Payment Glossary - Anne & Lynn Wheeler

Fastpath

bank, check, clearing house, credit card, economics, exchange, Federal Reserve System, fiscal policy, float, foreign currency operations, interest, Internet, money, payment system, reserves, securities, settlement,

12L AADS ABMS ACH AMEX APR ASO ATMs ATS AVS BHC BIS BLS BOTCC CAC CADS CBCH CBT CCD CCH CD CETA CFTC CHECCS CHIPS CIE CIF CMB CME CNS CPI CRA CRA CRF CST CTP CTX CUSIP DCIA DIDC DM DTC DVP EAF-2 ECCHO ECHO ECP EDC EFAA EFT EFTA EFTS EMS EROC ERTA EST ET FAC FACS FCM FDIC FHLBB FOMC FRBC FRBM FRBNY FRBSF FTC GDP GNP GSCC IBF ICS ID IMF IRS MCA MICR MPC MPS MTE NACHA NASD NASDAQ NCUA NOCH NOW NPR NSCC NYACH NYCHA NYSE OCC OCC ODFI OFAC OPEC OTC OTS PAX Prenote PVP RCPC RDFI RTGS SDR's SEC SET S-HTTP SIAC S&L SRO SSL SWIFT TAP T-bills TIAC TLA UCC 4A UCC

Terms

ABA Number: A nine digit number (eight digits and a check digit) that identifies a specific financial institution. These numbers are assigned by the Thomson Financial Publishing and are listed in its annual publication Key to Routing and Transit Numbers. [ACH]
absolute advantage: A country has an absolute advantage if its output per unit of input of all goods and services produced is higher than that of another country. [FRBSF] 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. [FRBM] The ability of a producer to produce a higher absolute quantity of a good with the productive resource available. [FACS] (see also fiscal policy)
abundance: A term that applies when individuals can obtain all the goods they want without cost. If a good is abundant, it is free. [FACS] (see also fiscal policy)
academic consultants: An advisory group initiated by the board in the 1960's to provide a forum for the exchange of views between the Federal Reserve Board and members of the academic community in economics and banking. [FRBSF] (see also economics)
accelerator: The casual relationship between changes in consumption and changes in investment. [FACS] (see also fiscal policy)
account authority digital signature (AADS): relying party obtains public key from its own account registery record for digital signature authentication [misc] (see also public key infrastructure)
Account Balance Monitoring System (ABMS): Fedwire system allowing Reserve Banks to monitor depository institutions' account positions and payment activity on a real-time basis. Reserve Banks can hold or reject funds transfers that may cause account holders to exceed their net debit caps. [GAO] (see also bank, Fedwire)
accretion of discount: A straight-line accumulation of capital gains on discount bonds in anticipation of being paid par at maturity. [FRBSF]
ACH Association: An organization formed by financial institutions to regulate and support the exchange of electronic transactions among member institutions. [ACH] (see also automated clearinghouse)
ACH credit: A transaction through the ACH network originated to pay a receiver (deposit funds into an account). [ACH] (see also automated clearinghouse)
ACH debit: A transaction through the ACH network originated to remove funds from the receiver (withdrawal from account). [ACH] (see also automated clearinghouse)
ACH operator/processor: An ACH operator/processor is a central clearing facility that receives batches of ACH credit and debit transactions from originating depository institutions; edits, sorts, and distributes the transactions to receiving depository institutions; and facilitates the settlement among participants. [GAO] (see also automated clearinghouse, clearance)
acquiring processor: The processor provides credit card processing, billing, reporting and settlement and operational services to acquiring and issuing banks. Many financial institutions don't do their own bankcard processing because it's more cost-effective to let someone else invest in the equipment and people and do it for them. [GAO] (see also bank, credit card)
activist fiscal policy: Use of the federal governments taxing, spending and borrowing powers in order to stimulate economic growth and employment. [FACS] (see also economics, fiscal policy)
actual turnover: The number of times individuals actually spend their average money holding over a given period of time. Actual turnover is determined by the proportion of income that people receive and actually retain as money balances over a given period of time. [FACS]
addenda record: An ACH record type that carries the supplemental data needed to completely identify an account holder(s) or provide information concerning a payment to the Receiving Depository Financial Institution and the Receiver. [ACH] (see also automated clearinghouse)
additional settlement obligation (ASO): NYCHA loss-sharing arrangement to ensure that CHIPS settles even if a participant fails. Each CHIPS participant that has established bilateral limits with the failed participant agrees to assume an additional settlement obligcation equal to its pro rata share of the failed participan'ts net debit position. [GAO] (see also debt)
address verification service (AVS): AVS allows mail and telephone orders companies to verify a cardholder's billing address online. This program is designed to reduce fraudulent use of cardholder's credit card number [GAO] (see also credit card)
aggregate: Any total (e.g., the gross national product; the sum of monthly sales). [FRBSF]
agreement corporation: An Agreement corporation is a federally or state- chartered corporation that has entered into an agreement or understanding with the Board that it will not exercise any power that is impermissable for an Edge corporation. [FRBC] An agreement corporation is a federally or state-chartered corporation that has entered into an agreement or understanding with the Board that it will not exercise any power that is impermissible for an [FRBM] Corporation chartered by a state to engage in international banking; so named because the corporation enters into an 'agreement' with the Board of Governors to limit its activities to those permitted an Edge Act corporation. [FRBSF]
Amercian Express: (see also credit card company)
American Stock Exchange (AMEX)
amortization: The process of fully paying off indebtedness by installments of principal and earned interest over a definite time. [FRBC][FRBM][FRBSF] (see also debt, interest)
annual percentage rate (APR): The cost of credit on a yearly basis expressed as a percentage. [FRBC][FRBM][FRBSF] (see also debt)
ANSI X12: A communications format for electronic business data interchange established by the American National Standards Institute, a voluntary body supported by the American Bankers Association. [ACH]
antitrust laws: Designed to promote open markets by limiting practices that reduce competition. [FACS]
appraisal fee: The charge for estimating the value of property offered as security. [FRBC][FRBM][FRBSF]
assets: What a person or business owns. [FACS] (see also liabilities)
auction: The way price and interest are determined. [FRBSF]
authentication: Authentication is the process of verifying the identification of the true sender of a message and also that the text of the message itself has not been altered. [GAO] (see also public key infrastructure)
authorization: The act of insuring that the cardholder has adequate funds available against their line of credit. A positive authorization results in an authorization code being generated, and those funds being set aside. The cardholder's available credit limit is reduced by the authorized amount. [GAO] (see also credit card) (includes authorization agreement)
authorization agreement: A written agreement signed by an employee or customer to allow the posting of ACH transactions to their account. [ACH] (see also authorization)
automated clearinghouse (ACH): A computer-based clearing and settlement operation, often operated by a Federal Reserve Bank, established for the exchange of electronic transactions among participating depository institutions. Such electronic transactions can be substituted for paper checks used to make recurring payments such as payroll or preauthorized insurance premiums. The U.S. Treasury uses the ACH extensively to pay certain obligations of the government. [FRBC][FRBM] A service used by banks to exchange electronic payments drawn on one another. Total debits and credits (payments and deposits) and itemized accounting of individual items are presented. This reduces transportation expenses and simplifies the transfer of funds between customers accounts. [FRBC] An automated clearinghouse networks is an electronic batch processing system by which payment orders are exchanged among finanical institutions. [GAO] 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. [FRBSF] (see also addenda record, automated deposit, banking day, central information file, company, composite receivers' file, corporate trade exchange, corporate trade payment, customer, customer initiated entry, day cycle, descriptive statement, direct debit, direct deposit, effective entry date, electronic funds transfer, file header, intercept point, loan, machine transfer entry, memo posting, on-us entries, originating company, originating depository financial institution, originating depository institution, originator, participating depository financial institution, payment system, prenotification, receiver, receiving depository financial institution, receiving point, remake, return item, reversing entry, trace number, transit routing number, warehousing, clearing house, settlement) (includes ACH Association, ACH credit, ACH debit, ACH operator/processor, National Automated Clearinghouse Association, New York Automated Clearinghouse, Private ACH Exchange, interregional exchange, intraregional exchange)
automated deposit: A deposit made directly to an account at a depository institution through the ACH network (i.e., payroll deposits, social security payments, and retirement benefits). [ACH] (see also automated clearinghouse)
Automated Teller Machines (ATMs): A computer terminal to dispense cash, accept deposits and loan payments, and enable a financial institution's customer to order transfers among accounts and make account inquiries. [ACH] A machine used for banking services, including withdrawals and deposits, balance inquiries, transfers, and other services. Customers access an ATM by using a plastic card encoded with electromagnetic identification such as an access card or credit card. Transactions are processed electronically with the aid of computer systems. [FRBC] Computer-controlled terminals 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. [FRBC][FRBM][FRBSF] (see also bank, debit card, loan)
automatic payment: A service allowing customers to authorize their bank to make regular transfers for certain expenses (such as mortgage, insurance premiums, utilities, etc.) from their checking or savings account. [FRBC]
automatic stabilizers: Measures built into the governments budget that cause its spending to increase and its tax revenues to decrease when the economy goes into slumps, and that cause government expenditures to decrease and taxes to increase when the economy goes into booms. [FACS] (see also fiscal policy)
automatic transfer service (ATS): (includes automatic transfer service account)
automatic transfer service 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. [FRBC][FRBM][FRBSF] (see also automatic transfer services account, automatic transfer service, check)
automatic transfer services 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. [FRBC][FRBM][FRBSF] (see also automatic transfer service account)
back office: The back office of a financial institution is made up of employees responsible for (1) recording and maintaining the official records of the financial institutions and (2) processing transactions entered into by the financial institutions or its customers. [GAO]
balance of payments: A record of all the financial transactions between a country and the rest of the world during a given year. [FACS] 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. [FRBM][FRBSF] (see also balance of trade)
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.' [FRBM][FRBSF] (see also balance of payments)
balloon payment: A large extra payment that may be charged at the end of a loan or lease. [FRBC][FRBM][FRBSF] (see also loan, interest payments)
bank: (see also Account Balance Monitoring System, Automated Teller Machines, Community Reinvestment Act, Depository Institutions Deregulation Committee, Electronic Money System, Eurodollars, Federal Advisory Council, Federal Deposit Insurance Corporation, Federal Open Market Committee, Federal Reserve System, International Banking Facility, Monetary Control Act of 1980, Office of the Comptroller of the Currency, Open Market Operations, Repurchase Agreements, Society for Worldwide Interbank Financial Telecommunication, Thrift Institutions Advisory Council, acquiring processor, bank holding company, bank note, bank regulation, bank reserves, bank run, bank supervision, bankers acceptance, banking day, bankwire, central bank intervention, certificate of deposit, check, clearing house, credit card, credit deposit, credit line, daylight overdraft, demand deposit, deposit ceiling rates of interest, descriptive statement, discount rate, electronic banking, fiscal agency services, float, netting member, permissible nonbank activities, presentment fee, required reserves, settlement, short-term interest rates, small saver certificate) (includes Bundesbank, Federal Reserve Bank, Thrift Institutions, central bank, clearing agent bank, commercial bank, correspondent bank, depositary bank, depository institution, issuer, lender of last resort, member bank, mutual savings banks, nonmember bank, nonmember depository institution, paying bank, respondent bank, savings bank, settlement bank, state member bank)
Bank for International Settlements (BIS): The BIS, located in Basle, Switzerland, was established in 1930 to administer the post-World War I reparations agreements. Since the 1960s, the BIS has evolved into an important international monetary institution, and has provided a forum in which central bankers meet and consult on a monthly basis. As an independent financial organization, the BIS performs a variety of banking, trustee, and agent functions, primarily with central banks. [FRBM][FRBSF] The BIS, located in Basle, Switzerland, was established in 1930 to administer the post-World War I reparations agreements. Since the 1960s, the BIS has evolved into an important international monetary institution, and has provided a forum in which central bankers meet and consult on a monthly basis. As an independent financial organization, the BIS performs a variety of banking, trustee, and agent functions, primarily with central banks. At present the BIS has 29 members, 28 of which are central banks. The Federal Reserve is represented at BIS meetings, but is not a member. The BIS is the only international financial institution in which most Eastern European countries are members. The Soviet Union, East Germany, and Albania, however, are not members. [FRBC] (see also foreign currency operations, settlement bank)
bank holding company (BHC): A company that owns or controls one or more banks. The Board of Governors has responsibility for regulating and supervising bank holding companies, such as approving acquisitions and mergers and inspecting the operations of such companies. This authority applies even though a bank owned by a holding company may be under the primary supervision of the Comptroller of the Currency or the FDIC. [FRBM] A company that owns or controls one or more banks. The Board of Governors has responsibility for regulating and supervising bankholding companies, such as approving acquisitions and mergers and inspecting the operations of such companies. This authority applies even though a bankowned by a holding company may be under the primary supervision of the Comptroller of the Currency or the FDIC. [FRBC] 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. (A bank holding company may also own another bank holding company, which in turn owns or controls a bank; the company at the top of the ownership chain is called the top holder.) 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). [FRBSF] (see also bank) (includes permissible nonbank activities)
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. [FRBM][FRBSF] (see also bank)
bank panic: (see bank run)
bank regulation: The formulation and issuance by authorized agencies of specific rules or regulations, under governing law, for the conduct and structure of banking. [FRBC][FRBM][FRBSF] (see also bank, bank supervision)
bank reserves: The total quantity of Federal Reserve notes held in bank vaults or checkable deposits held by the banks at the Fed district banks. [FACS] (see also bank, reserves)
bank run: A series of unexpected cash withdrawals caused by a sudden decline in depositor confidence or fear that the bank will be closed by the chartering agency, i.e. many depositors withdraw cash almost simultaneously. Since the cash reserve a bank keeps on hand is only a small fraction of its deposits, a large number of withdrawals in a short period of time can deplete available cash and force the bank to close and possibly go out of business. [FRBM][FRBSF] (see also bank)
bank supervision: Concern of financial regulators with the safety and soundness of individual banks, involving the general and continuous oversight of the activities of this industry to ensure that banks are operated prudently and in accordance with applicable statutes and regulations. [FRBC][FRBM] Oversight of individual banks to ensure that they are operated prudently and in accordance with applicable statutes and regulations. [FRBSF] (see also Federal Deposit Insurance Corporation, Federal Reserve System, National Credit Union Administration, Office of Thrift Supervision, Office of the Comptroller of the Currency, bank, bank regulation)
bankers acceptance: Bankers acceptances are 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. [FRBC][FRBM][FRBSF] (see also bank)
banking day: Any day on which a participating financial institution is open to the public during any part of the day for carrying on substantially all its financial functions. With reference to an automated clearinghouse, any day on which the appropriate facility of the clearing house is being operated. [ACH] (see also automated clearinghouse, bank)
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. [FRBC][FRBSF] (see also bank)
batch: A group of records or documents considered as a single unit for the purpose of data processing. [ACH]
batch processing: Batch processing is the transmission or processing of a group of payment orders and/or securities transfer instructions. [GAO]
benefits in kind: Noncash forms of pay or assistance. [FACS]
Board of Governors: Central, governmental agency of the Federal Reserve System, located in Washington, DC, and composed of seven members who are appointed by the President and confirmed by the Senate. The Board 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. [FRBSF] Governmental agency of the Federal Reserve System, located in Washington, DC, and composed of seven members who are appointed by the President and confirmed by the Senate. The Board 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. [FRBM] (see also economics, Federal Reserve System)
Board of Trade Clearing Corporation (BOTCC)
bond: A bond is a debt security representing a loan by the buyer to the corporation or government issuing the bond; it may pay interest, or it may be discounted in price from the value at maturity. [GAO] (see also debt, loan)
book-entry: One form in which Treasury and certain government agency securities are held. Book-entry form consists of an entry on the records of the U.S. Treasury Department, a Federal Reserve Bank, or a financial institution. [FRBC][FRBM]
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. [FRBSF] (see also securities)
book-entry system: A book-entry system is an accounting system that permits the transfer of assets (e.g., securities) without the physical movement of paper documents or certificates. [GAO]
bracket creep: The process by which inflation drives personal incomes upward into higher tax brackets. In a progressive income tax system, this causes an increase in tax burdens. [FACS] (see also fiscal policy)
Bretton Woods: An international monetary system operating from 1946-1973. The value of the dollar was fixed in terms of gold, and every other country held its currency at a fixed exchange rate against the dollar; when trade deficits occurred, the central bank of the deficit country financed the deficit with its reserves of international currencies. [FACS] (see also fiscal policy, reserves)
broker-dealer: Any person, other than a bank, engaged in the business of buying or selling securities on its own behalf or for others. [FRBC][FRBM][FRBSF] (see also securities)
brokers' loans: Money borrowed by brokers from banks for uses such as financing specialists' inventories of stock, financing the underwriting of new issues of corporate and municipal securities, and financing customer margin accounts. [FRBC][FRBM] Money borrowed by brokers from banks for uses such as financing specialists' inventories of stock, the underwriting of new issues of corporate and municipal securities, and customer margin accounts. [FRBSF] (see also loan)
browser: A browser is a computer program that facilitates locating and displaying information on the World Wide Web (e.g., Netscape Navigator or Microsoft Explorer). The browser could work on the Internet or through internal information management systems called Intranets. [GAO] (see also Internet)
Bundesbank: Established in 1875, the central bank of West Germany, located in Frankfurt. [FRBSF] (see also bank)
Bureau of Labor Statistics (BLS): A research agency of the U.S. Department of Labor; it compiles statistics on hours of work, average hourly earnings, employment and unemployment, consumer prices, and many other variables. [FRBSF] (see also fiscal policy)
business cycles: Periodic swings in the pace of national economic activity, characterized by alternating expansion and contraction phases. [FACS] (see also economics)
buydown: A lump sum payment made to the creditor by the borrower or by a third party to reduce the amount of some or all of the consumer's periodic payments to repay the indebtedness. [FRBC][FRBM][FRBSF] (see also debt)
California Bankers Clearing House (CBCH): CBCH provides check exchange services to over 100 depository institutions located mainly in California [GAO] (see also clearing house)
call option: A call option is a contract that gives one the right, but not the obligation, to buy a specified amount of an underlying asset, such as stocks or currency, at a specified price by a certain date. [GAO] (see also option)
capacity utilization rate: The percentage of the economy's total plant and equipment that is currently in production. Usually a decrease in this percentage signals an economic slowdown, while an increase signals economic expansion. [FRBSF] (see also economics)
capital: The existing stock of productive resources, such as machines and buildings, that have been produced. [FACS] (see also fiscal policy)
capital intensive: Production methods with a high quantity of capital per worker. [FACS] (see also fiscal policy)
capital market: The market in which corporate equity and longer-term debt securities (those maturing in more than one year) are issued and traded. [FRBC][FRBM][FRBSF] (see also debt, securities)
capital market rates: (see long-term interest rates)
capitalist economies: Economies which use market-determined prices to guide peoples choices about the production and distribution of goods; these economies generally have productive resource which are privately owned. [FACS] (see also fiscal policy)
capture: Converting the credit card authorization amount into a billable transaction record within a batch. Transactions cannot be captured unless previously authorized, and authorizations cannot be captured until the goods or services have been shipped or transmitted to the consumer. [GAO] (see also credit card)
