Flashcards

Funding is a requirement found under ERISA regulations requiring the employer to keep retirement plan assets segregated from the other assets that are owned by the business.

The general account of the insurance company is conservatively invested and promises the investor a minimum guaranteed rate of return. Fixed annuities and traditional whole life utilize the insurer’s general account. The insurer has the risk in the general account.

A general obligation bond is a municipal bond backed by the general taxing power of the issuer. Payment of the obligation may be backed by a specific tax or just the issuer’s general tax fund. General obligation bonds are sometimes referred to as full faith and credit bonds.

In a partnership, there must be one or more general partners. The general partners have unlimited liability and are responsible for the management of the partnership. General partners are active and must maintain a minimum of 1% ownership in the partnership.

In a general partnership there are two or more general partners who have joint and several liability, fully responsible for the actions of the other general partner(s). General partnerships are flow-through tax entities with the partners receiving form K-1 annually with their percentage of the profits or losses.

Geopolitical risk is the risk associated with tensions or actions between actors (state and non-state) that affect the normal and peaceful course of international relations. Geopolitical risk tends to rise when the geographic and political factors underpinning country relations shift.

Good delivery is when the securities are delivered in such a form that the ownership is clearly assigned from the seller to the buyer and can be easily transferred. Good delivery includes proper assignment, good condition of the securities, the proper number of units, at the proper time, not in the name of a deceased person, and with a permanent certificate, if available.

When an order is GTC it is left on the order book until it is either executed or canceled.

Goodwill is an accounting entry made to intangible assets representing the reputation of the business.

Ginnie Mae is a wholly-owned government corporation. Its mission is to expand funding for mortgages that are insured or guaranteed by other federal agencies. Ginni Mae bundles these mortgages into securities, providing a full-faith guarantee. Ginnie Mae bonds are fully guaranteed by the United States government. Ginnie Mae instruments represent an undivided interest in a pool of FHA, VA, or FMHA mortgages that are fully taxable at all levels of government.

GANs are issued in anticipation of receiving a grant from the federal government or one of its agencies. The municipal will use the grant funds when received to pay off the GANs.

Gross domestic product is the value of goods and services produced within a country’s border during a given period of time (typically a year). GDP includes consumption, government purchases, investments, and the balance of trade (exports minus imports).

Gross income is income from all sources. For a business, gross income may be referred to as gross sales or gross revenue.

A growth fund is a type of diversified common stock fund that has capital appreciation as its primary goal. It invests in companies that reinvest most of their earnings for expansion, research, or development. The term also refers to growth income funds that invest in common stocks for both current income and long-term growth of capital and income.  Growth funds usually have very low yields.

A guardian is a fiduciary who manages the assets of a minor or an incompetent person. The guardian must be of legal age and sound mind.

A health savings account is a tax-advantaged account that an individual may fund to provide monies for future health expenses. To fund a health savings account (HSA) the person must have a high deductible health insurance plan on the first day of the last month of that tax year, December 1st. Contributions made into an HSA are tax deductible on a person’s federal return, even if the person does not itemize. The balance rolls from year to year, and the earnings are free from income taxes when used for qualified medical expenses. A person enrolled in Medicare is not eligible for an HSA.

A hedge fund is a type of pooled investment that engages in aggressive investment strategies, such as shorting stock. Hedge funds are suitable for aggressive investors that meet financial requirements.

Hedging is a strategy used to offset investment risk. Options can be used to hedge both long and short stock positions. Limits and stops can also be used to hedge investment risk.

The holding period is the time period that an investment is owned.

A horizontal spread is either the purchase and sale of two calls or two puts with different expiration months (same class, same strike).

Broker/dealers may have higher ongoing margin requirements than FINRA rules require. These higher requirements are called house requirements.

Hypothecation is when the client pledges their margin securities as collateral for the loan.  Brokerage firms re-hypothecate clients’ securities to a bank to finance the margin accounts.

An immediate annuity is an annuity contract that is purchased for a lump sum (single premium) and starts to pay out in monthly payments the month immediately following its purchase.

In-the-money is the term used to describe an option that can be exercised by the owner. In-the-money options have intrinsic value. A call is in-the-money when the market price is above the strike and a put is in-the-money when the market price is below the strike.

An income bond is a bond issued by a corporation that is experiencing financial difficulties. The income bond will only pay interest if the board of directors believes the company can afford to. Income bonds are also called adjustment bonds. Income bonds trade flat, without accrued interest

An income fund is a type of mutual fund that seeks to provide a stable current income from investments by investing in securities that pay higher-than-average yields.

The income statement is a financial statement that shows the income and expenses of a business or an individual, over a period of time. The income statement is also called a profit and loss.

An indenture is a formal agreement between an issuer of bonds and the bondholder. The indenture provides for the appointment of a trustee to act on behalf of the bondholders, in accordance with the Trust Indenture Act of 1939. The indenture will cover such considerations as the form of the bond, amount of the issue, property pledged (if not a debenture), protective covenants including any provision for a sinking fund, working capital, and current ratio, and redemptions rights or call privileges.

