Glossary of Financial Terms starting with Alphabet ‘F’

Glossary of ‘Financial Terms’ starting with Alphabet ‘F’, i.e. ‘Meaning’ or ‘Definition’ of Common and Unusual terms relating to Accounting, Auditing, Company Law, GST, Income Tax, Investments, etc., along with the ‘Context’ in which they are used.

Face Value

The value that appears on the face of the scrip, same as nominal or par value of share/debentures.

Family of Funds

A group of mutual funds, each typically with its own investment objective, managed and distributed by the same company.

Feeder Fund

Unit Trusts or Mutual Funds which invest in other trusts promoted by the same manager.

Fill or Kill (Fok) Order

An order that requires the immediate purchase or sale of a specified amount of stock, though not necessarily at one price. If the order cannot be filled immediately, it is automatically cancelled (killed).

Financial Year

Financial year is a period of 12 months, which starts from 1st April each calendar year and ends on 31st March next calendar year, e.g. financial year 2021-22 refers to the financial period 01/04/2021 to 31/03/2022. Also refer the terms ‘Previous Year‘ and ‘Assessment Year‘. Read More

Financial crisis

Sharp, brief, ultra cyclical deterioration of all or most of a group of financial indicators – short term interest rates, asset (stock, real estate, land) prices, commercial insolvencies and failures of financial institutions.

Firewall

A barrier designed to prevent losses or risks taken in one part of a financial institution from weakening other parts of institution.

Firm allotment

Allotment on a firm basis in public issues by an issuing company made to Indian and multilateral development financial institutions ,Indian mutual funds , foreign institutional investors including non-resident Indians and overseas corporate bodies and permanent/regular employees of the issuer company.

First in/ First out

A popular inventory cost accounting procedure in which the first item manufactured is assumed to be the first one sold by the company.

Five against bond spread

A spread in the futures markets created by taking offsetting positions in futures contracts for five-year treasury bonds and long-term (15-30 year) treasury bonds.

Fixed Asset

An item of value used in current operation that would normally be of use for more than one year.

Fixed Liability

An obligation of a company payable more than a year hence.

Flip-Over

A provision in a poison pill that gives shareholders the right to buy the company’s shares (or the shares of the surviving company after a merger) at half price. Unlike a Flip-in, a flip-over right does not become effective simply because an interested shareholder buys some stock. Usually it becomes effective when (i) there is an interested shareholder and (ii) the company engages in certain transactions with the interested shareholder or an affiliate, such as a merger or a sale of all or a large part of its assets. Historically, the flip-over poison pill was devised several years before the more powerful flip-in. At that time the essential discrimination against the interested shareholder that the flip-in entails was widely considered illegal. Now the two are generally combined, although under most circumstances the flip-in provision of the pill dominates any potential bidder’s attention.

Flip-in poison pill plan

Shareholders are issued rights to acquire stock in the target at a significant discount which is usually 50%.

Flip-in

The most important characteristic of the most effective rights plan (position pill) in use today. It gives shareholders the right to buy the company’s shares at half price when someone becomes an ‘interested shareholder’, that is, crosses some stock ownership threshold such as 15% or 20%. The interested shareholder’s rights are void. Other shareholders can (typically) use each of their rights to buy a number of shares equal to two times the exercise price (set in advance), divided by the current market price of the target company’s stock. Usually, from the standpoint of a bidder, the flip-in right is a complete show stopper unless the bidder can convince a court that it should intervene. In the text we have tried to describe when courts intervene against poison pills under Delaware law.

Flip-over Poison Pill Plan

The most popular type of poison pill anti-takeover defense. Shareholders of the target firm are issued rights to purchase common stock at an exercise price high above the current market price. If a merger occurs, the rights flip over and allow shareholders to purchase the acquiring firm’s common stock at a substantial discount.

Float

The number of shares issued and outstanding of a company’s stock.

Floating rate coupon

Coupon rate that varies with (“floats against”) a standard market benchmark or index.

Floating Stock

The fraction of the paid up equity capital of a company which normally participates in day to day trading.

Floor

Trading hall of the Stock Exchange where transactions in securities take place. The trading ring where members and their assistants assemble with their order books for executing the order of their constituents.

Floor price

The minimum offer price below which bids cannot be entered. The Issuer Company in consultation with the lead book runner fixes the floor price.

Flow back

Securities recently placed in the markets that are resold on the issuers’ national market. It is one of the major risks in an equity placement because it may frustrate the objective of internationalization of the equity market and cause downward pressure on its market price.

Foreign Exchange Rate

The price of one currency in terms of the other.

Foreign institutional investor

An institution established or incorporated outside India which proposes to make investment in India in securities; provided that a domestic asset management company or domestic portfolio manager who manages funds raised or collected or brought from outside India for investment in India on behalf of a sub-account, shall be deemed to be a Foreign Institutional Investor.

Fortune 500 (U.S.)

Since 1958, Fortune Magazine has published a list of five hundred largest American Industrial Corporations, ranked according to size of sales.

Forward Contract

An agreement for the future delivery of the underlying commodity or security at a specified price at the end of a designated period of time. Unlike a future contract, a forward contract is traded over the counter and its terms are negotiated individually. There is no clearing house for forward contracts, and the secondary market may be non-existent or thin.

Forward rate agreement:

A forward contract on interest rates in which the rate to be paid or received on a specific obligation for a set period of time, beginning at some time in the future, is determined at contract initiation.

Free cash flow

Calculated by adding depreciation to net income, and subtracting capital expenditures. Free cash flow represents the cash that is available for a company to spend after financing a capital project.

Free-rider Paradox

Sometimes benefits and costs cannot be allocated accurately or at all to users by the markets or otherwise. A free rider tries to take advantage of this situation. The paradox is that if everyone tries to free ride no one can and everyone is worse off. An important example is the natural environment. Most industrial users of the natural environment are free riders. Everyone collectively is worse off but no one individually finds it worthwhile to stop. In takeovers, an important recent example is the basic research part of corporate research and development. It is impossible to limit the benefits from basic research to the corporation who pays the bill. Therefore, there will be a strong temptation for companies to free ride. Competition in the product and takeover market should increase this temptation.

Front Running

An unethical practice where brokers trade an equity based on information from the analysis department before their clients have been given the information. Fund manager/ broker buys or sells securities in advance of a substantial client order or whereby a futures or options position position is taken about an impending transaction in the same or related futures or options contract.

Fund of funds

Fund of funds scheme means a mutual fund scheme that invests primarily in other schemes of the same mutual fund or other mutual funds.

Fungible securities

Securities which are easily interchangeable with another in the same class.

Futures Contract

An exchange traded contract generally calling for delivery of a specified amount of a particular financial instrument at a fixed date in the future. Contracts are highly standardized and traders need only agree on the price and number of contracts traded.

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