cash concentration and disbursement (CCD): A format for ACH payments. [ACH] (see also money)
cash letter: A cash letter is a group of checks, accompanied by a listing of the checks, which is sent to a clearing house, a correspondent bank, or the Federal Reserve for collection. [GAO] (see also check, money)
Cash Management Bill (CMB): Very-short-maturity bills that the Treasury sells on an irregular basis to bridge low points in the Treasury's cash balance. [FRBSF] (see also money)
cash method of accounting: A system, used especially in computing income tax, in which income is not credited until it is actually or constructively received and expenses are not charged until they have been paid; to be distinguished from the accrual method, in which income is credited when the legal right to the income occurs and expenses are charged when the legal liability becomes enforceable. [FRBSF] (see also money)
cease-and-desist order: An order issued after notice and opportunity for hearing, requiring a depository institution, a holding company, or a depository institution official to terminate unlawful, unsafe, or unsound banking practices. Cease-and-desist orders are issued by the appropriate federal regulatory agencies under the Financial Institutions Supervisory Act and can be enforced directly by the courts. [FRBC][FRBM][FRBSF]
central bank: 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. [FRBC] The principal monetary authority of a nation, a central bank 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. [FRBM][FRBSF] (see also bank)
central bank intervention: In order to influence market conditions or exchange rate movements, central banks buy or sell their currency or the currency of other countries. [FRBM] Influence on exchange rates in the foreign exchange market when exchange rates are not fixed by law; i.e., a central bank buys its countrys currency with foreign currencies to drive its currency up in value; to drive it down, a central bank sells its currencies in return for foreign currencies. [FACS] The buying or selling of currency, foreign or domestic, by central banks, in order to influence market conditions or exchange rate movements. [FRBSF] (see also bank, fiscal policy)
central information file (CIF): A master file maintained by the ACH containing information on each depository financial institution. This file includes the depository financial institution's name, transit routing number, address, settlement and delivery information and output medium requested. [ACH] (see also automated clearinghouse)
central standard time (CST)
certificate of deposit (CD): A form of time deposit at a bank or savings institution which cannot be withdrawn before a specified maturity date without being subject to an interest penalty for early withdrawal. Small-denomination CDs are often purchased by individuals. Large CDs of $100,000 or more are often in negotiable form, meaning they can be sold or transferred among holders before maturity. [FRBSF] A form of time deposit at a bank or savings institution; a time deposit cannot be withdrawn before a specified maturity date without being subject to an interest penalty for early withdrawal. Small-denomination CDs are often purchased by individuals. Large CDs of $100,000 or more are often in negotiable form, meaning they can be sold or transferred among holders before maturity. [FRBC][FRBM] (see also bank, interest)
certification authority digital signature (CADS): relying party uses certificate manufactored by a certification authority to obtain the public key for digital signature authentication [misc] (see also public key infrastructure)
change in demand: A shift in the entire demand curve so that at any given price, people will want to buy a different amount. A change in demand is caused by some change other than a change in the goods price. [FACS] (see also fiscal policy)
change in quantity demanded: Movement up or down a given demand curve caused by a change in the goods price with no shift in the curve itself. [FACS] (see also fiscal policy)
change in quantity supplied: A price change causing movement along the supply curve but no shift in the position of the curve itself. [FACS] (see also fiscal policy)
change in supply: A change in one of the cost determinants of supply causing a shift in the position of the supply curve. [FACS] (see also fiscal policy)
chargeback: A credit card purchase disputed by the credit cardholder and the amount of the transaction is subsequently 'charged back' to the merchant. [misc] (see also return item, credit card)
check: A check is a written order from one party (the payor) to another party (the payee) requiring the payor to pay a specified sum on demand to the payee or to a third party specified by the payee. [GAO] (see also Federal Reserve float, MICR-line information, bank, cash letter, correspondent bank, debit card, depositary bank, float, paying bank, presentment fee, respondent bank, payment system) (includes Electronic Check Clearing House Organization, Negotiable Order of Withdrawal account, automatic transfer service account, check clearing, check truncation, demand deposit, electronic check presentment, on-us check, overdraft checking account, regional check processing center)
check clearing: Check clearing is the movement of a check from the depository institution at which it was deposited back to the institution on which it was written. The funds move in the opposite direction, with a corresponding credit and debit to the involved accounts. [GAO] The movement of checks from the banks or other depository institutions where they are deposited back to those on which they are written, and funds movement in the opposite direction. This process results in credits to accounts at the institutions of deposit and corresponding debits to the accounts at the paying institutions. The Federal Reserve participates in check clearing through its nationwide facilities, though many checks are cleared by private sector arrangement. [FRBC] The movement of checks from the banks or other depository institutions where they are deposited back to those on which they are written, and funds movement in the opposite direction. This process results in credits to the accounts at the institutions of deposit and corresponding debits to the accounts at the paying institutions. The Federal Reserve participates in check clearing through its nationwide facilities, though many checks are cleared by private sector arrangement. [FRBM][FRBSF] (see also check)
check truncation: Check truncation is the practice of holding a paper check at the bank at which it was deposited (or at an intermediary bank) and electronically forwarding the essential information on the check to the bank on which it was written. A truncated check is not returned to the writer. [GAO] (see also check)
Chicago Board of Trade (CBT)
Chicago Clearing House Association (CCH): CCH provides check exchange services to its 8 member banks and its 260 affiliate members. [GAO] (see also clearing house)
Chicago Mercantile Exchange (CME)
choice: The act of selecting among alternatives, a concept crucial to economics. [FACS] (see also economics)
civilian labor force: All persons over the age of sixteen who are not in the armed forces nor institutionalized and who are either employed or unemployed. [FACS] (see also fiscal policy)
class of options: A class of options consists of options that are of the same type and style and cover the same underlying asset. [GAO] (see also option)
clearance: Clearance is the process of transmitting, reconciling, and in some cases, confirming payment orders or security transfer instructions prior to settlement, possibly including the netting of instructions and the establishment of final positions for settlement. In the context of securities markets, this process is often referred to as clearance. [GAO] (includes ACH operator/processor, clearing agent bank, clearing house, clearing members, comparison member)
clearing agent bank: Clearing agent banks are Fedwire participants that are regularly engaged in the business of providing clearing services in eligible securities for members and GSCC. [GAO] (see also Fedwire, Government Securities Clearing Corporation, bank, clearance) (includes comparison member)
clearing house: A clearing house is a voluntary association of depository institutions that facilitates the exchange of payment transactions such as checks, automated clearinghouse transactions, and large-value funds transfers and the settlement of participants' net debit or credit positions. [GAO] 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. [FRBC][FRBM][FRBSF] (see also bank, clearance, payment system, settlement) (includes California Bankers Clearing House, Chicago Clearing House Association, Clearing House Interbank Payment System, Electronic Check Clearing House Organization, Exchange Clearing House, Government Securities Clearing Corporation, National Automated Clearinghouse Association, National Securities Clearing Corporation, New York Clearing House Association, Options Clearing Corporation, automated clearinghouse)
Clearing House Electronic Check Clearing System (CHECCS)
Clearing House Interbank Payment 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. [FRBSF] CHIPS is a private-sector electronic funds transfer system run by the New York Clearing House Association (NYCHA) [GAO] (see also New York Automated Clearinghouse, clearing house) (includes Office of Foreign Assets Control)
clearing members: Clearing members are firms that are determined by OCC to be qualified to interact with OCC on behalf of market participants. [GAO] (see also Options Clearing Corporation, clearance)
Clearinghouse Interbank Payments System: An automated clearing system used primarily for international payments. This system is owned and operated by the New York Clearinghouse banks. It engages Fedwire for settlement. [FRBC][FRBM]
closed-end credit: An agreement in which advanced credit, plus any finance charges, are expected to be repaid in full over a definite time. Most real estate and automobile loans are closed-end agreements. [FRBSF] Generally, any loan or credit sale agreement in which the amounts advanced, plus any finance charges, are expected to be repaid in full over a definite time. Most real estate and automobile loans are closed-end agreements. [FRBC][FRBM] (see also loan)
collateral: Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. (Also called security.) [FRBC] Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. (also called security) [FRBM][FRBSF] (see also loan)
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. [FRBSF] Commercial Banks are allowed to engage in more varied lending activities and to offer more financial services than are the other depository institutions. Commercial banks are owned by stockholders and operated for profit. [FRBC] (see also loan, bank)
commercial online service: A commercial online service is an integrated package of services providing news, e-mail, a special-interest forum, information resources, shopping, and other services accessed by consumer and business computer users using proprietary software and a modem (examples include America Online, Microsoft Network, CompuServe, etc.). [GAO]
commercial/merchant server: A commercial/merchant server is a computer and/or computer program that provides information in response to requests by other computer programs. Some servers are capable of sending and receiving secure messages. [GAO] (see also Internet)
Committee on Uniform Securities Identification Procedures (CUSIP): Each type and issue of security will have its own unique CUSIP number. [GAO] (see also securities)
Commodity Futures Trading Commission (CFTC): CFTC and SEC are the primary regulators and oversee the actions of the clearing organizations under their jurisdictions to determine whether or not they are functioning in accordance with regulations and the law [GAO] (see also futures)
commodity prices: An index of commodities (such as oil and steel) traded in worldwide markets. [FRBC][FRBSF]
common property resources: Resources for which there are no clearly defined property rights; property owned in common by a society. [FACS]
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. [FRBSF] 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. [FRBC][FRBM] (see also bank)
Community Reinvestment Act Statement: A description available for public inspection at each bank office indicating, on a map, the communities served by that office and the types of credit the bank is prepared to extend within the communities served. [FRBSF]
company: A business entity which creates paperless entries for introduction into the ACH network. [ACH] (see also automated clearinghouse)
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 [FRBM] The ability of a producer to produce a good at a lower marginal cost than other producers; marginal cost in the sacrifice of some other good compared to the amount of a good obtained. [FACS] (see also fiscal policy)
comparison member: Comparison members are primarily government securities broker-dealers and clearing agent banks that are capable of interacting with GSCC operations. [GAO] (see also Government Securities Clearing Corporation, clearance, clearing agent bank)
competition: Rivalry among individuals in order to acquire more of something that is scarce. [FACS] (see also fiscal policy)
competitive bidders: One of two categories of bidders on Treasury securities: competitive and noncompetitive. Competitive bidders are usually financial institutions. [FRBSF] (see also noncompetitive bidders, treasury securities)
complements: A price change for one product leads to a shift in the opposite direction direction in the demand for another product. [FACS] (see also fiscal policy)
composite receivers' file (CRF): A file listing all depository financial institutions qualified to receive ACH entries. Call your association office to subscribe. The CRF is available from the FRB as magnetic tape for direct computer input, or on microfiche. [ACH] (see also automated clearinghouse)
Comprehensive Employment and Training Act (CETA): Federal funding for local governments to retrain and employ difficult-to-hire workers. [FACS] (see also fiscal policy)
Comptroller of the Currency: The Comptroller of the Currency is 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. [FRBC][FRBM]
consortium: A grouping of corporations to fulfill a combined objective or project that usually requires interbusiness cooperation and sharing of the goods. [FRBSF]
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 Board on the exercise of its responsibilities under the Consumer Credit Protection Act and on other matters on which the Board seeks its advice. [FRBC][FRBM] 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 Federal Reserve Board seeks its advice. [FRBSF] (see also Federal Reserve System)
consumer price index (CPI): A measure of the average amount (price) paid for a market basket of goods and services by a typical U.S. consumer in comparison to the average paid for the same basket in an earlier base year. [FACS] A measurement of the cost of living determined by the Bureau of Labor Statistics. [FRBSF] (see also fiscal policy)
consumption expenditures: The total dollar value of all goods and services purchased by the household sector for current use. [FACS] (see also fiscal policy)
consumption function: A mathematical expression relating personal consumption expenditures to disposable income. [FACS] (see also fiscal policy)
contemporaneous reserve accounting (CRA): An accounting method which allows member banks of the Federal Reserve a one day lag when calculating their required reserves and reserves held as vault cash. Except for the one-day lag, assets and liabilities used in calculating reserves and required reserves are those of the same week. [FRBSF] (see also reserves)
Continuous Net Settlement (CNS): System operated by NSCC. It receives compared or locked-in securities trades from most of the major securities marketplaces in the United States, nets each day's trades together with any outstanding failed delivery instructions, and settles the resulting netted position at DTC. This significantly reduces the number of shares and dollars that need to be settled, and reduces participant risk via novation and settlement guarantees. [NSCC] (see also securities, National Securities Clearing Corporation, settlement)
contraction phase: The part of the business cycle when GNP, employment and production are on the decline. [FACS] (see also fiscal policy)
contractionary fiscal policy: A policy to increase governmental spending and/or a reduction in taxes. [FRBSF] (see also economics, fiscal policy)
contractionary monetary policy: A policy to restrict the growth of money and credit in the economy. [FRBSF] (see also economics, monetary policy)
corn laws: Tariffs which England placed on grain imports from 1815 to 1846. By restricting the supply or grain in England, these laws raised the price of grain in England and increased the value of English farmland. [FACS]
corporate payments: Corporate payments are payments that are used by businesses to pay other businesses for goods or services. [GAO]
corporate trade exchange (CTX): An ACH payment program for corporate to corporate payments. [ACH] (see also automated clearinghouse, exchange)
corporate trade payment (CTP): A payment made between corporations through the ACH network. [ACH] (see also automated clearinghouse)
correspondent bank: A bank that accepts deposits of and performs banking services for other depository institutions. [FRBC][FRBM][FRBSF] A correspondent bank is a bank that--by arrangement--holds the deposits of another bank and provides payments and other services for that bank. [GAO] (see also check, bank)
cosigner: A term referring to a person, other than the principle borrower, who signs for a loan. The cosigner(s) assumes equal liability for the loan. [FRBSF] Another person who signs for a loan and assumes equal liability for it. [FRBC][FRBM] (see also loan)
cost: The most valuable opportunity forsaken when a choice is made. [FACS] (see also fiscal policy)
cost-of-living adjustments: Automatic adjustments in incomes paid to individual recipients which are tied to the inflation rate, usually measured by the Consumer Price Index. [FACS] (see also fiscal policy)
cost-push inflation: A term that applies when increases in the price level are caused by increases in cost. [FACS] (see also fiscal policy)
council of economic advisors: Three persons who act as the Presidents chief economic advisers. [FACS] (see also economics)
craft unions: Exclusive combinations of workers in individual trades such as printers, shoemakers and bakers. [FACS]
credit: The capacity to borrow money up to a specified limit under specified conditions. [FACS] The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt. [FRBC][FRBM][FRBSF] (see also credit card, creditworthiness, debt, finance charge) (includes open-end credit)
credit card: A credit card is a payment card issued to a person for purchasing goods and services and obtaining cash against a line of credit established by the issuer. Credit cards can be of two types: those issued by merchants and vendors, such as department stores or oil companies, and general purpose credit cards issued by banks. [GAO] Any card, plate, or coupon book that may be used repeatedly to borrow money or buy goods and services on credit. [FRBC][FRBM][FRBSF] (see also bank, chargeback, credit, credit line, electronic data capture, payment system, secure electronic transaction) (includes acquiring processor, address verification service, authorization, capture, credit card company, credit deposit, interchange, interchange fee, issuer, payment processor or credit card association)
credit card company: A credit card company is a company that owns the trademark of a particular credit card and may also provide a number of marketing, processing, or other services to the members using the card services. [GAO] (see also payment system, credit card) (includes Amercian Express, Discover, MasterCard, VISA)
credit deposit: The value of a merchant's credit card purchases that are credited to its bank account after the acquirer buys the merchant's sales slips. The deposit is credited. It is not funded until the acquirer gets the monetary value from the issuer during settlement. [GAO] (see also bank, credit card)
credit history: A record of how a person has borrowed and repaid debt. [FRBM][FRBSF] A record of how a person has borrowed and repaid debts. [FRBC] (see also creditworthiness, debt)
credit line: A credit line is the maximum amount of credit available in an open-ended credit arrangement, such as a bank credit card, which the lender may change at any time. The credit line is disclosed in the credit card agreement. [GAO] (see also bank, credit card)
credit scoring system: A statistical system used to determine whether or not to grant credit by assigning numerical scores to various characteristics related to creditworthiness. [FRBC][FRBM][FRBSF] (see also creditworthiness)
Credit Unions: Credit Unions are financial cooperative organizations of individuals with a common affiliation (such as employment, labor union membership, or place of residence). Credit unions accept deposits of members, pay interest (dividends) on them out of earnings, and primarily provide consumer installment credit to members. [FRBC] Financial cooperative organization of individuals who have a common bond, such as a place of employment, 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 mainly to provide consumer installment loans to members. [FRBSF] (see also fiscal policy, loan)
creditworthiness: A creditor's measure of a consumer's past and future ability and willingness to repay debts. [FRBC][FRBM][FRBSF] (see also credit, credit history, credit scoring system, debt)
crowding in: Increase of private investment through the income-raising effect of government spending financed by deficits. [FACS] (see also fiscal policy)
crowding out: The tendency for federal government, by deficit financing to compete with firms or persons for borrowed funds; that is, firms and households unable to borrow at a low rate of interest curtail their investment and consumption spending. [FACS] (see also fiscal policy, interest)
currency: Paper money issued by the government. [FACS] (see also fiscal policy)
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. [FRBM][FRBSF] (see also currency depreciation)
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. [FRBM][FRBSF] (see also currency appreciation, exchange rate, foreign currency operations)
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. [FRBM][FRBSF] (see also currency revaluation, exchange rate, foreign currency operations)
currency option: Currency options are options that represent the right to buy or sell foreign currency at a particular price within a specified period. [GAO] (see also foreign currency operations, option)
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. [FRBM][FRBSF] (see also currency devaluation, exchange rate, foreign currency operations)
current account: Acategory in the balance of payments account that includes all transactions that either contribute to national income or involve the spending of national income. [FACS]
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. [FRBSF] The difference between the nation's total exports of goods, services, and transfers and its total imports of them. It excludes transactions in financial assets and liabilities. [FRBC][FRBM]
customer: A natural person(s) that maintains an account at a Depository Financial Institution. A customer may authorize a financial institution to debit/credit his or her account in response to an ACH entry. [ACH] (see also automated clearinghouse)
customer initiated entry (CIE): These are ACH entries initiated by a consumer through direct contact with an originator such as a bill payment system. [ACH] (see also automated clearinghouse)
cyclical unemployment: Temporary layoff of workers due to downturns in the pace of economic activity. [FACS] Unemployment caused by a low level of aggregate demand associated with recession in the business cycle. [FRBSF] (see also economics, fiscal policy, unemployment rate)
