs fall onto the lender, making foreclosure an undesirable outcome. Borrowers must demonstrate the need for forbearance. The need might be due to an illness or job loss. The need for forbearance must be demonstrated because loan terms will change. A borrower with a steady job who has always made their mortgage payments is likely to receive a forbearance. Whereas, A borrower with a spotty job history who has missed some mortgage payments may have a more difficult time receiving a forbearance.
Any skipped payments may be moved to the back of the loan or lumped into one payment at the end of the forbearance. The lender and borrower will discuss the new loan terms. Some lenders may allow borrowers to pay only interest during forbearance while others may allow partial interest payments. The remaining interest may result in negative amortization, which means payments for some period were less than the interest over the same period.
Fannie Mae and Freddie Mac offered forbearance to homeowners because of COVID. Late fees are not incurred due to missed payments during a forbearance. Additionally, nothing negative is reported to credit bureaus.
Unlike bank lenders, loan servicers are different since they do not own the loans. They only collect payments from borrowers. This means loan services may be less willing to provide any forbearance, as they are not taking on the same risks as bank lenders.
Foreclosure is the legal process by which the mortgage holder attempts to recover the balance of a loan from a borrower who has defaulted by forcing the sale
Foreign aid is money given to one country (i.e., government) by another, often as military or economic aid. Aid can come in the form of a gift, grant, or loan. Aid can also come from religious organizations, nongovernment organizations (NGOs), and foundations. In 2017, the United States ($34.7B) was the largest giver of foreign aid, followed by Germany ($24B).
A foreign direct investment (FDI) is an investment by a company in one country into a business located in another country. This is different from simply purchasing the stock of a foreign business. The investor instead establishes business relationships with the foreign company or buys assets of the company. There are three types of FDI investments: 1.) vertical — investment in the same type of business or industry, 2.) horizontal — investment in a related but different type of business or industry, 3.) conglomerate — an altogether different type of business.
Foreign Investment in Real Property Tax Act (FIRPTA) is a United States tax law that imposes a tax on foreign persons disposing of United States real property interests. To ensure tax collection from
One of the several tax forms distributed by IRS, Form 1099 is used in the United States to report various types of income other than wages, salaries, and tips. The form is primarily used to report payments to independent contractors, income from rental properties, and income from interest and dividends.
Form 8824 is a form to be filled out with an exchanger’s tax return in order to report the completion of a 1031 like-kind exchange to the IRS.
Percentage ownership over real property. A common structure for assets that require significant pooling of capital, fractional ownership allows the costs and profits of a particular investment be split amongst the owners of title. Percent ownership is typically determined by the amount contributed to the entity’s overall capitalization.
There are two primary options one can take when considering 1031 eligible fractional ownership in investment property: Delaware Statutory Trusts (DSTs) and Tenant-In-Common investments (TICs). These structures allow smaller investors to enter into larger, investment-grade properties that were originally restricted to institutional investors, such as banks and insurance companies.
Freddie Mac is the more commonly known alias of the Federal Home Loan Mortgage Corporation (FHLMC) which is a publicly traded
In a community with shared resources, such as a town, there are some people who use what they pay for and others who overuse resources. Others pay nothing and still use resources. Those who use more than they’ve paid for are called free riders.
Free trade is a policy that seeks to allow buyers and sellers from economies around the world to trade freely without incurring government tariffs, quotas or subsidies. Free trade is synonymous with “laissez-faire trade” which seeks to eliminate discrimination against imports and exports and allow markets to find equilibrium organically in the absence of government policies. Free trade allows the expansion of an economy’s offering of services and products by allowing the best producer the opportunity to penetrate a market regardless of its national denomination. This allows an economy to expand its product offerings, knowledge, skills and promotes specialization and the division of labor.
Fringe benefits are an additional, often non-monetary compensation for employees. They can be used to help set a company apart from its competition by offering benefits that other companies don’t offer. This differentiation helps in attracting hard-to-find talent.
Some common fringe benefits include health and life insurance. Other benefits can include a gourmet cafeteria (as is the case with Google), 20 weeks paid leave (Microsoft), commuter passes, gym memberships, and more. Fringe benefits help enhance the work environment for employees, making it a more desirable place to work. For this reason, and in addition to attracting talent, fringe benefits help retain and keep employees motivated.
Full employment is an economic state where labor resources are being used most efficiently. It includes the use of the most skilled and unskilled workers. Full employment does not mean that everyone within the economy is employed.
Even in a full employment economy, there are levels of unemployment, which are referred to as natural or cyclical unemployment, which is made up of two components. Frictional unemployment occurs when people are unemployed because they are moving, just starting a job search, or quitting their existing job for a better one. Structural unemployment occurs when people are unemployed because they can’t find work or companies can’t find labor.
A fully amortizing loan is a type of loan which is completely paid off by the end of its term, given the borrower makes complete payments based on the loan’s amortization schedule. Whereas fixed rate loans will have equal payments of interest and principal over its term, debt service on floating rate loans will change as the interest rate changes. Due to the fact that all principal will be paid off, fully amortizing loans will not see a balloon payment at the end of its term, regardless of whether it is fixed or floating.
With regard to corporate-level investment strategies, fund types can include mutual funds, exchange-traded funds (ETFs) or hedge funds. Different types of funds have different investment theses which attract investors with risk profiles that align strongly with a fund’s strategy.
Future value is a time value of money (TVM) concept that represents the expected value, as of a defined date in the future, resulting from
To become a Qualified Opportunity Fund, an eligible taxpayer self-certifies. As of now, no approval or action by the IRS is required.
An investment vehicle that is set up as either a partnership or corporation for investing at least 90% of its assets in eligible property (see “Opportunity Zone Property”) that is located in an Opportunity Zone and that utilizes the investor’s gains from a prior investment (an unlimited amount) from the sale or exchange of any property (whether or not the asset sold was located in or related to a low-income community).
FICA contributions are mandatory. Funds collected as a result of this payroll tax help fund programs such as Social Security and Medicare that pay for current retirees’ and other beneficiaries’ benefits.