An indication of interest is an investor’s expression of conditional interest in buying a forthcoming securities issue after the investor has reviewed a preliminary prospectus. An indication of interest is not a commitment to buy.

An individual retirement plan (IRA) is available to anyone with earned income. There are two types of IRAs, traditional and Roth. A Roth IRA may only be funded by individuals with earned income, who do not earn too much (phaseout varies each year). Roth IRAs are always funded with after tax dollars. If a distribution is made from a Roth that has been open for a minimum of 5 years and that is paid out on or after age 59 ½, the earnings are tax-free. A traditional IRA may be funded by anyone with earned income. The contributions made into a traditional IRA may or may not be tax-deductible, depending upon the client’s situation and current tax code. Traditional IRAs are subject to the required minimum distribution rules. Earnings in a traditional IRA are taxable as ordinary income upon withdrawal.

An industrial development bond is a type of municipal revenue bond issue, with the municipality using the proceeds to finance the construction of industrial facilities to be leased or purchased by private companies. The bonds are backed by the credit of the private companies and often are not considered an obligation of the issuing municipality.  Interest paid on an industrial development revenue bond may or may not be tax exempt, depending upon if the issue is best for the public or the private company.

Inflation is a general rise in prices. One of the root causes of inflation is too many dollars chasing too few of goods.

Inflation risk is a type of systematic investment risk.  Fixed income investments have inflation risk. Inflationary risk is also called purchasing power risk. Inflationary risk may only be reduced with asset class diversification.

The initial margin requirement is set by Federal Reserve Board Regulation T. Currently, it is 50% of the value being purchased, or $2,000, whichever is greater, not to exceed the market value of the securities being purchased.

In an initial public offering shares of stock are sold for the very first time to the general public. Shares in an IPO are sold at a fixed price in the primary market, one time only. After the shares trade in the primary market, they will trade in the secondary market at a price set by the market.

Inside information is material information that is not known by the general public that if known would affect the stock price.

The inside market is the difference between the bid and the ask in the over-the-counter market. The closer the two prices are, the more active the issue.

An insider includes any person who has material nonpublic information about a publicly traded company. According to the l934 Act, directors, officers, and stockholders who own at least 10% of any class of equity security issued by the corporation are all considered insiders.

An institutional account is an account held for the benefit of others. Institutional accounts include banks, pension plans, insurance companies, mutual fund companies, and profit sharing plans.

An institutional communication is a written communication (including electronic) that is distributed or made available to only institutional investors, not to retail investors. The term institutional communication does not include a firm’s internal communications.

Institutional investors include broker-dealers, banks, pension plans, insurance companies, mutual fund companies, profit sharing plans, and any entity with $50 million or more in total assets. Most regulations are written to protect retail investors and not written towards institutional investors, with the belief that institutional clients should know what they are doing.

Intangible assets are assets of a business that do not have a physical quality, but they do have value. Intangible assets include goodwill, intellectual property, and patents pending.

Interest is the charge for the borrowing of money, usually expressed as an annual percentage rate.

Interest rate risk is the risk that the cost of borrowing money will change over time. This term is generally associated with bond prices, but it applies to all investments. In the bond market, it is the bond’s market price that has interest risk. If interest rates in the market change, relative to the nominal yield on the bond, the bond’s market price will move in an inverse direction. Interest rate risk is a type of risk that is systematic and cannot be avoided by diversification. Diversification by asset class would help to reduce interest rate risk.

The Investment Company Act of l940 requires that at least 40% of the board of directors remain independent from the operations of the investment company. The law states that no more than 60% of the directors may also hold an affiliated position within the fund (an affiliated position would be a director who is also the fund’s investment adviser, custodian, etc).

An interstate offering is a securities offering that will be sold across state lines. Interstate offerings must be registered, prior to sale, with the SEC, as well in each state in which the security will be sold.

A call option has intrinsic value when the market price is above the strike. A put option has intrinsic value when the market price is below the strike price. An option with intrinsic value is said to be in-the-money. An option with intrinsic value may be exercised by the owner of the option.

An inverse ETF is an exchange-traded fund designed to capitalize on intraday bearish movements in the markets. An inverse ETF trades on the stock market and is designed to perform the inverse (opposite) of the index it tracks. When the underlying target index goes down, the value of the inverse ETF is designed to go up. The target index may be broad-based, like the S&P 500, or it could be a basket chosen to follow a specific area of the economy, such as the financial sector.

An investment adviser is a firm that manages money for the accounts of others. An investment adviser files Form ADV to register as an investment adviser, either with the SEC or at the state level, depending upon current rules. An investment adviser to a mutual fund has the day-to-day responsibility of investing the cash and securities held in a mutual fund’s portfolio. The adviser must adhere to the objective as stated by the client or found in the fund’s prospectus.

Amended by the Dodd-Frank Act in 2010, investment advisers are required to register at the federal level (with the SEC) if they manage a mutual fund or have $100 million or more in assets under management (AUM). Investment advisers with assets under management under $100 million are required to register at the state level. Investment advisors are the firms that either charge a flat fee for investment advice or an asset-based advisory fee.  The investment advisory fee of a mutual fund is the fund’s largest expense.