Data Encryption Standard: A technique by which a message is scrambled into an indecipherable stream of bits for transmission. [ACH]
data limitations: In stabilization policy, refers to two types: 1) quantitative factual information or data that is only available after the event (e.g., unemployment figures for last month); 2) the raw information that is adjusted for seasonal variations or changes in prices; therefore, data may not accurately measure the activity. [FRBSF] (see also fiscal policy)
data transmission: The electronic exchange of information between two data processing points (computers). [ACH]
day cycle: The first scheduled time for the Federal Reserve system's interregional transmission of data from Originating ACHs to Receiving ACHs. Also referred to as the 'day time window'. [ACH] (see also automated clearinghouse)
day trade: Also know as a 'daylight trade.' The purchase and sale or the short sale and cover of the same security in a margin account on the same day. [FRBC] Also known as a 'daylight trade'. The purchase and sale or the short sale and cover of the same security in a margin account on the same day. [FRBM][FRBSF]
daylight overdraft: A daylight overdraft is an intraday loan that occurs when a bank transfers funds in excess of its reserve account. [GAO] (see also bank, loan)
debit card: A card that resembles a credit card but which debits a transaction account (checking account) with the transfers occuring contemporaneously with the customer's purchases. A debit card may be machine readable, allowing for the activation of an automated teller machine or other automated payments equipment. [FRBC] A card that resembles a credit card but which debits a transaction account (checking account) with the transfers occurring contemporaneously with the customer's purchases. A debit card may be machine readable, allowing for the activation of an automated teller machine or other automated payments equipment. [FRBM][FRBSF] (see also Automated Teller Machines, check, payment system)
debt: (see also Federal debt, OTC margin bond, U.S. Treasury securities, additional settlement obligation, amortization, annual percentage rate, bond, buydown, capital market, credit, credit history, creditworthiness, direct debit, government budget constraint, government securities, liabilities, liability on an account, long-term interest rates, money market, negative amortization, principal payments, securities, service charge, short-term interest rates, special drawing rights, surcharge, total nonfinancial debt, treasury securities) (includes interest, loan)
Debt Collection Improvement Act of 1996 (DCIA)
decryption: Decryption is the restoration of encrypted data to their original text. [GAO] (see also encryption)
default: Failure to meet the terms of a credit agreement. [FRBC][FRBM][FRBSF]
deficit: The amount each year by which government spending is greater than government income. [FRBSF] (see also fiscal policy)
deficit spending: A term which refers to the situation wherein he government spends more than it receives in taxes. [FACS] (see also fiscal policy)
delivery-versus-payment (DVP)
demand: The maximum quantities of some good that people will choose (or buy) at different prices. An identical definition is the relative value of the marginal unit of some good when different quantities of that good are available. [FACS] (see also fiscal policy)
demand curve: A graphic representation of the relationship between prices and the corresponding quantities demanded per time period. [FACS] (see also fiscal policy)
demand deposit: A deposit payable on demand, or a time deposit with a maturity period or required notice period of less than 14 days, on which the depository institution does not reserve the right to require at least 14 days written notice of intended withdrawal. Commonly takes the form of a checking account. [FRBM] A deposit payable on demand, or a time deposit with a maturity period or required notice period of less than 7 days, on which the depository institution does not reserve the right to require at least 7 days written notice of intended withdrawal. Commonly takes the form of a checking account. [FRBC] 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. [FRBSF] Checking accounts in commercial banks. These banks are obliged to pay out funds when depositors write checks on those numbers. Checking accounts are not cash - they are numbers recorded in banks. [FACS] (see also bank, check)
demand-pull inflation: A term used when an increase in aggregate demand occurs which cannot be offset by a corresponding increase in real supply causing an increase in the price level (inflation). [FACS] (see also fiscal policy)
deposit ceiling rates of interest: Maximum interest rates that can be paid on savings and time deposits at federally insured commercial banks, mutual savings banks, savings and loan associations, and credit unions. Ceilings on credit union deposits are established by the Depository Institutions Deregulation Committee (DIDC). Under current law, deposit interest rate ceilings are being phased out over a six-year period, ending in 1986 under the oversight of the DIDC. [FRBSF] (see also bank, loan, interest)
depositary bank: A depositary bank is the bank at which a check is first deposited. [GAO] (see also depository institution, check, bank)
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, the powers of nonbank depository institutions have been broadened in recent years. For example, NOW accounts, credit union share drafts, and other services simialr to checking accounts may be offered by thrift institutions. [FRBSF] Financial institution that obtains its funds mainly through deposits from the public; includes commercial banks, savings and loan associations, savings banks, and credit unions. [FRBC] (see also depositary bank, Savings and Loan Associations, loan, bank) (includes nonmember depository institution)
depository institutions debit cards: Plastic cards encoded with electromagnetic identification. Banks may issue them to customers who meet certain qualifications. Customers can use their card to pay for purchases electronically using point-of-sale terminals. [FRBC]
Depository Institutions Deregulation Committee (DIDC): The Committee responsible for the orderly phase-out over a six-year period of interest rate ceilings on time and savings accounts at depository institutions. Voting members of the DIDC are the Secretary of the Treasury and the Chairmen of the Federal Reserve Board, Federal Deposit Insurance Corporation, Federal Home Loan Bank Board, and National Credit Union Administration Board. The Comptroller of the Currency serves as a non-voting member. [FRBC] The Committee responsible for the orderly phase-out over a six-year period of interest rate ceilings on time and savings accounts at depository institutions. Voting members of the DIDC are the Secretary of the Treasury and the chairmen of the Federal Reserve Board, Federal Deposit Insurance Corporation, Federal Home Loan Bank Board, and National Credit Union Administration Board. The Comptroller of the Currency serves as a non-voting member. [FRBSF] (see also bank, interest)
Depository Trust Corporation (DTC): DTC tracks the transfer of equities and corporate and municipal bonds cleared through NSCC via an automated book-entry system. [GAO] The Depository Trust Corporation (DTC) holds, in its vaults, securities owned by its participants. DTC makes and receives deliveries of securities in book-entry form, allowing settlement of securities transactions electronically. Through the Continuous Net Settlement (CNS) system and Institutional Delivery (ID) system, as well as the Participant Terminal System (PTS), DTC settlement facilities are tied in to a broad range of related settlement systems. [NSCC] (see also National Securities Clearing Corporation, securities) (includes Institutional Delivery)
descriptive statement: A bank account summary that contains information concerning one or more entries for which no separate item is enclosed. ACH entries necessitate some form of descriptive statement unless a substitute enclosure document is produced by the financial institution. Minimum reporting requirements are defined by Regulation E. [ACH] (see also automated clearinghouse, bank)
Deutsche mark (DM)
diminishing relative value: The principle that if all other factors remain constant, and individuals relative value of a good will decline as more of that good is obtained. Accordingly, the relative value of a good will increase, other factors remaining constant, as an individual gives up more of that good. [FACS] (see also fiscal policy)
diminishing returns: As more and more of a productive resource is added to a given amount to other productive resources, additions to output will eventually diminish other factors, such as technology and the degree of specialization remaining constant. [FACS] (see also fiscal policy)
direct debit: A method of ACH collection used where the debtor gives authorization to debit his or her account upon the receipt of an entry issued by a creditor. [ACH] (see also automated clearinghouse, debt)
direct deposit: A method of payment which electronically credits your checking or savings account. [FRBM][FRBSF] A service provided by many employers, government agencies, and other parties. The party offering the service can transfer funds electronically to the appropriate financial institution, which deposits the funds directly in an individual's account (see ACH and EFT). The customer receives a written notification that the funds were deposited, including the effective date and account number used for the transaction. [FRBC] (see also automated clearinghouse, electronic funds transfer)
direct participants: Direct participants are financial institutions that are permitted to transact with the clearing organization, and all customers come to the clearing organization through them. The term usually refers to institutions that interact with NSCC. [GAO] (see also National Securities Clearing Corporation)
dirty float: A type of floating exchange rate that is not completely freely floating because central banks intervene from time to time to alter the rate from its free-market level. It is still a floating rate because it has not been pegged at a predetermined par value. [FRBM][FRBSF] (see also exchange rate, foreign currency operations, float)
discount: An amount deducted from the regular price for those who purchase with cash instead of credit. [FRBC]
discount payment: The difference between the face value and the price paid for a security. [FRBM][FRBSF] (see also securities)
discount rate: The interest a private bank pays for a loan from the U.S. Federal Reserve System. [FACS] The interest rate at which an eligible depository institution may borrow funds, typically for a short period, directly from a Federal Reserve Bank. The law requires that the board of directors of each Reserve Bank establish the discount rate every 14 days subject to the approval of the Board of Governors. [FRBSF] The interest rate at which an eligible depository institutions may borrow funds, typically for a short period, directly from a Federal Reserve Bank. The law requires the board of directors of each Reserve Bank to establish the discount rate every 14 days subject to the approval of the Board of Governors. [FRBC] The interest rate at which eligible depository institutions may borrow funds, usually for short periods, directly from the Federal Reserve Banks. The law requires the board of directors of each Reserve Bank to establish the discount rate every 14 days subject to the approval of the Board of Governors. [FRBM] (see also Federal Reserve System, bank, fiscal policy, loan, interest)
discount window: Figurative expression for Federal Reserve facility for extending credit directly to eligible depository institutions (those with transaction accounts or nonpersonal time deposits). [FRBC][FRBM] Figurative expression referring to the Federal Reserve's facility for extending credit directly to eligible depository institutions (those with transaction accounts or nonpersonal time deposits). [FRBSF]
Discover: (see also credit card company)
discretionary fiscal policy: Changes in a fiscal (tax or spending) program initiated by the government in order to change aggregate demand. [FACS] (see also economics, fiscal policy)
disequalibrium: The quantity demanded does not equal the quantity supplied at the going price. [FACS] (see also fiscal policy)
disinflation: A slowdown in the rate of inflation. [FACS] (see also fiscal policy)
disposable income: The amount of an individuals income that remains after the deduction of income taxes. [FACS] (see also fiscal policy)
dividends: Profits of a firm that are distributed to its investors (stockholders). [FACS]
division of labor: Assigning of specific tasks to workers and productive resources; it is a reflection of economic specialization. [FACS] (see also economics)
dual trading: Dual trading occurs when an individual (or representative of a firm) trades on behalf of customers and also trades for his or her own or the firm's proprietary account. [GAO]
durable merchandise: Goods that have a relatively lengthy life (television sets, radios, etc.) [FRBSF]
DVP system: A delivery vs. payment (DVP) system is a system that ensures that the final transfer of one asset will occur if, and only if, the final transfer of another asset (or other assets) occurs. [GAO]
East Rutherford Operations Center (EROC): Federal Reserve primary payment processing computing system [GAO] (see also Federal Reserve System)
eastern standard time (EST)
eastern time (ET)
economic growth: A sustained increase in total output or output per person for an economy over a long period of time. [FACS] An increase in the nation's capacity to produce goods and services. [FRBSF] (see also economics)
Economic Recovery Tax Act of 1981 (ERTA): Designed to foster savings and investment to encourage long-term growth through reductions of personal income tax rates, taxes on personal savings for retirement and business taxes for firms investing in new capital. [FACS] (see also economics, fiscal policy)
economic regulations: The control of entry into the market, pricing, the extension of service by established firms and issues of quality control. [FACS] (see also economics)
economic shocks: Events that impact the economy, come from outside it, are unexpected and unpredictable (e.g., Hurricane Andrew in 1991, the rise in oil prices by OPEC). [FRBSF] (see also economics)
economic specialization: Concentration of activity in a few particular tasks or in producing only a few items. [FACS] (see also economics)
economics: The study of choice and decision-making in a world with limited resources. [FACS] (see also Board of Governors, Economic Recovery Tax Act of 1981, Employment Act of 1946, Full Employment and Balanced Growth Act of 1978, Keynesians, academic consultants, activist fiscal policy, business cycles, capacity utilization rate, choice, contractionary fiscal policy, contractionary monetary policy, council of economic advisors, cyclical unemployment, discretionary fiscal policy, division of labor, economic growth, economic regulations, economic shocks, economic specialization, expansionary fiscal policy, expansionary monetary policy, expected rate of inflation, fiscal policy, gross national product, implementation lag, large econometric models, macroeconomics, microeconomics, monetary policy, new deal, normative economics, option, political economy, rational expectations, recession, stagflation, supply-side economics, time lags)
Edge Act corporation: An organization chartered by the Federal Reserve to engage in international banking operations. The Board acts upon applications by U.S. and foreign banking organizations to establish Edge corporations. It also examines Edge corporations and their subsidiaries. The Edge corporation gets its name from Senator Walter Edge of New Jersey, the sponsor of the original legislation to permit formation of such organizations. [FRBC][FRBM]
effective entry date: The date placed on an ACH transaction by the Originator of the transaction - it is normally the date the originator intended the transfer to take place. [ACH] (see also automated clearinghouse)
efficiency: The allocation of goods to their uses of highest relative value. [FACS] (see also fiscal policy)
elasticity of demand: The percentage change in the quantity demanded divided by the percentage change in price. [FACS] (see also fiscal policy)
electronic banking: Electronic banking is a banking activity accessed by electronic means. [GAO] (see also bank)
electronic benefits transfer: The transfer of public entitlement payments, such as welfare or food stamps, via direct deposit or point-of-sale technology. The recipient can be given an identification card, similar to a benefit card, and a PIN number to allow them to access the benefits through an electronic network. [FRBC] (see also payment system)
Electronic Check Clearing House Organization (ECCHO): ECCHO drafts rules and designs formats for electronic check processing among its members. Banks that are ECCHO participants can exchange electronic check data among themselves before the paper checks are physically presented for payment. [GAO] (see also check, clearing house)
electronic check presentment (ECP): ECP is a process by which the MICR-line information is sent electronically to the paying bank. [GAO] (see also check)
electronic data capture (EDC): EDC is a point-of-sale terminal that reads the information encoded in the magnetic stripe of bank cards. These terminals electronically authorize and capture transaction data, eliminating the need for a paper deposit. [GAO] (see also credit card)
Electronic Fund Transfer Systems (EFTS): A variety of systems and technologies for transferring funds (money) electronically rather than by check. Includes Fedwire, Bankwire, automated clearinghouses (ACHs), and other automated systems. [FRBC] A variety of systems and technologies for transferring funds (money) electronically rather than by check. This includes Fedwire, Bankwire, automated clearinghouses (ACHs), and other automated systems. [FRBM][FRBSF] (see also electronic funds transfer)
electronic funds transfer (EFT): A generic term describing any transfer of funds between parties or depository institutions via electronic data systems. [FRBC] A generic term used whenever money is moved without the use of a check or draft. [ACH] EFT is any transfer of funds between accounts using an electronic terminal, telephone, computer, or magnetic tape and that does not use checks or other paper. [GAO] Transfer of funds electronically rather than by check or cash. The Federal Reserve's Fedwire and automated clearinghouse services are EFT systems. [FRBSF] (see also automated clearinghouse, payment system) (includes Electronic Fund Transfer Systems, direct deposit)
Electronic Funds Transfer Act (EFTA)
Electronic Money System (EMS): Citibanks's EMS is designed to provide secure, real-time transactions over any network, including the Internet. EMS offers a blend of anonymity and disclosure. Each electronic transaction would have an audit trail that could be traced, but the identity of the parties would remain anonymous. [GAO] (see also bank, money)
electronic purse: A specific type of smart-card. A chip in the card provides multiple payment options such as debit, credit, and direct payment from a stored balance. The electronic purse allows for transactions with different merchants in many locations. [FRBC]
embargo: A deliberate cutoff of supply, typically intended as a political statement. [FACS] (see also fiscal policy)
Employment Act of 1946: Set full employment and price stability as national policy goals and established the Council of Economic Advisors. [FACS] (see also economics, fiscal policy)
encryption: Encryption is the process of disguising a message (using mathematical formulas called algorithms) in such a way as to hide its substance, a process of creating secret writing. [GAO] (see also decryption, secure electronic transaction)
entitlements: Government transfer payments made to individuals having certain designated characteristics and circumstances, such as age or need. [FACS] (see also fiscal policy)
equation of exchange: (M x T = P x Q) The equation indicates that the money supply multiplied by the number of times that money turns over equals the price level multiplied by real output. [FACS] (see also fiscal policy, exchange)
equilibrium: The amount of output supplied equals the amount demanded. At equilibrium, the market has neither a tendency to rise nor fall but clears at the existing price. [FACS] (see also fiscal policy)
equilibrium real interest rate: The rate that would be consistent with the full employment of labor and industrial capacity, and with real GDP being at its long-run potential level. This rate is needed as a benchmark to judge whether a given real interest rate is expansionary or contractionary. [FRBSF] (see also fiscal policy, interest)
equity index option: An equity index option is an options contract that covers the price of a diversified stock portfolio that matches a designated stock-index (a statistical indicator used to measure changes in stock groupings). [GAO] (see also option)
equity/stock: Equity or stock is a financial instrument that represents ownership in a company. [GAO]
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. [FRBC][FRBM][FRBSF] (see also bank, money)
excess reserves: Amount of reserves held by an institution in excess of its reserve requirement and required clearing balance. [FRBC][FRBSF] (see also reserves)
exchange: An exchange is an organized market with transactions concentrated in a physical facility with participants entering two-sided quotations (bid and ask) on a continuous basis. [GAO] The voluntary transfer of rights to use goods. [FACS] (see also National Securities Clearing Corporation, fiscal policy) (includes Exchange Clearing House, Private ACH Exchange, Securities and Exchange Commission, corporate trade exchange, equation of exchange, exchange rate, exchange value, fixed exchange rate system, fixed exchange rates, floating exchange rate system, floating exchange rates, foreign exchange desk, foreign exchange rate, forward exchange, gains of exchange, gold exchange standard, interregional exchange, intraregional exchange)
Exchange Clearing House (ECHO): ECHO system is based in London and calculates multilateral netting of trades that are passed throught it. For each currency, a user will have only a signle payment obligation or expected receipt. Settlement takes place via traditional national payment systems into and out of ECHO accounts in each country. [GAO] (see also clearing house, exchange, multilateral netting)
exchange rate: The price of a country's currency in terms of another country's currency. [FRBM][FRBSF] The price of one currency in terms of another. [FACS] (see also currency depreciation, currency devaluation, currency revaluation, dirty float, fiscal policy, fixed exchange rate system, floating exchange rate system, foreign currency operations, purchasing power parity theory, exchange) (includes fixed exchange rates, floating exchange rates, foreign exchange rate)
exchange value: The purchasing power of a unit of currency for goods and services in the marketplace. [FACS] (see also fiscal policy, exchange)
exclusion principle: The owner of a private good may exclude others from use unless they pay. [FACS]
Executive Committee: A decision-making body of the FRBSF comprised of a number of the Bank's senior officers, the Committee and its six satellite committees were established in 1995 to replace the smaller, more centralized Management Committee. The revised committee structure was intended to decentralize decision-making and promote increased information-sharing and teambuilding District-wide. [FRBSF]
exempted security: A security that is exempted from most provisions of the securities laws, including the margin rules. Such securities include U.S. government and agency securities and municipal securities designated by the SEC. [FRBM][FRBSF] A security that is exempted from most provisions of the securities laws, including the margin rules. Such securities include U.S. government and agency securities, municipal securities designated by the SEC. [FRBC] (see also securities)
exercise: Exercise means to make use of the 'rights' in a contract. For instance, a buyer of a call option may exercise the right to buy the underlying asset at a particular price agreed upon when the contract was purchased. [GAO] (see also option)
expansion phase: The phase of the business cycle when the economy is growing rapidly, output is increasing, employment is rising, industrial production is increasing and prices are tending to rise. [FACS] (see also fiscal policy)
expansionary fiscal policy: A policy to decrease governmental expenditures and/or to increase taxes. [FRBSF] (see also economics, fiscal policy)
expansionary monetary policy: A policy of the Federal Reserve System that is designed to expand the growth of money and credit in the economy. [FRBSF] (see also economics, monetary policy)
expected rate of inflation: The public's expectations for inflation. These expectations determine how large an effect a given policy action by the Fed will have on economic activity. [FRBSF] (see also economics)
Expedited Funds Availability Act of 1987 (EFAA)
externalities: Costs or benefits that fall on third parties. [FACS]
Federal Advisory Council (FAC): An advisory group consisting of one member, usually a banker, from each Federal Reserve District. Members are elected annually by the Reserve Bank boards of directors. Members meet with the Federal Reserve Board at least four times a year to make recommendations on business and financial issues relating to banking, but have no real power. [FRBSF] This group consists of one member from each Federal Reserve District (usually a banker) elected annually by the Board of Directors of each of the 12 Federal Reserve Banks. They meet with the Board to discuss business and financial conditions and make advisory recommendations. [FRBC][FRBM] (see also bank, Federal Reserve System)
Federal debt: The current dollar sum of obligations equal to the accumulated past deficits minus surpluses of the United States government. [FACS] (see also debt, fiscal policy)
Federal Deposit Insurance Corporation (FDIC): A federal regulatory agency that insures all deposit accounts in member banks up to $100,000. [FACS] Agency of the federal government that insures accounts at most commercial banks and mutual savings banks. The FDIC also has primary federal supervisory authority over insured state banks that are not members of the Federal Reserve System. [FRBC][FRBM] 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 provision of financial services. [FRBSF] (see also bank, bank supervision)
federal funds: Reserve balances that depository institutions lend each other, usually on an overnight basis. In addition, Federal funds include certain other kinds of borrowings by depository institutions from each other and from federal agencies. [FRBM]
federal funds rate: The interest rate at which banks borrow federal funds. [FRBM] The interest rate at which banks borrow surplus reserves and other immediately available funds. The federal funds rate is the shortest short-term interest rate, with maturities on federal funds concentrated in overnight or one-day transactions. [FRBC] (see also reserves)
Federal Home Loan Bank Board (FHLBB): The agency of the federal government that supervises all federal savings and loan associations and federally insured state-chartered savings and loan associations. The FHLBB also operates the Federal Savings and Loan Insurance Corporation, which insures accounts at federal savings and loan associations and those state-chartered associations that apply and are accepted. In addition, the FHLBB directs the Federal Home Loan Bank System, which provides a flexible credit facility for member savings institutions to promote the availability of home financing. The FHL Banks also own the Federal Home Loan Mortgage Corporation, established in 1970 to promote secondary markets for mortgages. [FRBC][FRBSF] (see also loan)
Federal margin call: A broker's demand upon a customer for cash or securities needed to satisfy the required Regulation T down payment for a purchase or short sale of securities. [FRBM][FRBSF] A broker's demand upon a customer for cash, or securities needed to satisfy the required Regulation T downpayment for a purchase or short sale of securities. [FRBC] (see also securities)
Federal Open Market Committee (FOMC): A 12-member committee consisting of the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents. The president of the Federal Reserve Bank of New York is a permanent member while the other Federal Reserve presidents serve on a rotating basis. The Committee sets objectives for the growth of money and credit that are implemented through purchases and sales of U.S. government securities in the open market. The FOMC also establishes policy relating to System operations in the foreign exchange markets. [FRBC] A 12-member committee consisting of the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents. The president of the New York Federal Reserve Bank is a permanent member while the other Federal Reserve presidents serve on a rotating basis. The Committee sets objectives for the growth of money and credit that are implemented through purchases and sales of U.S. government securities in the open market. The FOMC also establishes policy relating to System operations in the foreign exchange markets. [FRBM] Twelve-member committee made up of the seven members of the Board of Governors; the president of the New York Federal Reserve Bank; 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 rates. [FRBSF] (see also bank, Federal Reserve System)
Federal Reserve account: A Federal Reserve account is a noninterest-earning account that a depository institution maintains with a Federal Reserve Bank. The balance in this account is maintained for purposes of (1) satisfying the Federal Reserve's reserve requirements and/or (2) settling payments cleared through the Federal Reserve. The balances in these accounts play a central role in the exchange of funds between depository institutions. [GAO] (see also interest, Federal Reserve System)
Federal Reserve Act of 1913: Federal legislation that established the Federal Reserve System. [FRBSF] (see also Federal Reserve System)
Federal Reserve Bank: One of the twelve operating arms of the Federal Reserve System, located throughout the nation, that together with their twenty-five 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. [FRBSF] One of the twelve operating arms of the Federal Reserve System, located throughout the nation, that together with their twenty-five Branches carry out various System functions. [FRBM] (see also Federal Reserve System, bank) (includes Federal Reserve Bank of Chicago, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of New York, Federal Reserve Bank of San Francisco)
Federal Reserve Bank of Chicago (FRBC): (see also Federal Reserve Bank)
Federal Reserve Bank of Minneapolis (FRBM): (see also Federal Reserve Bank)
Federal Reserve Bank of New York (FRBNY): (see also Federal Reserve Bank)
Federal Reserve Bank of San Francisco (FRBSF): (see also Federal Reserve Bank)
Federal Reserve District: (also 'Reserve District,' or 'District') One of the twelve geographic regions served by a Federal Reserve Bank. [FRBSF] One of the twelve geographic regions served by a Federal Reserve Bank. [FRBM] (see also Federal Reserve System)
Federal Reserve float: Checkbook money that for a period of time appears on the books of both the payor and payee due to the lag in the collection process. Federal Reserve float often arises during the Federal Reserve's check collection process. In order to promote an efficient payments mechanism with certainty as to the date funds become available, the Federal Reserve has employed the policy of crediting the reserve accounts of depository institutions depositing checks according to an availability schedule before the Federal Reserve is able to obtain payment from others. [FRBC] Checkbook money that, for a period of time, appears on the books of both the payor and payee due to the lag in the collection process. Federal Reserve float often arises during the Federal Reserve's check collection process. In order to promote an efficient payments mechanism with certainty as to the date funds become available, the Federal Reserve has employed the policy of crediting the reserve accounts of depository institutions depositing checks according to an availability schedule before the Federal Reserve is able to obtain payment from others. [FRBSF] (see also check, Federal Reserve System, float)
Federal Reserve notes: Nearly all of the nation's circulating paper currency consists of Federal Reserve notes printed by the Bureau of Engraving and Printing and issued to the Federal Reserve Banks to put into circulation through commercial banks and other depository institutions. Federal Reserve notes are obligations of the U.S. government. [FRBSF] Nearly all of the nation's circulating paper currency consists of Federal Reserve notes printed by the Bureau of Engraving and Printing and issued to the Federal Reserve Banks which put them into circulation through commercial banks and other depository institutions. Federal Reserve notes are obligations of the U.S. government. [FRBM] Nearly all of the nation's circulating paper currency consists of Federal Reserve notes printed by the Bureau of Engraving and Printing and issued to the Federal Reserve Banks which put them into circulation through depository institutions. Federal Reserve notes are obligations of the U.S. government. [FRBC] (see also Federal Reserve System)
Federal Reserve System: The Federal Reserve System operates a comprehensive, nationwide system for clearing and settling checks drawn on depository institutions located in all regions of the United States. [GAO] The U.S. central bank consisting of 12 regional banks are run by a board of governors appointed by the president for overlapping 14-year terms; formally independent of the executive and congressional branches of government; private bank members of the system own their assets. [FACS] The central bank of the United States created by Congress, consisting of a seven-member Board of Governors in Washington, D.C., 12 regional Reserve Banks, and depository institutions that are subject to reserve requirements. All national banks are members and state chartered banks may elect to become members. State member banks are supervised by the Board of Governors and the Reserve Banks. Reserve requirements established by the Federal Reserve Board apply to nonmember depository institutions as well as member banks. Both classes of institutions have access to Federal Reserve discount borrowing privileges and Federal Reserve services on an equal basis. [FRBM] The central bank of the United States created by Congress, consisting of a seven-member Board of Governors in Washington, D.C., 12 regional Reserve Banks, and depository institutions that are subject to reserve requirements. All national banks are members; state chartered banks may elect to become members, and state members are supervised by the Board of Governors and the Reserve Banks. Reserve requirements established by the Federal Reserve Board apply to nonmember depository institutions as well as member banks. Both classes of institutions have access to Federal Reserve discount borrowing privileges and Federal Reserve services on an equal basis. [FRBC] The central bank of the United States, created by Congress and made up of a seven-member Board of Governors in Washington, DC, twelve regional Federal Reserve Banks, and their twenty-five Branches. [FRBSF] (see also Monetary Control Act of 1980, bank, bank supervision, discount rate, fiscal agency services, fiscal policy, lender of last resort, matched sale-purchase agreements, member bank, monetary policy, net debit cap, nonmember bank, nonmember depository institution, required clearing balance, required reserve balance, required reserves) (includes Board of Governors, Consumer Advisory Council, East Rutherford Operations Center, FRCS-80, Federal Advisory Council, Federal Open Market Committee, Federal Reserve Act of 1913, Federal Reserve Bank, Federal Reserve District, Federal Reserve account, Federal Reserve float, Federal Reserve notes, Fedwire, regional check processing center)
Federal Trade Commission (FTC)
FEDNET: A high-speed, nationwide communications network that electronically links all Federal Reserve Banks and branches with depository institutions. [GAO] (see also FRCS-80, Fedwire)
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. [FRBSF] The Federal Reserve System's wire transfer service, used to move large sums of money between depository institutions such as banks, savings & loans, and credit unions. [FRBC] The Federal Reserve funds transfer system. Fedwire is used for transferring reserve account balances of depository institutions and government securities. Fedwire is also used for the settlement of other clearing systems, such as CHIPS. [FRBC][FRBM] The electronic funds transfer system operated by the Federal Reserve. [GAO] (see also clearing agent bank, loan, FRCS-80, Federal Reserve System, payment system) (includes Account Balance Monitoring System, FEDNET, Office of Foreign Assets Control)
fiat money: Money that has little or no intrinsic value as a commodity; it is costless to produce, usually taking the form of tokens or pieces of paper; and is not redeemable for any commodity. [FRBM][FRBSF] (see also money)
file: A file is a group of entries transmitted by originating institutions or to receiving institutions by ACH operators. A file may contain one or more batches of entries. [GAO]
file header: The first record of an ACH file containing information necessary to route, validate and track the ACH contained within the file. [ACH] (see also automated clearinghouse)
finality: Finality is an irrevocable and unconditional transfer of payment. [GAO]
finance charge: The total dollar amount paid to get credit. [FRBC] The total dollar amount paid to obtain credit. [FRBM][FRBSF] (see also credit)
financial institution: An institution that uses its funds chiefly to purchase financial assets (deposits, loans, securities) as opposed to tangible property. Financial institutions can be classified according to the nature of the principal claims they issue: nondeposit intermediaries include, among others, life and property/casualty insurance companies and pension funds, whose claims are the policies they sell, or the promise to provide income after retirement; depository intermediaries obtain funds mainly by accepting deposits from the public. The major depository institutions are listed below. Although historically they have specialized in certain types of credit, the powers of nonbank depository institutions have been broadened in recent years. For example, NOW accounts, credit union share drafts, and other services similar to checking accounts may be offered by thrift institutions. [FRBC] 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 nondeposit intermediaries include, among others, life and property/casualty insurance companies and pension funds, whose claims are the policies they sell, or the promise to provide income after retirement; depository intermediaries obtain funds mainly by accepting deposits from the public. The major depository institutions are listed below. Although historically they have specialized in certain types of credit, the powers of nonbank depository institutions have been broadened in recent years. For example, NOW accounts, credit union share drafts, and other services similar to checking accounts may be offered by thrift institutions. [FRBM] (see also loan)
financial instrument: Any written instrument having monetary value or evidencing a monetary transaction. [FRBSF]
fiscal agency services: Services performed by the Federal Reserve Banks for the U.S. government. These include maintaining deposit accounts for the Treasury Department, paying U.S. government checks drawn on the Treasury, and issuing and redeeming savings bonds and other government securities. [FRBC][FRBM] Services performed by the Federal Reserve Banks on behalf of the U.S. government. These include maintaining deposit accounts for the Treasury Department, paying U.S. government checks drawn on the Treasury, and issuing and redeeming savings bonds and other government securities. [FRBSF] (see also Federal Reserve System, bank)
fiscal policy: Federal government policy regarding taxation and spending, set by Congress and the Adminstration. [FRBC] Government policy regarding taxation and spending. Fiscal policy is made by Congress and the Administration. [FRBM] The federal government's decisions about the amount of money it spends and collects in taxes to achieve a full employment and non-inflationary economy. [FRBSF] Those federal-government expenditure, tax and borrowing decisions that affect the level of national economic activity. [FACS] (see also monetary policy, Bretton Woods, Bureau of Labor Statistics, Comprehensive Employment and Training Act, Credit Unions, Economic Recovery Tax Act of 1981, Employment Act of 1946, Federal Reserve System, Federal debt, Fisher effect, Friedmans Law, Full Employment and Balanced Growth Act of 1978, International Monetary Fund, Keynesians, Lorenz Curve, M1, M2, Malthusian Trap, Nominal Interest Rates, Open Market Operations, absolute advantage, abundance, accelerator, activist fiscal policy, automatic stabilizers, bracket creep, capital, capital intensive, capitalist economies, central bank intervention, change in demand, change in quantity demanded, change in quantity supplied, change in supply, civilian labor force, comparative advantage, competition, complements, consumer price index, consumption expenditures, consumption function, contraction phase, cost, cost-of-living adjustments, cost-push inflation, crowding in, crowding out, currency, cyclical unemployment, data limitations, deficit, deficit spending, demand, demand curve, demand-pull inflation, diminishing relative value, diminishing returns, discount rate, discretionary fiscal policy, disequalibrium, disinflation, disposable income, economics, efficiency, elasticity of demand, embargo, entitlements, equation of exchange, equilibrium, equilibrium real interest rate, exchange, exchange rate, exchange value, expansion phase, fixed exchange rates, floating exchange rates, foreign currency reserve, free good, free rider, frictional unemployment, gains of exchange, government budget constraint, government security, government transfer payment, hyperinflations, impact lag, income policies, indexation, inelastic demand, inventory, investment expenditures, involuntary unemployment, labor intensive methods, labor productivity, large econometric models, law of demand, law of supply, legal tender, leisure, libertarianism, liquidity, macroeconomics, managed floating, marginal productivity, marginal propensity to consume, marginal propensity to save, marginal tax rate, market, market economy, minimum wage, monetarists, monetary base, money, monopoly, natural monopoly, natural rate of unemployment, natural unemployment rate, near-monies, need, net worth, new deal, oligopoly, opportunity costs, paradox of thrift, peak, price, production possibilities curve, productive resources, productivity, profits, pure competition, rational expectations, real rate of interest, recognition lag, regressive taxes, right-to-work laws, scarce good, scarcity shortage, socialism, specialization, stagflation, structural unemployment, supply curve, supply-side economics, surplus, systemic risk, total nonfinancial debt, trade comparison, trade deficit, transaction costs, unemployment rate, waste, wealth, wholesale price index, working poor) (includes contractionary fiscal policy, expansionary fiscal policy)
Fisher effect: An increase in expected inflation causes a proportional increase in the market interest rate so that the expected real rate of interest remains unchanged. [FACS] (see also fiscal policy, interest)
fixed exchange rate system: Exchange rates between currencies that are set at predetermined levels and don't move in response to changes in supply and demand. [FRBM][FRBSF] (see also exchange rate, foreign currency operations, exchange)
fixed exchange rates: The central bank holds the value of the currency constant against some foreign currency or currencies. [FACS] (see also fiscal policy, exchange, exchange rate)
fixed inputs: Inputs that cannot be changed over a given time interval. [FACS]
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. [FRBC][FRBM]
float: Float is checkbook money that appears on the books of both the check writer (the payor) and the check receiver (the payee) while a check is being processed. [GAO] (see also bank, check) (includes Federal Reserve float, dirty float, joint float)
floating exchange rate system: The flexible exchange rate system in which the exchange rate is determined by the market forces of supply and demand without intervention. [FRBM][FRBSF] (see also exchange rate, foreign currency operations, exchange)
floating exchange rates: The central bank allows market supply and demand to determine currency exchange rates. [FACS] (see also fiscal policy, exchange, exchange rate)
floor broker: A floor broker executes trades for customers and may also execute trades for their personal or employer accounts. [GAO]
floor trader: A floor trader executes trades only for their personal accounts. A floor trader is also referred to as a 'local.' [GAO]
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. [FRBC][FRBSF] (see also Bank for International Settlements, Multinet International Bank, currency depreciation, currency devaluation, currency option, currency revaluation, dirty float, exchange rate, fixed exchange rate system, floating exchange rate system, forward exchange, joint float, purchasing power parity theory, spot transaction, swap arrangements, trade-weighted value of the dollar) (includes International Banking Facility, foreign exchange desk, foreign exchange rate)
foreign currency reserve: The foreign currencies that a central bank keeps on hand for intervention. [FACS] (see also fiscal policy, reserves)
Foreign Eexchange Rate: Price of the currency of one nation in terms of the currency of another nation. [FRBC][FRBSF]
foreign exchange desk: The foreign exchange trading desk at the New York Federal Reserve Bank. The desk undertakes operations in the exchange markets for the account of the Federal Open Market Committee, and acts as agent for the U.S. Treasury and for foreign central banks. [FRBM][FRBSF] The foreign exchange trading desk at the New York Federal Reserve Bank. The desk undertakes operations in the exchange markets for the account of the Federal Open Market Committee, and as agent for the U.S. Treasury and for foreign central banks. [FRBC] (see also exchange, foreign currency operations)
foreign exchange rate: Price of the currency of one nation in terms of the currency of another nation. [FRBC][FRBSF] (see also exchange, exchange rate, foreign currency operations)
foreign exchange transactions: Purchase or sale of the currency of one nation with that of another. Foreign exchange rates refer to the number of units of one currency needed to purchase one unit of another, or the value of one currency in terms of another. [FRBC][FRBM]
forward exchange: A type of foreign exchange transaction whereby a contract is made to exchange one currency for another at a fixed date in the future at a specified exchange rate. By buying or selling forward exchange, businesses protect themselves against a decrease in the value of a currency they plan to sell at a future date. [FRBM][FRBSF] (see also foreign currency operations, exchange)
Foundation for American Communication (FACS)
Frankfurt Electronic Clearing System (EAF-2)
FRCS-80: The Communications network of the Federal Reserve which interconnects Federal Reserve Bank offices, the board of Governors, depository institutions, and the Treasury. It is used for Fedwire transfers and transfers of U.S. securities as well as for transfer of Federal Reserve administrative, supervisory, and monetary policy information. [FRBSF] (see also Federal Reserve System) (includes FEDNET, Fedwire)
free good: A good which is abundant and costless. [FACS] (see also fiscal policy)
free rider: One who receives something without paying. [FACS] (see also fiscal policy)
frictional unemployment: Short-term joblessness associated with mobility. A person who leaves a job to find something better is considered frictionally unemployed. This type of unemployment characterizes workers subject to seasonal work (e.g., construction, agricultural, winter recreational workers, etc.). [FRBSF] Unemployment due to workers leaving old jobs and seeking new ones. [FACS] (see also fiscal policy, unemployment rate)
Friedmans Law: Inflation follows excessive monetary growth with a long (about two years) and variable lag. Or the rate of price change follows the rate of monetary growth. [FACS] (see also fiscal policy)
Full Employment and Balanced Growth Act of 1978: (Humphrey-Hawkins Act)Federal legislation that, among other things, specifies the primary objectives of U.S. economic policy--maximum employment, stable prices, and moderate long-term interest rates. [FRBSF] (see also economics, fiscal policy)
funds availability: The time at which funds associated with paperless entries have been made available to the customer. [ACH]
futures: Contracts that require delivery of a commodity of specified quality and quantity, at a specified price, on a specified future date. Commodity futures are traded on a commodity exchange and are used for both speculation and hedging. [FRBC][FRBM][FRBSF] (includes Commodity Futures Trading Commission, futures commission merchant, options on futures)
futures commission merchant (FCM): An FCM is a firm that buys or sells futures contracts and accepts payment from or extends credit to those whose orders it accepts. [GAO] (see also futures)
gains of exchange: The difference between the relative values of a good to the buyer and the seller. How this difference is divided between buyer and seller will depend upon the price of the good. Exchange will not occur unless both the buyer and the seller expect to receive some of this gain. [FACS] (see also fiscal policy, exchange)
GNP deflator: Measure of the percentage increase in the average price of products in GNP over a certain base year (now 1972) published by the Commerce Department. [FACS] (see also gross national product)
gold exchange standard: A variant form of the gold standard under which a country pegged the value of its currency to the value of the currency of a 'major' country, e.g. sterling or dollars, which was itself on a gold standard. The international monetary regime in force between 1958 and 1970 is frequently described as a gold exchange standard system because of the wide use of the dollar, itself pegged to gold, as a reserve currency and as an accepted medium of exchange internationally. [FRBM][FRBSF] (see also exchange, gold standard)
gold standard: A monetary system in which currencies are defined in terms of a given weight of gold. [FRBM][FRBSF] (includes gold exchange standard)
good: Anything that anyone wants. All options or alternatives are goods. Goods can be tangible or intangible. [FACS]
government budget constraint: Total government outlays (the sum of expenditures on goods and services, transfer payments and interest on debt) must equal total revenue (the sum of taxes and U.S. government loans). [FACS] (see also debt, fiscal policy, interest, loan)
government securities: Securities issued by the U.S. Treasury or federal agencies. [FRBSF] The Bureau of the Public Debt issues three types of marketable securities; bills, notes and bonds. These securities are direct obligations of the United States Government. [FRBC] (see also debt, securities)
Government Securities Clearing Corporation (GSCC): GSCC provides a netting mechanism for the clearance and settlement of U.S. Government securities in both the primary and secondary markets for Treasury securities. [GAO] (see also clearing agent bank, comparison member, netting member, securities, clearing house)
government security: A contract of the government promising to pay a lender a fixed rate of interest per year and repay the original loan at a fixed future date. [FACS] (see also fiscal policy, interest, loan)
government transfer payment: Outlays by the government for which no good or service is received in the current period. [FACS] (see also fiscal policy)
graduated payment: Repayment terms calling for gradual increases in the payments on a closed-end obligation. A graduated payment loan usually involves negative amortization. [FRBC][FRBM][FRBSF] (see also loan, interest payments)
grandfathered activities: Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United States, but which were acquired or engaged in before a particular date. Such activities may be continued under the 'grandfather' clauses of the Bank Holding Company Act and the International Banking Act. [FRBC][FRBM][FRBSF]
gross domestic product (GDP): The total market value of a nation's output of goods and services. GDP may be expressed in terms of product--consumption, investment, government purchases of goods and services, and net exports--or, it may be expressed in terms of income earned--wages, interest, and profits. [FRBC] The total value of a nation's output, income, or expenditure produced within a nation's physical borders. [FRBSF] Total value of goods and services produced in the economy. [FRBM] (includes real GDP)
gross national product (GNP): A country's total output of goods and services from all forms of economic activity measured at market prices for a calendar year. [FRBSF] The total market value, in terms of current dollars, of all final goods and services produced in the U.S. in one year. [FACS] (see also economics) (includes GNP deflator, nominal GNP, real GNP)
hedging: Hedging is engaging in financial transactions to protect against potential adverse changes in the values of assets, liabilities, or off-balance-sheet activities. [GAO] (see also option)
Humphrey-Hawkings Act: (see Full Employment and Balanced Growth Act of 1978)
hyperinflations: Rapid, out-of-control inflations, at double digit rates per month and more, usually occurring only during wars and periods of severe political instability. [FACS] (see also fiscal policy)
impact lag: The time it takes for the full impact of the policy to be felt. [FRBSF] (see also fiscal policy)
implementation lag: The time it takes for policymakers to act once they recognize an economic condition requiring action. [FRBSF] (see also economics)
income policies: Strategies to restrict wage and price increases, ranging from 'jawboning' by the president to laws that set wage and price levels. [FACS] (see also fiscal policy)
income statement: An annual summary of income and expenses of a given business in order to determine the net income of the business. [FACS]
income velocity of money: The ratio of national income to the quantity of money in circulation; velocity measures the average number of times money changes hands in generating national income per year (monetarist theory). [FACS] (see also money)
indexation: Modifying contracts so that their dollar terms adjust to the inflation rate as measured in an index, such as the consumer price index. [FACS] (see also fiscal policy)
inelastic demand: A term used when the percentage change in quantity demanded is smaller than the percentage change in price. [FACS] (see also fiscal policy)
inflation: A rate increase in the general price level of all goods and services. (This should not be confused with increases in the prices of specific goods relative to the prices of other goods.) [FRBC] A rate of increase in the general price level of all goods and services. (This should not be confused with increases in the prices of specific goods relative to the prices of other goods.) [FRBSF] A rise, over time, in the average level of prices. [FRBM] Increase in the overall level of prices over an extended period of time. [FACS] (includes inflationary expectations)
inflationary expectations: The rate of increase in the general price level anticipated by the public in the period ahead. [FRBC][FRBSF] (see also inflation)
Institutional Delivery (ID): System operated by DTC allows an institutional investor to make and receive deliveries directly or via custodial accounts in satisfaction of trades that have been made. Often, the offset of an ID delivery is an exchange trade settled in CNS. [NSCC] (see also National Securities Clearing Corporation, Depository Trust Corporation)
intercept point: An institution or computer service company designated to act on behalf of another institution to receive and/or send ACH entries. [ACH] (see also automated clearinghouse)
interchange: The exchange of information, transaction data and money among banks. Interchange systems are managed by Visa and MasterCard associations and are very standardized so banks and merchants worldwide can use them. [GAO] (see also credit card)
interchange fee: A fee paid by the acquiring bank/merchant bank to the issuing bank. The fee compensates the issuer for the time after settlement with the acquiring bank/merchant bank and before it recoups the settlement value from the cardholder. [GAO] (see also credit card)
interest: The annual earnings that are sacrificed when wealth is invested in a given asset or business. The interest sacrificed by investing in a given business is often called the cost of capital. [FACS] (see also Depository Institutions Deregulation Committee, Federal Reserve account, Fisher effect, Negotiable Order of Withdrawal account, amortization, certificate of deposit, crowding out, government budget constraint, government security, negative amortization, principal payments, wraparound, debt) (includes Nominal Interest Rates, Real Interest Rates, deposit ceiling rates of interest, discount rate, equilibrium real interest rate, interest payments, long-term interest rates, market interest rates, real rate of interest, security interest, short-term interest rates)
interest payments: The return expressed in percentages earned on an investment each year. These payments are issued every six months based on an annual rate. [FRBSF] (see also interest) (includes balloon payment, graduated payment)
intermediate targets: An intermediate target is a variable (such as the money supply) that is not directly under the control of the central bank, but that does respond fairly quickly to policy actions, is observable frequently, and bears a predictable relationship to the ultimate goals of policy. [FRBSF]
Internal Revenue Service (IRS)
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 U.S. Net borrowing from these facilities by domestic banking offices is subject to reserve requirements. [FRBSF] In general, these facilities 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 U.S. Net borrowing from these facilities by domestic banking offices is subject to reserve requirements. [FRBC][FRBM] (see also bank, foreign currency operations)
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 (SDR's), 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. [FRBSF] An international organization with 146 members, including the United States. The main functions of the International Monetary Fund 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 (SDR's), 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. [FRBC][FRBM] The overseer for the exchange rate system and international monetary relations. [FACS] (see also fiscal policy, reserves, special drawing rights)
Internet: The Internet is an open, worldwide communication infrastructure consisting of interconnected computer networks that allow access to remote information and the exchange of information between computers. [GAO] (includes browser, commercial/merchant server, secure electronic transaction, server)
interregional exchange: The exchange of ACH entries through more than one ACH, to financial institutions throughout the United States. [ACH] (see also intraregional exchange, automated clearinghouse, exchange)
intraregional exchange: The exchange of ACH entries between two financial institutions within the same Federal Reserve zone. [ACH] (see also interregional exchange, automated clearinghouse, exchange)
inventory: A stock of goods or resources held by a buyer or seller in order to reduce the cost of exchange or production. [FACS] (see also fiscal policy)
investment expenditures: Dollar expenditures by firms on capital goods (factories, office buildings and others structures, machinery and equipment, inventories and residential housing) used to produce other new goods and services. [FACS] (see also fiscal policy)
involuntary unemployment: Potential workers able and willing to work at the existing market wage rate, are unable to find jobs. [FACS] (see also fiscal policy, unemployment rate)
issue date: The date when a refund payment is issued on a Treasury Security representing the difference between the investment amount and the purchase price, as determined at auction. [FRBSF] (see also treasury securities)
issuer: The bank that extends credit to customers through bankcard accounts. The bank issues the credit card and receives the cardholder's payment at the end of the billing period. Also call the issuing bank or the cardholder bank. [GAO] (see also bank, credit card)
Issuer's Clearing House Service (ICS)
joint float: An arrangement by which a group of currencies maintain a fixed relationship relative to each other, but move jointly relative to another currency in response to supply and demand conditions in the exchange market. [FRBM][FRBSF] (see also foreign currency operations, float)
Keynesians: A group of economists who emphasize an activist governmental role in economic affairs through planned changes in the federal governments expenditures and taxes. [FACS] (see also economics, fiscal policy)
labor intensive methods: Use of low quantity of capital per worker. [FACS] (see also fiscal policy)
labor productivity: The ratio of real output per unit of labor input; growth is measured by a higher ratio of outputs to inputs. [FACS] (see also fiscal policy)
large econometric models: Mathematical constructions of national economics used for policy analysis and forecasting. [FACS] (see also economics, fiscal policy)
law of demand: People purchase more of any particular good or service as its relative price falls; they purchase less as its relative price rises. [FACS] (see also fiscal policy)
law of supply: At higher relative prices, the quantity supplied of a good will increase; at lower relative prices, smaller quantities will be supplied. [FACS] (see also fiscal policy)
legal tender: Paper dollars and coins mandated as acceptable means of payment by the government. [FACS] (see also fiscal policy, money)
leisure: All uses of time in which ones labor services are not exchanged for money. The uses of everyones time can be divided between employment and leisure. [FACS] (see also fiscal policy)
lender of last resort: As the nation's central bank, the Federal Reserve has the authority and financial resources to act as 'lender of last resort' by extending credit to depository institutions or to other entities in unusual circumstances involving a national or regional emergency, where failure to obtain credit would have a severe adverse impact on the economy. [FRBM][FRBSF] As the nation's central bank, the Federal Reserve,has the authority and financial resources to act as 'lender of last resort' by extending credit to depository institutions or to other entities in unusual circumstances involving a national or regional emergency, where failure to obtain credit would have a severe adverse impact on the economy. [FRBC] (see also Federal Reserve System, bank)
liabilities: The debts of a person or business. [FACS] (see also assets, debt)
liability on an account: Legal responsibility to repay debt. [FRBC][FRBM] (see also debt)
libertarianism: The view that governments role should be minimal, rarely interfering in the personal lives of private citizens. [FACS] (see also fiscal policy)
liquidity: (1) The ability of a bank or business to meet its current obligations; (2) the quality that makes an asset quickly and readily convertible into cash. [FRBSF] Liquidity is a quality that makes an asset easily convertible into cash with relatively little loss of value in the conversion process. [GAO] (see also fiscal policy)
loan: (see also Automated Teller Machines, Credit Unions, Federal Home Loan Bank Board, Fedwire, Negotiable Order of Withdrawal account, Savings and Loan Associations, Thrift Institutions, Thrift Institutions Advisory Council, automated clearinghouse, balloon payment, bond, brokers' loans, closed-end credit, collateral, commercial bank, cosigner, daylight overdraft, deposit ceiling rates of interest, depository institution, discount rate, financial institution, government budget constraint, government security, graduated payment, long-term interest rates, mutual savings banks, negative amortization, nonmember depository institution, points, renegotiable rate, reserve requirements, savings bank, securities, seller's points, short-term interest rates, total nonfinancial debt, variable rate, wraparound, debt)
locked-in trades: Locked-in trades are transactions that are matched by a computer, usually at the place of the trade, before being sent to a clearing organization. [GAO]
long-term interest rates: Interest rates on loan contracts--or debt instruments such as Treasury bonds or utility, industrial or municipal bonds--having maturities greater than one year. Often called capital market rates. [FRBSF] Interest rates on loan contracts--or debt instruments such as Treasury bonds or utility, industrial or municipal bonds--having maturities greater than one year. Often called capital markets rates. [FRBC] (see also short-term interest rates, debt, loan, interest)
Lorenz Curve: A graph which visually presents a measure of the inequality of a nations income distribution. [FACS] (see also fiscal policy)
M1: Measure of the U.S. money stock that consists of currency held by the public, travelers checks, demand deposits, and other checkable deposits including NOW (negotiable order of withdrawal) and ATS (automatic transfer service) account balances and share draft account balances at credit unions. [FRBSF] Measure of the U.S. money stock that consists of currency held by the public, travelers checks, demand deposits, and other checkable deposits, including NOW (negotiable order of withdrawal) and ATS (automatic transfer service) account balances and share draft account balances at credit unions. [FRBC] The total quantity of coins and paper currency classified as legal tender by government mandate that circulates in the hands of the public, plus all checking account balances the public maintains in financial institutions. [FACS] (see also fiscal policy, money, money supply)
M2: All of M1 plus savings, small time deposit account balances (less than $100,000) in financial institutions and small money market mutual funds owned by individuals. [FACS] Measure of the U.S. money stock that consists of M1, certain overnight repurchase agreements and certain overnight Eurodollars, savings deposits (including money market deposit accounts), time deposits in amounts of less than $100,000, and balances in money market mutual funds (other than those restricted to institutional investors). [FRBC][FRBSF] (see also fiscal policy, money, money supply)
M3: Measure of the U.S. money stock that consists of M2, time deposits of $100,000 or more at all depository institutions, term repurchase agreements in amounts of $100,000 or more, certain term Eurodollars, and balances in money market mutual funds restricted to institutional investors. [FRBC][FRBSF] (see also money, money supply)
machine transfer entry (MTE): ACH entries initiated by a consumer through direct contact with an originator, including automated teller machines. [ACH] (see also automated clearinghouse)
macroeconomics: The study of the sum total of economic activity, dealing with the issues of growth, inflation and unemployment and with national economic policies relating to these issues. [FACS] (see also economics, fiscal policy)
magnetic ink character recognition (MICR): (see also MICR-line information)
Malthusian Trap: The minimum subsistence level to which humans descend as a result of geometric population growth and arithmetic resource growth. [FACS] (see also fiscal policy)
managed floating: Intervention by central banks in foreign exchange markets to stabilize their currency exchange rates. [FACS] (see also fiscal policy)
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. [FRBM][FRBSF] With regard to securities, this term refers to a fractional amount of full value, or the equity outlay (downpayment) required for an investment in securities purchased on credit. [FRBC] (see also securities)
margin stock: Any stock listed on a national securities exchange, any over-the-counter security approved by the SEC for trading in the national market system or appearing on the Board's list of over-the-counter margin stock and most mutual funds. [FRBM][FRBSF] Any stock listed on a national securities exchange, any over-the-counter security approved by the SEC for trading in the national market system, or appearing on the Board's list of over-the-counter margin stock and most mutual funds. [FRBC]
marginal: The additional or extra quantity of something. If one drinks six sodas in a day, the marginal soda would be the sixth soda. [FACS]
marginal cost: The increase in total costs as one more unit is produced. [FACS]
marginal productivity: The additional output obtained by adding an additional unit of a productive resource, such as labor. More precisely, marginal productivity is the change in total output divided by the change in the amount of the productive resource employed. [FACS] (see also fiscal policy)
marginal propensity to consume (MPC): The percentage of new or added income that is consumed. [FACS] (see also fiscal policy)
marginal propensity to save (MPS): The percentage of new or added income that is saved. [FACS] (see also fiscal policy)
marginal revenue: The addition to total revenue as one additional unit is produced and sold. [FACS]
marginal tax rate: The tax rate charged on the taxpayers last dollar earned; in a progressive tax system the marginal tax rate is always greater than the average tax rate. [FACS] (see also fiscal policy)
market: A network in which buyers and sellers interact to exchange goods and services for money. [FACS] (see also fiscal policy)
market clearing price: A price which rations the supply of a good among competing consumers so that the quantity of the good demanded is equal to the quantity supplied. [FACS]
market economy: A decentralized system where many buyers and sellers interact. [FACS] (see also fiscal policy)
market interest rates: Rates of interest paid on deposits and other investments, determined by the interaction of the supply of and demand for funds in financial markets. [FRBC][FRBSF] (see also interest)
market maker: Market maker is a dealer that makes bids and offers at which he/she will trade. [GAO]
marketable securities: Treasury bills, notes and bonds that are transferable and may be sold in the secondary securities market. [FRBC] (see also securities)
MasterCard: (see also credit card company)
matched sale-purchase agreements: An agreement in which the Federal Reserve sells a security outright for immediate delivery to a dealer or foreign central bank, with an agreement to buy the security back on a specific date (usually within 7 days) at the same price. Matched sale-purchase agreements are the reverse of repurchase agreements and allow the Federal Reserve to withdraw reserves on a temporary basis. [FRBSF] When the Federal Reserve makes a matched sale-purchase agreement, it sells a security outright for immediate delivery to a dealer or foreign central bank, with an agreement to buy the security back on a specific date (usually within 7 days) at the same price. Matched sale-purchase agreements are the reverse of repurchase agreements and allow the Federal Reserve to withdraw reserves on a temporary basis. [FRBC][FRBM] (see also Repurchase Agreements, Federal Reserve System)
member bank: A depository institution that is a member of the Federal Reserve. All national banks are required to be System members, and state- chartered commercial banks and mutual savings banks may elect to become members. Member banks own stock in Federal Reserve Banks and elect some of the Reserve Bank directors. [FRBC] A depository institution that is a member of the Federal Reserve. All national banks are required to be System members, and state-chartered commercial banks may elect to become members. Member banks own stock in Federal Reserve Banks and elect some of the Reserve Bank directors. [FRBM] 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). [FRBSF] (see also nonmember bank, Federal Reserve System, bank)
memo posting: A notation posted to an account which indicates credit funds will be posted, but have not yet been posted to the account. [ACH] (see also automated clearinghouse)
merchandise trade balance: Category in the current account of the balance of payments which includes all traded goods (manufactured items, agricultural commodities, chemicals and all other physically tangible products). [FACS]
MICR-line information: MICR-line information refers to the data characters at the bottom of a check. The magnetic ink character recognition (MICR) line at the bottom of a check includes the routing number of the payor bank, the amount of the check, the number of the check, and the account number of the customer. [GAO] (see also check, magnetic ink character recognition)
microeconomics: The study of the individual parts of the economy, the household and the firm, how prices are determined and how prices determine the production, distribution and use of goods and services. [FACS] (see also economics)
minimum wage: A wage below which employers may not legally pay employees for specific kinds of employment. [FACS] (see also fiscal policy)
monetarists: Followers of Milton Friedman who focus on the effect of money and monetary policy on changing price and employment levels. [FACS] (see also fiscal policy)
monetary base: The total quantity of currency in circulation outside of banks plus the currency held by banks or deposited with the Fed. [FACS] (see also fiscal policy)
Monetary Control Act of 1980 (MCA): Among its major provisions, this Act applied uniform reserve requirements to all depository institutions with certain types of accounts and required reports from these depository institutions. It also extended access to the Federal Reserve discount window and to other Federal Reserve services in step with the implementation of a fee schedule. [FRBC][FRBM] An Act which requires that all banks and all institutions that accept deposits from the public make periodic reports to the Federal Reserve System. Starting in September 1981, the Fed charged banks for a range of services that it had provided free in the past, including check clearing, wire transfer of funds, and the use of automated clearinghouse facilities. [FRBSF] (see also Federal Reserve System, bank)
monetary policy: A central bank's actions to influence the availability and cost of money and credit, as a means of helping to promote high employment, economic growth, price stability, and a sustainable pattern of international transactions. Tools of U.S. monetary policy include open market operations, discount policy, and reserve requirements. [FRBC] Federal Reserve actions to influence the availability and cost of money and credit, as a means of helping to promote high employment, economic growth, price stability, and a sustainable pattern of international transactions. Tools of monetary policy include open market operations, discount policy, and reserve requirements. [FRBM] The federal governments attempt to change aggregate demand through money supply changes. [FACS] The regulation, by the Federal Reserve System, of the money supply in order to maximize production and employment, and stabilize prices. [FRBSF] (see also fiscal policy, Federal Reserve System, economics) (includes contractionary monetary policy, expansionary monetary policy)
monetize: To convert assets into money. [FRBSF]
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 U.S., paper currency (nearly all of which consists of Federal Reserve notes), coin and funds in checking and similar accounts at depository institutions are examples of money. [FRBC] 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, paper currency (nearly all of which consists of Federal Reserve notes), coin and funds in checking and similar accounts at depository institutions are examples of money. [FRBM] The accepted common medium of exchange for goods and services in the marketplace that functions as the unit of account, a means of deferred payment and a store of value. [FACS] (see also Cash Management Bill, Electronic Money System, Eurodollars, M1, M2, M3, cash concentration and disbursement, cash letter, cash method of accounting, fiat money, fiscal policy, income velocity of money, legal tender, money market, money market mutual funds, money supply, vault cash)
money market: Figurative expression for the informal network of dealers and investors over which short-term debt securities are purchased and sold. Money market securities generally are highly liquid securities that mature in less than one year, typically in less than ninety days. [FRBSF] (see also debt, money, securities)
money market certificate: A certificate of deposit in a minimum denomination of $10,000 with a maturity of six months. The interest rate on money market certificates is related to the yield on six-month Treasury bills. [FRBC]
money market mutual funds: Shares in institutional funds invested in financial instruments such as the U.S. Treasury securities, certificates of deposit in financial institutions (CDs) and commercial paper (IOUs of big corporations). [FACS] (see also money)
money multiplier: The process by which excess reserves create new demand deposits or money; for example, with a 10% legal reserve requirement, $10 of excess reserves may be used to create $100 of new money. [FACS] (see also reserves)
money supply: Legal currency and various transaction account balances held at financial institutions (M1) plus small savings and time deposit accounts of individuals (M2). [FACS] The amount of money (coins, paper currency, and checking accounts) that is in circulation in the economy. [FRBSF] (see also M1, M2, M3, money)
monopolistic competition: A market with a large number of firms selling similar but differentiated products with no significant barriers to entry. [FACS]
monopoly: A market with only one supplier. [FACS] (see also fiscal policy)
mortgage-backed securities: MBS are securities that are backed by mortgages in which investors receive payments out of the interest and principal payments made on the underlying mortgages. [GAO] (see also securities)
multilateral netting: Multilateral netting is an arrangement among three or more parties to net their obligations, which may arise from financial contracts, transfers of funds, or both. This type of netting normally takes place in the context of a multilateral net settlement system. [GAO] (see also netting) (includes Exchange Clearing House, Multinet International Bank)
multilateralism: An international policy intended to free international trade from the restrictions of bilateralism>. Multilateralism represents an effort to permit nations to specialize in production and exchange in accordance with the principle of comparative advantage. [FRBSF]
Multinet International Bank: Clearing house project of the U.S. and Canadian banks involved in VALUNET to provide multilaterial netting and settlement of foriegn exchange transactions among its members. [GAO] (see also foreign currency operations, multilateral netting)
multiplier: The number of times new investment spending will be respent to produce a certain amount of new income. [FACS]
mutual savings banks: Banks which accept deposits primarily from individuals and place a large portion of their funds into mortgage loans. These institutions are prominent in many of the northeastern states. Savings banks generally have broader asset and liability powers than savings and loan associations but narrower powers than commercial banks. Savings banks are authorized to offer checking-type accounts. [FRBSF] Mutual Savings Banks also accept deposits primarily from individuals, and place a large portion of their funds into mortgage loans. These institutions are prominent in many of the northeastern states. Savings banks generally have broader asset and liability powers than savings and loan associations but narrower powers than commercial banks. Savings banks are authorized to offer checking-type accounts. [FRBC] (see also loan, bank)
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. NASDAQ is a subsidiary of the NASD which facilitates the trading of approximately 5,000 most active OTC issues through an electronically connected network. [FRBC][FRBM] (see also securities)
National Association of Securities Dealers Automated Quotations (NASDAQ): (see also securities)
National Automated Clearinghouse Association (NACHA): A body which oversees all ACH activities and procedures and is composed of all local ACHs. [ACH] (see also automated clearinghouse, clearing house)
National Credit Union Administration (NCUA): An independent federal agency that supervises and insures both federal and state-chartered credit unions. NCUA is entirely funded by credit unions and receives no tax dollars. [FRBSF] 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. [FRBC][FRBM] (see also bank supervision)
National Organization of Clearing Houses (NOCH)
National Securities Clearing Corporation (NSCC): The leading US provider of centralized clearance, settlement, and information services for equity, corporate & municipal bond, Unit Investment Trust, annuity and mutual fund transactions. Services include comparison and matching of purchases and sales, recording of matched trades locked in at the marketplace, settlement guarantees for compared trades, netting, settlement through systems such as CNS, and risk management. NSCC works closely with its facilities manager the Securities Industry Automation Corporation (SIAC) and with the Depository Trust Corporation (DTC), as well as its affiliated companies the Government Securities Clearing Corporation, the MBS Clearing Corporation (mortgage backed securities) and the International Depository and Clearing LLC. [NSCC] (see also Depository Trust Corporation, Institutional Delivery, direct participants, exchange, novation, securities, clearing house) (includes Continuous Net Settlement)
natural monopoly: One producer supplying all of the market at lower costs than many producers could. [FACS] (see also fiscal policy)
natural rate of unemployment: The rate of unemployment that can be sustained in the long run and that is consistent with constant inflation. [FRBSF] The rate of unemployment that can be sustained in the long run, and that is consistent with constant inflation. [FRBC] (see also fiscal policy, unemployment rate)
natural unemployment rate: An economys civilian unemployment rate when supply and demand for labor are equal. The natural rate is the percentage of the civilian labor force unemployed at one time or another during any given year multiplied by the average time people spend searching for jobs. [FACS] (see also fiscal policy, unemployment rate)
near-monies: Assets which are not directly exchangeable for goods and services but which may be readily converted into money. A savings account is an example. [FACS] (see also fiscal policy)
need: A specific quantity of a specific good for which an individual would pay any price. [FACS] (see also fiscal policy)
negative amortization: An increase in the principal of a loan, when the loan payments are insufficient to pay the interest due. The unpaid interest is added to the outstanding loan balance causing the principal to increase rather than decrease as payments are made. This situation typically occurs in an adjustable mortgage with an annual cap limiting any increases in the interest rate, and also in a graduated payment mortgage, which has low initial payments so moderate-income borrowers can afford to make the loan payments. [FRBSF] Repayment schedule calling for periodic payments [FRBM] Repayment schedule calling for periodic payments that are insufficient to fully amortize the loan. Earned but unpaid interest is added to the principal, increasing the debt. Eventually, payments must be rescheduled to fully pay off the debt. [FRBC] (see also debt, interest, loan)
Negotiable Order of Withdrawal (NOW)
Negotiable Order of Withdrawal account: An interest earning account on which checks may be drawn. Withdrawals from NOW accounts may be offered by commercial banks, mutual savings banks, and savings and loan associations and may be owned only by individuals and certain nonprofit organizations and governmental units. [FRBSF] An interest earning account on which checks may be drawn. Withdrawals from NOW accounts may be subject to a 14-day or more notice requirement although such is rarely imposed. NOW accounts may be offered by commercial banks, mutual savings banks, and savings and loan associations and may be owned only by individuals and certain nonprofit organizations and governmental units. [FRBC] (see also interest, loan, check)
net debit cap: A net debit cap is the quantitative limit placed on the debit position that participants in a funds or securities transfer system can incur during the business day. Under the Federal Reserve's policy, institutions are subject to two caps--a daily cap and a 2-week cap. [GAO] (see also Federal Reserve System)
net settlement: Net settlement is the settlement of a number of obligations or transfers between or among counterparties on a net basis. [GAO] (see also settlement)
net worth: The difference between the assets and liabilities of a person or business. [FACS] (see also fiscal policy)
netting: Netting is an agreed upon offsetting of positions or obligations by trading partners that can reduce a large number of individual obligations or positions to a smaller number. [GAO] (see also settlement) (includes multilateral netting, netting member)
netting member: Netting members are primarily government securities broker-dealers and banks that are capable of participating in the netting services through GSCC. [GAO] (see also Government Securities Clearing Corporation, bank, netting)
new classical macroeconomics: (see supply-side economics)
new deal: Programs initiated in the 1930s that were characterized by significantly increased government aid to various economic groups and equally significant increases in government involvement in the economy. [FACS] (see also economics, fiscal policy)
New York Automated Clearinghouse (NYACH): NYCHA provides check exchange services to its 10 member banks and to 131 other depository institutions. [GAO] (see also Clearing House Interbank Payment System, automated clearinghouse)
New York Clearing House Association (NYCHA): (see also clearing house)
New York Stock Exchange (NYSE): (see also securities)
night cycle: The second scheduled time for interregional transmission of data from Originating ACHs to Receiving ACHs. Also referred to as 'nighttime window.' [ACH]
no prior relationship (NPR): No prior business relationship exists between originater of a digital signature transaction/document and the receiver [misc]
nominal GNP: GNP measured in current prices. [FACS] (see also gross national product)
Nominal Interest Rates: Current stated rates of interest paid or earned. [FRBC][FRBSF] The cost inflicted by inflation eroding the value of stored dollars plus the forgone real interest rate; the opportunity cost of holding money. [FACS] (see also fiscal policy, interest)
noncompetitive bidders: One of two categories of bidders on Treasury securities: competitive and noncompetitive. Noncompetitive bidders, made up of individuals or financial institutions, receive the average price and investment yield of the accepted competitive bids. [FRBSF] (see also competitive bidders, treasury securities)
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. [FRBSF] (see also member bank, Federal Reserve System, bank)
nonmember depository institution: A depository institution (commercial bank, mutual savings bank, savings and loan association, credit union, or U.S. agency or branch of a foreign bank) that is not a member of the Federal Reserve System. Nonmember depository institutions that offer transaction accounts or nonpersonal time deposits are subject to reserve requirements set by the Federal Reserve, and have access to the Federal Reserve discount window and Federal Reserve services on the same terms as member banks. [FRBSF] A depository institution (commercial bank, mutual savings bank, savings and loan association, credit union, or U.S. agency or branch of a foreign bank) that is not a member of the Federal Reserve System. Nonmember depository institutions that offer transaction accounts or nonpersonal time deposits are subject to reserve requirements set by the Federal Reserve, and they also have access to the Federal Reserve discount window and Federal Reserve services on the same terms as member banks. [FRBC] (see also Federal Reserve System, loan, bank, depository institution)
normative economics: Analysis that contains value judgments, either implicitly or explicitly (see Economics or Positive Economics). [FACS] (see also economics)
novation: In a netting system, many transactions that are input to the net are replaced by a smaller number of net positions. At the time that the net is performed, the input transactions are considered settled by novation, the act of novation creates new obligations on the participants to settle the net positions. If alloting is used, the new positions are against other parties to the net, with whom the principal party may not have traded. If the netting system uses interposed novation, all of the new obligations are against the party who performed the net, which minimizes any participant's exposure to settlement risk based on the insolvency of any other participant. [NSCC] Novation is an agreement to replace one party to a contract with a new party. The novation transfers both rights and duties and requires the consent of both the original and the new party. [GAO] (see also National Securities Clearing Corporation)
numismatic: Pertaining to coins and the collection of coins and medals. [FRBSF]
Office of Foreign Assets Control (OFAC): OFAC within the Department of the Treasury operates under laws to thwart terrorism or crime. OFAC powers are to be exercised on payments flowing across Fedwire or CHIPS, even if the payments are legal in the payor's country. [GAO] (see also Clearing House Interbank Payment System, Fedwire)
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 promotes a system of bank supervision and regulation that 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. [FRBM][FRBSF] (see also bank, bank supervision)
Office of Thrift Supervision (OTS): A bureau of the Treasury Department established in August 1989. OTS has the authority to charter federal Thrift Institutions and serves as the primary regulator of approximately 2,000 federal and state chartered thrifts. [FRBSF] A bureau of the Treasury Department, established in August of 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. [FRBM] (see also bank supervision)
offsetting: Offsetting is liquidating a purchase of contracts (e.g., futures contracts) by the sale of an equal number of contracts with the same delivery month, thus closing out a position. [GAO]
oligopoly: A market structure with just a few firms controlling a high percentage of total sales. [FACS] (see also fiscal policy)
on-us check: An 'on-us check' is a check payable from funds on deposit at the same bank where it is presented for collection. [GAO] (see also check)
on-us entries: Entries on an ACH file that belong to the originating financial institution. These entries may be stripped from the file and posted internally before a file is sent to the ACH. [ACH] (see also automated clearinghouse)
Open Market Operations: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the depository system and foster expansion in money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. They are used to promote either higher or lower growth in money and credit and to offset undesired changes in the reserve positions of depository institutions stemming from movements in currency, float, Treasury deposits, and other factors. [FRBM] Purchases and sales of government and certain other securities in the open market, through the Domestic Trading Desk at the Federal Reserve Bank of New York as directed by the Federal Open Market Committee, to influence the volume of money and credit in the economy. Purchases inject reserves into the depository system and foster expansion in money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. They are used to promote either higher or lower growth in money and credit and to offset undesired changes in the reserve positions of depository institutions stemming from movements in currency, float, Treasury deposits, and other factors. [FRBC] Purchases and sales of government securities and certain other securities in the open market, through the Domestic Trading Desk at the New York Federal Reserve Bank as directed by the Federal Open Market Committee (FOMC), to influence the volume of money and credit in the economy. Purchases inject reserves into the banking system and stimulate growth of money and credit; sales do the opposite. [FRBSF] The purchase or sale of government bonds by the Federal Reserve in order to change commercial banks reserves. [FACS] (see also bank, fiscal policy, reserves, securities)
open outcry: Open outcry is a form of trading whereby buyers and sellers trade by shouting their orders and using hand signals. [GAO]
open-end credit: A line of credit that may be used repeatedly up to a certain limit, also called a charge account or revolving credit. [FRBC] A line of credit that may be used repeatedly up to a certain limit. (also called a charge account or revolving credit) [FRBM][FRBSF] (see also credit)
open-end lease: A lease that may involve a balloon payment based on the value of the property when it is returned. (Also called finance lease.) [FRBC] A lease that may involve a balloon payment based on the value of the property when it is returned. (also called finance lease) [FRBM][FRBSF]
opportunity costs: Opportunity costs refer to the present value of income that could be earned (or saved) by investing in the most attractive alternative to the one being considered. [GAO] The highest-valued sacrifice needed to get a good or service. [FACS] (see also fiscal policy)
option: Anything that anyone wants. In economics, options (alternatives) are also called goods. [FACS] The right to buy or sell a security or commodity at a specified price during a specified period. The holder of an option has the right, but not the obligation, to buy (call option) or sell (put option) a security or commodity at a specified price during a specified period. The writer of an option is obligated to sell (call option) or purchase (put option) the instrument only if the holder chooses to exercise the option. [FRBSF] (see also Options Clearing Corporation, class of options, economics, exercise, hedging, premium, registered options trader, securities, writer) (includes call option, currency option, equity index option, options on futures, put option, series of options, stock/equity option)
Options Clearing Corporation (OCC): The OCC clears and settles all options traded on securities exchanges in the United States and is owned by five participating exchanges. [GAO] (see also option, clearing house) (includes clearing members)
options on futures: An option on a futures contract gives an investor the right but not the obligation, in exchange for a price (called a premium), to buy or sell a specified futures contract at a specific price (called the exercise price) within a specified period. [GAO] (see also futures, option)
order-book official: An order-book official is an exchange official who accepts and executes limit orders from customers--orders to buy or sell when the market reaches a certain price. [GAO]
Organization of Petroleum Exporting Countries (OPEC): A group of nations that produce most of the worlds oil and control most of the worlds oil exports. [FACS]
originating company: An organization or company that produces an ACH file and delivers it to an ODFI for introduction into the ACH network. [ACH] (see also automated clearinghouse)
originating depository financial institution (ODFI): A member institution which is responsible for the origination of ACH transactions. This institution may deposit items directly with an ACH or may work through a processing center which is the actual sending point. [ACH] (see also automated clearinghouse)
originating depository institution: An originating depository institution is a depository institution that initiates and warrants electronic payments processed through the ACH network on behalf of its customers. [GAO] (see also automated clearinghouse)
originator: An originator is the person or organization that initiates an ACH entry. [GAO] (see also automated clearinghouse)
OTC margin bond: A debt security not traded on the national securities exchange which meets certain Regulation T requirements as to size of original offering, available information, and status of interest payments. [FRBC][FRBM] (see also debt, over-the-counter)
over-the-counter (OTC): (includes OTC margin bond, over-the-counter stocks)
over-the-counter stocks: Stocks not traded on a national securities exchange. [FRBC][FRBM] (see also over-the-counter)
overdraft checking account: A checking account associated with a line of credit that allows a person to write checks for more than the actual balance in the account, generally with a finance charge on the overdraft. [FRBSF] A checking account associated with a line of credit that allows a person to write checks for more than the actual balance in the account, with a finance charge on the overdraft. [FRBC][FRBM] (see also check)
par value: The full face value of a security. [FRBM][FRBSF] (see also securities)
paradox of thrift: Increased saving increases withdrawals from the money flow; unless these withdrawals are successfully channeled into new investment spending, capital formation will decline. [FACS] (see also fiscal policy)
participating depository financial institution: Any financial institution that is authorized to originate/receive ACH entries. [ACH] (see also automated clearinghouse)
paying bank: A paying bank is the bank at which a check is payable and to which it is sent for payment or collection. [GAO] (see also check, bank)
payment mechanism: (see also payment system)
payment processor or credit card association: A payment processor is an association dedicated to the settlement and clearance of transactions using credit cards. Examples of such associations are VISA and MasterCard. [GAO] (see also credit card)
payment 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. [FRBSF] Mechanisms designed for the movement of funds, payments, and money between financial institutions throughout the nation. The Federal Reserve plays a major role in the nation's payments mechanism through distribution of currency and coin, check processing, wire transfer of funds, and the operation of automated clearinghouses that transfer funds electronically among depository institutions. Federal Reserve payments services are made available to both member banks and nonmember depository institutions on the basis of uniform pricing schedules. [FRBM] Payment system is a 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 Payment 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 Payment System functions. [GAO] (see also automated clearinghouse, credit card, credit card company, debit card, point-of-sale network, settlement) (includes Fedwire, Society for Worldwide Interbank Financial Telecommunication, check, clearing house, electronic benefits transfer, electronic funds transfer, payment mechanism)
payment versus payment (PVP)
payments mechanism: Systems designed for the movement of funds, payments, and money between financial institutions throughout the nation. The Federal Reserve plays a major role in the nation's payments mechanism through distribution of currency and coin, check processing, wire transfer of funds, and the operation of automated clearinghouses that transfer funds electronically among depository institutions. Federal Reserve payments mechanism services are made available to both member banks and nonmember depository institutions on the basis of uniform pricing schedules. [FRBC]
peak: The highest point attained in the business cycle. [FACS] (see also fiscal policy)
permissible nonbank activities: Financial activities closely related to banking that may be engaged in by bank holding companies (BHC's), either directly or through nonbank subsidiaries. For example, a BHC might own finance companies or engage in mortgage banking. The Federal Reserve Board determines which activities are closely related to banking. Before making such activities permissible, the Board must determine that performance of the activities by bank holding companies is in the public interest. [FRBSF] Financial activities closely related to banking that may be engaged in by bank holding companies, either directly or through nonbank subsidiaries. Examples are owning finance companies and engaging in mortgage banking. The Board determines which activities are closely related to banking. Before making such activities permissible, the Board must also determine that performance of the activities by bank holding companies is in the public interest. [FRBC][FRBM] (see also bank, bank holding company)
personal identification number: A code number used by the customer to authorize transactions using an access card or some other form of electronic funds transfer. The code number may be assigned by the bank or chosen by the customer and is not issued to other parties. The PIN number should be kept secret by the customer. [FRBC]
personal saving: The difference between household income (after taxes) and consumption expenditures. [FACS]
point-of-sale network: A network of banks, debit cardholders, and merchants that permits a consumer to electronically make direct payment at the place of purchase. The funds transfer directly from the account of the cardholder to the account of the merchant. [FRBC] (see also payment system)
points: Finance charges paid by the borrower at the beginning of a loan in addition to monthly interest; each point equals one percent of the loan amount. [FRBC][FRBM] (see also loan)
political economy: Policies that emphasize the interaction between politics and economics and that have political and economic effects. [FACS] (see also economics)
potential output: The level of real GDP that can be sustained in the long run and that is consistent with constant inflation. [FRBSF] The level of real GDP that can be sustained in the long run, and that is consistent with constant inflation. [FRBC]
premium: A premium is the amount that the buyer of an option pays the writer or seller of the option. [GAO] The amount by which the auction price of a bill, note, or bond is higher than its face value. [FRBM][FRBSF] (see also option)
prenotification (Prenote): A zero dollar entry that must be sent through the ACH at least ten calendar days prior to any live entries affecting an account at a receiving institution. The prenotification (prenote) allows the receiving institution to validate entry information. [ACH] (see also automated clearinghouse)
presentment fee: A presentment fee is a fee that a bank receiving a check may impose on the bank that presents the check for payment. [GAO] (see also bank, check)
price: The amount of money, or other goods, that you have to give up to buy a good or service. [FACS] (see also fiscal policy)
price ceiling: The upper legal limit on a price. [FACS]
price elasticity of demand: A measure of the responsiveness of the quantity demanded of a good to changes in that goods price. [FACS]
price floor: The lower limit imposed on a products price by a price control law. [FACS]
primary reserves: Refers to the assets in the form of cash maintained in a bank's own vault or claims on cash on deposit with compulsory or optional depositories. When compulsory pursuant to banking laws, such cash primary reserves are referred to as legal reserve requirements. [FRBC] (see also reserves)
principal payments: The face amount or par value of a debt instrument where interest is paid. The interest payment is not part of the principal. [FRBSF] (see also debt, interest)
Private ACH Exchange (PAX): Established in 1994 by NYACH, VISA and American Express to allow transaction exchange directly without using the Federal Reserve as an intermediary processor. [GAO] (see also automated clearinghouse, exchange)
private good: A good exclusively owned that cannot be simultaneously used by others. [FACS]
pro rata: 1. 'According to the rate' (Latin); 2. In proportion to a total amount. For example, if a contract is terminated prior to the end of the period for which payment has been given, a pro rata return of the payment is made, in proportion to the unused period of time remaining. [FRBSF]
processing day: Any day that a member institution is open to the public to conduct business, or that an ACH facility is being operated. [ACH]
production possibilities curve: All combinations of the maximum amounts of goods that a society can produce with the available resources and technology. [FACS] (see also fiscal policy)
productive resources: The inputs of labor, natural resources and capital used to generate new goods and services. [FACS] (see also fiscal policy)
productivity: The amount of physical output for each unit of productive input. [FRBC][FRBM][FRBSF] (see also fiscal policy)
profits: The excess of income over all costs, including the interest cost of the wealth invested. The net income of a business is not an accurate measure of its profit. [FACS] (see also fiscal policy)
property rights: The conditions of ownership of an asset, the rights to own, use and sell. [FACS]
proprietary trading: Proprietary trading is the buying and selling for the trading institution's own account, in contrast to the trading the institution does on behalf of its customers. [GAO]
public goods: Goods that cannot be withheld from people even if they dont pay for them. [FACS]
public key infrastructure: (see also authentication) (includes account authority digital signature, certification authority digital signature)
purchasing power parity theory: A theory by which the exchange rate between any two currencies adjusts to reflect changes in the price levels within the two countries. [FRBSF] The exchange rate between any two currencies adjusts to reflect changes in the price levels within the two countries. [FRBM] (see also exchange rate, foreign currency operations)
pure competition: A situation where many sellers sell the same product and no seller can set the price. [FACS] (see also fiscal policy)
purpose credit: Credit used for the purpose of buying, carrying, or trading in securities. [FRBC][FRBM][FRBSF]
put option: A put option is a contract that gives one the right, but not the obligation, to sell a specified amount of an underlying asset, such as stocks or currency, at a specified price by a certain date. [GAO] (see also option)
quota: A quantitative restriction on imports. [FACS]
rational expectations: Market participants intuitively anticipate systemic policy actions and their consequences for the economy; thus, on average, private market forecasts are accurate and planned policy is ineffectual (see New Classical Macroeconomics). [FACS] (see also economics, fiscal policy)
real GDP: GDP adjusted for inflation. Real GDP provides the value of GDP in constant dollars, which is used as an indicator of the volume of the nation's output. [FRBC][FRBM][FRBSF] (see also gross domestic product)
real GNP: The GNP of any year measured in the prices of a base year. Real GNP is nominal GNP adjusted for inflation. [FACS] (see also gross national product)
Real Interest Rates: Interest rates adjusted for the expected erosion of purchasing power resulting from inflation. Technically defined as nominal interest rates minus the expected rate of inflation. [FRBC][FRBM][FRBSF] (see also interest)
real rate of interest: The dollar interest rate corrected for inflation; equal to the nominal rate minus the inflation rate. [FACS] (see also fiscal policy, interest)
real wage: Ones wage adjusted for inflation. [FACS]
real-time gross settlement: Real-time gross settlement is a system that processes each transaction as it is initiated rather than processing it in a batch. Gross settlement means that the system settles each transaction individually. [GAO] (see also settlement)
Real-Time Gross Settlement System (RTGS)
receiver: A receiver is the individual or organization that has authorized an originator to initiate an ACH credit or debit transaction entry to the receiver's account with the receiving depository institution. [GAO] (see also automated clearinghouse)
receiving depository financial institution (RDFI): A receiving financial institution is an ACH transaction's final destination. The receiving financial institution may receive the items directly from an ACH or may work through a processing center, which is the actual receiving point. [ACH] (see also automated clearinghouse)
receiving point: Any site where entries are received from an ACH for processing. This may be the member financial institution, its data center, or a data processing service authorized to receive entries on behalf of a member institution. [ACH] (see also automated clearinghouse)
recession: A significant decline in general economic activity extending over a period of time. [FRBC][FRBM][FRBSF] (see also economics)
recognition lag: The time it takes for policymakers to recognize the state of the economy. [FRBSF] (see also fiscal policy)
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. [FRBC][FRBM][FRBSF] (see also Federal Reserve System, check)
registered options trader: A trader that trades on the exchange floor but has an obligation to make markets similar to that of specialists. [GAO] (see also option)
regressive taxes: A greater portion of income is taken from those in lower levels than from those in upper income levels. [FACS] (see also fiscal policy)
remake: A replacement file generated upon request because an original file was unprocessable for some reason. [ACH] (see also automated clearinghouse)
renegotiable rate: A type of variable rate involving a renewable short- term 'balloon' note. The interest rate on the loan is generally fixed during the term of the note, but when the balloon comes due, the lender may refinance it at a higher rate. In order for the loan to be fully amortized, periodic refinancing may be necessary. [FRBC] A type of variable rate involving a renewable short-term 'balloon' note. The interest rate on the loan is generally fixed during the term of the note, but when the balloon comes due, the lender may refinance it at a higher rate. In order for the loan to be fully amortized, periodic refinancing may be necessary. [FRBM] (see also loan)
rent controls: Fixed limits on rents that can be charged to tenants by owners according to a legal restriction. [FACS]
Repurchase Agreements: A repurchase agreement is an agreement between a buyer and seller (usually) of U.S. government securities, whereby the seller agrees to repurchase the securities at an agreed-upon price and, usually, at a stated time. [GAO] An agreement by which, for example, the Federal Reserve purchases a security for immediate delivery and receives interest at a specific rate from a government securities dealer, with an agreement to sell the security back at the same price by a specific date (usually within 15 days). This arrangement allows the Federal Reserve to inject reserves into the banking system on a temporary basis to meet a temporary need and to withdraw these reserves as soon as that need has passed. [FRBSF] When the Federal Reserve makes a repurchase agreement with a government securities dealer, it buys a security for immediate delivery with an agreement to sell the security back at the same price by a specific date (usually within 15 days) and receives interest at a specific rate. This arrangement allows the Federal Reserve to inject reserves into the banking system on a temporary basis to meet a temporary need and to withdraw these reserves as soon as that need has passed. [FRBC][FRBM] (see also matched sale-purchase agreements, bank, reserves)
required clearing balance: Amount kept by a depository institution in an account at a Federal Reserve Bank, in addition to its required reserve balance, to ensure that it can meet its daily transaction obligations without overdrawing its required reserve account and thereby incurring a penalty. Required clearing balances earn credits that can be used to pay for services provided by the Federal Reserve. [FRBSF] (see also Federal Reserve System)
required reserve balance: Portion of its required reserves that a depository institution must hold in an account at a Federal Reserve Bank. [FRBSF] (see also Federal Reserve System, required reserves, reserves)
required reserves: Funds that a depository institution is required to maintain as vault cash or on deposit with a Federal Reserve Bank; required amount varies according to required reserve ratios set by the Board of Governors and the volume of reservable liabilities held by the institution. [FRBSF] (see also Federal Reserve System, bank, required reserve balance, reserves)
reserve requirements: Reserves that must be held against customer deposits of banks and other depository institutions. The reserve requirement ratio affects the expansion of deposits that can be supported by each additional dollar of reserves. The Board of Governors sets reserve requirements within limits specified by law for all depository institutions (including commercial banks, savings banks, savings and loan associations, credit unions, some industrial loan banks, and U.S. agencies and branches of foreign banks) that have transaction accounts or nonpersonal time deposits. A lower reserve requirement allows more deposit and loan expansion and a higher reserve ratio permits less expansion. [FRBC][FRBM] (see also loan, reserves)
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). [FRBSF] Funds set aside by depository institutions in the form of vault cash and/or balances at the Federal Reserve Banks, either directly or indirectly passing through a correspondent institution. [FRBC] Funds set aside by depository institutions to meet reserve requirements. For member banks, reserve requirements are satisfied with holdings of vault cash and/or balances at the Federal Reserve Banks. Depository institutions that are not members of the Federal Reserve System may hold their reserves in the same manner, or they may pass the reserve balances through a correspondent institution to the Federal Reserve Banks. [FRBM] (see also Bretton Woods, International Monetary Fund, Open Market Operations, Repurchase Agreements, bank reserves, contemporaneous reserve accounting, excess reserves, federal funds rate, foreign currency reserve, money multiplier, primary reserves, required reserve balance, required reserves, reserve requirements)
respondent bank: A respondent bank is a bank that regularly buys check processing and other services from a correspondent bank. [GAO] (see also check, bank)
retained earnings: Business profits which are held by firms and not paid to the stockholders of the firm; the earnings are usually reinvested by the firms. [FACS]
return item: A return item is a transaction that has been returned by a receiving depository institution because it cannot be posted. [GAO] An ACH entry that has been rejected by a receiving financial institution because it is non-postable. [ACH] (see also chargeback, automated clearinghouse)
revenues: Total gross earnings of a firm before subtracting costs. [FACS]
reversing entry: A file created by a sending point to completely cancel a previous file or entry because the previous file or entry was in error for some reason. Used extensively with duplicate entries. [ACH] (see also automated clearinghouse)
right-to-work laws: Laws banning union membership as a requirement for continued employment. [FACS] (see also fiscal policy)
Savings and Loan Associations (S&L): Historically, depository institution that accepted deposits mainly from individuals and invested heavily in residential mortgage loans. Although still primarily residential lenders, S&Ls may now offer checking-type deposits and make a wider range of loans. [FRBSF] Savings and Loan Associations (sometimes called building and loan associations, cooperative banks, or homestead associations) accept deposits primarily from individuals, and channel their funds primarily into residential mortgage loans. Most savings and loan associations are technically owned by the depositors who receive shares in the association for their deposits. [FRBC] (see also depository institution, loan)
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. [FRBSF] (see also loan, bank)
scarce good: A good which people want more of and which is costly to obtain. [FACS] (see also fiscal policy)
scarcity shortage: A term used when the quantity of a good demanded exceeds the quantity supplied at the existing price. [FACS] (see also fiscal policy)
secure electronic transaction (SET): VISA and Mastercard technical standards for making secure credit card purchases over open networks such as the Internet. [GAO] (see also credit card, encryption, Internet)
secure hypertext transfer protocol (S-HTTP)
secure sockets layer (SSL)
securities: Paper certificates (definitive securities) or electronic records (book-entry securities) evidencing ownership of equity (stocks) or debt obligations (bonds). [FRBM][FRBSF] Securities refer to a financial instrument that represents a share of ownership in a corporation--a stock; a loan to a corporation, government, or governmental body--a bond; or conditional rights to ownership, e.g., an option. [GAO] (see also Committee on Uniform Securities Identification Procedures, Continuous Net Settlement, Depository Trust Corporation, Federal margin call, Government Securities Clearing Corporation, National Association of Securities Dealers, National Association of Securities Dealers Automated Quotations, National Securities Clearing Corporation, New York Stock Exchange, Open Market Operations, Securities Industry Automation Corporation, Securities and Exchange Commission, Treasury Bills, Treasury Bonds, Treasury Notes, broker-dealer, capital market, debt, discount payment, loan, margin, marketable securities, money market, option, par value, street name, treasury securities) (includes book-entry securities, exempted security, government securities, mortgage-backed securities)
Securities and Exchange Commission (SEC): An independent agency of the U.S. government consisting of five members appointed by the President that administers comprehensive legislation governing the securities industry. [FRBC][FRBM] An independent, non-partisan, 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. [FRBSF] (see also securities, exchange)
Securities Industry Automation Corporation (SIAC): (see also securities)
security interest: The creditor's right to take property or a portion of property offered as security. [FRBC][FRBM] The property or a portion of property offered as security. [FRBSF] (see also interest)
seigniorage: The profit which results from the difference between the cost of making coins and currency and the exchange value of coin and currency in the market. [FRBM][FRBSF]
self-regulatory organizations (SRO): Nongovernment organizations that have statutory responsibility to regulate their own members such as the NYSE, AMEX, and NASD. [FRBM] Nongovernment organizations that have statutory responsibility to regulate their own members such as the NYSE, AMEX,and NASD. [FRBC] Self-regulatory organizations are industry organizations and associations responsible for enforcement and practices in their market. [GAO]
seller's points: A lump sum paid by the seller to the buyer's creditor to reduce the cost of the loan to the buyer. This payment is either required by the creditor or volunteered by the seller, usually in a loan to buy real estate. Generally, one point equals one percent of the loan amount. [FRBC][FRBM] (see also loan)
sending point: A processing site that sends entries to an ACH. This may be a member institution or a data processing service operating on its behalf. [ACH]
series of options: Series of options are all options of the same class that also have the same unit of trade, strike price, and expiration date. [GAO] (see also option)
server: A server is a computer that stores information that is retrieved by other computers. [GAO] (see also Internet)
service charge: A component of some finance charges, such as the fee for triggering an overdraft checking account into use. [FRBC][FRBM] (see also debt)
settlement: In banking, settlement refers to the process of recording the debit and credit positions of two parties in a transfer of funds. Also, it is the delivery of securities by a seller and the payment by the buyer. [GAO] The process of accounting for dollar transactions processed through the ACH. There is a daily settlement, which occurs directly in the case of Federal Reserve member financial institutions unless those financial institutions designate other members to settle in their behalf. Non-members of the Federal Reserve System must settle their accounts through a member of the Federal Reserve System. [ACH] (see also bank) (includes Continuous Net Settlement, automated clearinghouse, clearing house, net settlement, netting, payment system, real-time gross settlement, settlement bank)
settlement bank: Settlement banks are banks that maintain the settlement accounts for clearing members whereby payments and deposits are made. [GAO] (see also bank, settlement) (includes Bank for International Settlements)
settlement date: The day on which settlement occurs, i.e., funds actually change hands as a result of an ACH entry. [ACH]
short run: The period during which some inputs are fixed and cannot be varied. [FACS]
short-term interest rates: Interest rates on loan contracts--or debt instruments such as Treasury bills, bank certificates of deposit, or commercial paper--having maturities of less than one year. Often called money market rates. [FRBC][FRBM][FRBSF] (see also long-term interest rates, bank, debt, loan, interest)
small saver certificate: A certificate of deposit with a minimum maturity of 2 and 1/2 years offered by banks and thrift institutions to individuals. The interest rate on these certificates is related to the average yield on 2 and 1/2 year Treasury securities. There is no minimum denomination required on these certificates. [FRBC] A certificate of deposit, with a minimum maturity of 2-1/2 years, offered by banks and thrift institutions to individuals. The interest rate on these certificates is related to the average yield on 2-1/2 year Treasury securities, in accordance with regulations issued by the Depository Institutions Deregulation Committee. There is no minimum denomination required on these certificates. [FRBSF] (see also bank, treasury securities)
smart card: A card-based payment system that stores value for transactions on a computer chip instead of a magnetic stripe. As the card is used for transactions, the amounts are subtracted from a balance on the chip. When the balance approaches zero, the chip can be 're-loaded' through a number of methods. These cards are often used in closed-systems for specific types of purchases but do not have to be so restricted. The chip also allows the owner to keep a variety of information with them at all times. [FRBC]
social costs: Private costs plus external costs. [FACS]
socialism: The view that the government should own and control major industries using the dollars earned to provide benefits to citizens. [FACS] (see also fiscal policy)
Society for Worldwide Interbank Financial Telecommunication (SWIFT): A message writing system that connects worldwide participating banks, primarily for the purpose of communicating payment information. Frequently, the SWIFT message is only part of an international payment [FRBSF] The Society for Worldwide Interbank Financial Telecommunication is an international financial payment cooperative organization that operates a network that facilitates the exchange of payment and other financial messages between financial institutions throughout the world. [GAO] (see also bank, payment system)
special drawing rights (SDR's): A type of international money created by the 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. [FRBC][FRBM] 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. [FRBSF] (see also International Monetary Fund, debt)
specialist: A specialist is a member designated by an exchange to be the sole market maker for a particular stock. [GAO]
specialization: The act of producing more of a good than one consumes, the rest of that good being exchanged. [FACS] (see also fiscal policy)
speculation: Speculation is the assumption of risk in anticipation of gain but recognizing a higher than average possibility of loss. The term speculation implies that a business or investment risk can be analyzed and measured, and its distinction from the term investment is one of degree of risk. [GAO]
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. [FRBSF] A foreign exchange transaction in which each party promises to pay a certain amount of currency to the other today or within one or two days. [FRBM] (see also foreign currency operations)
stagflation: An economic condition characterized by simultaneous inflation, slow growth and high unemployment. [FACS] (see also economics, fiscal policy)
standard entry class code: A 3 character code within an ACH Company/Batch Header Record to identify the payment types contained within an ACH batch, (e.g., CCD, CIE, CTP, CTX, MTE, POS, or PPD). [ACH]
state member bank: A bank that is chartered by a state and has elected to join the Federal Reserve System. [FRBSF] (see also bank)
statement of ACH activity: The advice prepared by the ACH stating the number of items and dollar value of an ACH file. [ACH]
stock/equity option: A stock option gives one the right to purchase or sell a certain number of shares of stock at a particular price within a specified period. [GAO] (see also option)
stored-value card: A stored-value card is a credit-card-sized device, implanted with a computer chip, with stored money value. A reloadable stored-value card can be reused by transferring value to it from an automated teller machine or other device. A disposable card cannot be reloaded. [GAO]
street name: Securities held in the name of brokers, or banks, or their nominees, instead of in the customer's name. [FRBC][FRBM][FRBSF] (see also securities)
structural unemployment: Long-term joblessness caused by shifts in the economy. Often structural unemployment occurs because of changes in technology. [FRBSF] Workers without jobs whose skills are no longer suitable for or do not match the types of jobs available. [FACS] (see also fiscal policy, unemployment rate)
substitutes: Price change for one product leads to a shift in the same direction in the demand for another product. [FACS]
supply curve: A graphic representation of the relationship between quantities supplied at each price for a given time period. [FACS] (see also fiscal policy)
supply-side economics: Focus on the effects of national output potential or supply through reduction of taxes and government regulation for businesses designed to increase productivity and economic growth. [FACS] (see also economics, fiscal policy)
surcharge: An extra charge imposed on those who purchase with a credit card instead of cash. (Currently, surcharges for credit card purchases are prohibited.) [FRBC] An extra charge imposed on those who purchase with a credit card instead of cash. (currently, surcharges for credit card purchases are prohibited) [FRBM][FRBSF] (see also debt)
surplus: A term used when the quantity of a good supplied exceeds the quantity demanded at the existing price. [FACS] (see also fiscal policy)
swap: An arrangement between the central banks of two countries for standby credit to facilitate the exchange of each other's currencies. [FRBSF]
swap arrangements: Short-term reciprocal lines of credit between the Federal Reserve and 14 foreign central banks as well as the Bank for International Settlements. Through a swap transaction, the Federal Reserve can, in effect, borrow foreign currency in order to purchase dollars in the foreign exchange market. In doing so, the demand for dollars and the dollar's foreign exchange value are increased. Similarly, the Federal Reserve can temporarily provide dollars to foreign central banks through swap arrangements. [FRBSF] Short-term reciprocal lines of credit between the Federal Reserve and 14 foreign central banks as well as the Bank for International Settlements. Through a swap transaction, the Federal Reserve can, in effect, borrow foreign currency in order to purchase dollars in the foreign exchange market. In doing so, the demand for dollars is increased and the dollar's foreign exchange value is increased. Similarly, the Federal Reserve can temporarily provide dollars to foreign central banks through swap arrangements. [FRBC][FRBM] (see also foreign currency operations)
SWIFT: A message writing system that connects worldwide participating banks primarily for the purpose of communicating payment information. Frequently, the SWIFT message is only part of an international payment process which might also employ a system such as CHIPS to fully implement the transaction. [FRBC][FRBM]
systemic risk: Systemic risk refers to the risk that the failure of one participant in a transfer system (or financial markets generally) to meet its required obligations will cause other participants or financial institutions to be unable to meet their obligations when due. [GAO] (see also fiscal policy)
tariff: A tax on imports. [FACS]
technological change: An advance, usually scientific, that causes an increase in output to occur relative to the quantity of inputs. [FACS]
tender: An application or offer to purchase a U.S. Treasury bill, note, or bond. [FRBM][FRBSF]
terms of trade: The relative prices of goods and services traded in international markets. [FACS]
The Depository Institutions Deregulation and Monetary Control Act of 1980: Among its major provisions, this Act applied uniform reserve requirements to all depository institutions with certain types of accounts and required reports from these depository institutions. It also extended access to the Federal Reserve discount window and to other Federal Reserve services in step with the implementation of a fee schedule. [FRBC][FRBM]
The Desk: The trading desk at the New York Federal Reserve Bank, through which open market purchases and sales of government and federal agency securities are made. The desk maintains direct telephone communication with major government securities dealers. A 'foreign desk' at the New York Federal Reserve Bank conducts transactions in the foreign exchange market. [FRBC][FRBM][FRBSF]
the trading desk: The trading desk at the New York Federal Reserve Bank, through which open market purchases and sales of government and federal agency securities are made. The desk maintains direct telephone communication with major government securities dealers. A 'foreign desk' at the New York Federal Reserve Bank conducts transactions in the foreign exchange market. [FRBC][FRBM][FRBSF]
Thrift Institutions: Thrift Institutions is a general term often used for mutual savings banks, savings and loan associations, and credit unions. [FRBC] a general term encompassing savings banks, savings and loan associations, and credit unions. [FRBSF] (see also loan, bank)
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. [FRBSF] This Council was established following the passage of the Monetary Control Act of 1980. Its 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. [FRBC][FRBM] (see also bank, loan)
time deposits: Savings held in the financial institution for a fixed time period (such as six months or a year). [FACS]
time lags: (In stabilization policy) refers to the period between an economic event and the impact of the economic policy to correct it. [FRBSF] (see also economics)
total nonfinancial debt: Includes outstanding credit market debt of federal, state, and local governments and of private nonfinancial sectors (including mortgages and other kinds of consumer credit and bank loans, corporate bonds, commercial paper, bankers acceptances, and other debt instruments). [FRBC][FRBSF] (see also debt, fiscal policy, loan)
trace number: A number assigned to every ACH entry by an originating institution that uniquely identifies that entry with a specific ACH file. First eight digits of the trace number are transit/routing number of ODFI and last seven digits are sequence numbers assigned by the originator. [ACH] (see also automated clearinghouse)
trade comparison: Trade comparison is the receipt, validation, and matching of data on the long (buy) and short (sell) side of a transaction and the reporting of such match. [GAO] (see also fiscal policy)
trade deficit: Refers to the amount by which merchandise imports exceed merchandise exports. [FRBC][FRBM] The amount by which merchandise imports exceed merchandise exports. [FRBSF] (see also fiscal policy)
trade-off: The opportunity costs of selecting one alternative rather than another. [FACS]
trade-weighted value of the dollar: The value of the dollar pegged to or expressed relative to a market basket of selected foreign currencies. The Federal Reserve calculates a trade-weighted value of the dollar based on the weighted-average exchange value of the dollar against the currencies of 10 industrial countries. [FRBM][FRBSF] (see also foreign currency operations)
transaction account: A checking account 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. [FRBC][FRBM] 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. [FRBSF]
transaction adjusted payment (TAP): TAP refers to the dollar difference between the amount at which securities are to be delivered and received and the amount at which securities were traded. [GAO]
transaction costs: The full costs of making an exchange. [FACS] (see also fiscal policy)
transit routing number: A nine digit number (eight digits and a check digit) that identifies a specific financial institution. These numbers are assigned by the Thomson Financial Publishing and are listed in its annual publication Key to Routing and Transit Numbers. [ACH] (see also automated clearinghouse)
treasuries: (see treasury securities)
Treasury Bills (T-bills): A short-term obligation of the U.S. Treasury issued with a term of one year or less (13, 16, or 52 week maturity). Treasury bills are sold at a discount from face value (par) and do not pay interest before maturity. The difference between the purchase price of the bill and the amount that is paid at maturity (par), or when the bill is sold prior to maturity, is the interest earned on the bill. [FRBC] Short-term U.S. Treasury security issued in minimum denominations of $10,000 and usually having original maturities of 3, 6, or 12 months. Investors purchase bills at prices lower than the face value of the bills; the return to the investors is the difference between the price paid for the bills and the amount received when the bills are sold or when they mature. Treasury bills are the type of security used most frequently in open market operations. [FRBM] Short-term securities with a maturity period of 13 weeks, 26 weeks, or 52 weeks. [FRBSF] (see also securities)
Treasury Bonds: A long-term direct obligation of the U.S. Treasury with a term of 30 years. [FRBC] Long-term U.S. Treasury security usually having initial maturities of more than 10 years and issued in denominations of $1,000 or more, depending on the specific issue. Bonds pay interest semiannually, with principal payable at maturity. [FRBM] Long-term securities with a maturity period of 30 years. [FRBSF] (see also securities)
Treasury Direct: Service provided to the U.S. Department of the Treasury whereby Federal Reserve Banks hold book-entry Treasury securities purchased by individuals. [FRBSF] (see also treasury securities)
Treasury Notes: A medium-term direct obligation of the U.S. Treasury with a term of between 2 and 10 years. [FRBC] Intermediate-term coupon-bearing U.S. Treasury security having initial maturities from 1 to 10 years and issued in denominations of $1,000 or more, depending on the maturity of the issue. Notes pay interest semiannually, and the principal is payable at maturity. [FRBM] Medium-term securities with a maturity period of two years, three years, five years, or ten years. [FRBSF] (see also securities)
treasury securities: A Treasury security is a negotiable debt obligation of the U.S. government, backed by its full faith and credit, and issued with various maturities. [GAO] Interest-bearing obligations of the U.S. government issued by the Treasury as a means of borrowing money to meet government expenditures not covered by tax revenues. Marketable Treasury securities fall into three categories - bills, notes, and bonds. Marketable Treasury obligations are currently issued in book entry form only; that is, the purchaser receives a statement, rather than an engraved certificate. [FRBM] Interest-bearing obligations of the U.S. government issued by the Treasury as a means of borrowing money to meet government expenditures not covered by tax revenues. Marketable Treasury securities fall into three categories - bills, notes, and bonds. The Federal Reserve System holds more than $125 billion of these obligations, acquired through open market operations. Marketable Treasury obligations are currently issued in book entry form only; that is, the purchaser receives a statement, rather than an engraved certificate. [FRBC] (see also Treasury Direct, competitive bidders, debt, issue date, noncompetitive bidders, securities, small saver certificate)
trough: A point in the business cycle corresponding to the end of the slowdown and the beginning of expansion. [FACS]
Truth in Lending Act of 1968 (TLA): TLA is implemented through Federal Reserve Regulation Z, which requires uniform methods for computing the cost of consumer credit and disclosing credit terms, prohibits the unsolicited issuance of credit cards, and limits cardholder liability for unauthorized use. [GAO]
Twelve L (12L): Refers to the Federal Reserve Bank of San Francisco, which is the Twelfth District in the Federal Reserve System. 'L' is the official letter for the Twelfth District seal, being the twelfth letter of the alphabet. [FRBSF]
U.S. Treasury securities: Direct obligations of the U.S. Government, issued by the U.S. Treasury's Bureau of Public Debt as a means of financing the Federal Government. There are three types of securities issued: treasury bills (T-bills), Treasury bonds, Treasury notes [FRBSF] (see also debt)
uncertain responses: In stabilization policy, the situation when the reactions of individuals and businesses to a ppolicy is notwhat policymakers predicted (e.g., a decrease in income tax rates that does not increase consumer spending). [FRBSF]
unemployment rate: The percentage of the labor force that is unemployed and actively seeking a job. [FRBSF] (see also cyclical unemployment, fiscal policy, frictional unemployment, involuntary unemployment, natural rate of unemployment, structural unemployment) (includes natural unemployment rate)
Uniform Commercial Code (UCC): The Uniform Commercial Code (UCC) is a set of model laws governing commercial and financial transactions. [GAO]
Uniform Commercial Code Article 4A (UCC 4A): Uniform Commercial Code (UCC) is a comprehensive body of state law governing commercial transactions. Article 4A covers certain funds transfers, including ACH credit transactions not subject to the Electronic Funds Transfer Act. [ACH]
value added networks: Value added networks refer to a third-party service provider that manages data communications networks for businesses that exchange electronic data with other businesses. [GAO]
variable costs: Costs of a production process that increase or decrease along with changes in level of production, as opposed to fixed costs. [FACS]
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. [FRBC][FRBM] (see also loan)
vault cash: Cash kept on hand in a depository institution's vault to meet day-to-day business needs, such as cashing checks for customers; can be counted as a portion of the institution's required reserves. [FRBM][FRBSF] (see also money)
velocity: The rate at which money balances turn over in a period for expenditures on goods and services (often measured as the ratio of GDP to the money stock). A larger velocity means that a given quantity of money is associated with a greater dollar volume of transactions. [FRBC] The rate at which money balances turn over in a period for expenditures on goods and services (often measured as the ratio of GNP to the money stock). A larger velocity means that a given quantity of money is associated with a greater dollar volume of transactions. [FRBM][FRBSF]
verification: Verification is the ability to positively identify and authenticate a particular encrypted communication. [GAO]
VISA: (see also credit card company)
voluntary export restraint: Identical to an import quota except that the foreign market agrees voluntarily to limit exports from its county to a market. [FACS]
warehousing: The ability of an originating institution to receive 1 file from a customer/company ahead of the effective date and hold it for release to the ACH on the effective date or for a receiving financial institution to receive entries ahead of the effective date and hold them without posting until the effective date has been reached. [ACH] (see also automated clearinghouse)
waste: When the relative value of a good is different from that goods marginal cost of production, waste occurs. Goods or resources are wasted when they are allocated to uses which are not the most valuable. [FACS] (see also fiscal policy)
wealth: The value of the existing stock of goods; those goods may be tangible or intangible. [FACS] (see also fiscal policy)
wholesale credit: A credit transaction originated or received by a non-consumer, i.e., a credit transaction to a 'business account'. [ACH]
wholesale price index: A measure of changes in the prices of goods at the wholesale level, particularly those goods sold between businesses. [FACS] (see also fiscal policy)
window: A predetermined period in time in which an exchange of information and funds can take place. [ACH]
wire transfer: Electronic transfer of funds; usually involves large dollar payments. [FRBM][FRBSF]
working poor: Workers earning inadequate income as judged by government-established standards of poverty. [FACS] (see also fiscal policy)
wraparound: A financing device that permits an existing loan to be refinanced and new money to be advanced at an interest rate between the rate charged on the old loan and the current market interest rate. The creditor combines or 'wraps' the remainder of the old loan with the new loan at the intermediate rate. [FRBC][FRBM][FRBSF] (see also interest, loan)
writer: An options seller is called a writer of options, a 'covered' writer if owning the underlying asset and a 'naked' writer if not. The writer of an option is obligated to sell, in the case of a call option, or buy, in the case of a put option, a specified amount of the underlying asset at a predetermined price when the buyer or holder exercises the option. The writer earns a premium paid by the buyer. [GAO] (see also option)