Economies of scale are cost advantages reaped by companies when production becomes efficient. Companies can achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a larger number of goods. Costs can be both fixed and variable. The business size generally matters when it comes to economies …

An attorney-in-fact, also called an agent, is a person who is authorized to act on behalf of another person, known as the principal, typically to perform business or other official transactions. The principal usually designates someone as their attorney-in-fact by assigning them power of attorney, although a court may choose to assign it if the per…

The Bank Bill Swap Rate, or Bank Bill Swap Reference Rate, is a short-term interest rate used as a benchmark for the pricing of Australian dollar derivatives and securities—most notably, floating rate bonds. The BBSW is an independent reference rate that's used for pricing securities. Fixed-income investors use BBSW since it's the benchmark to pric…

The Affordable Care Act (ACA) is the comprehensive healthcare reform signed into law by then-President Barack Obama in March 2010. Formally known as the Patient Protection and Affordable Care Act and commonly referred to as Obamacare, the law includes a list of healthcare policies intended to expand access to health insurance to millions of uninsur…

Kiting is the fraudulent use of a financial instrument to obtain additional credit that is not authorized. Kiting encompasses two main types of fraud: Issuing or altering a check or bank draft, for which there are insufficient funds and Misrepresenting the value of a financial instrument to extend credit obligations or increase financial leverage.k…

The term joint tenant with the right of survivorship (JTWROS) refers to a legal ownership structure involving two or more parties for any financial account or another asset. When one of the co-owners dies in a joint tenancy with the right of survivorship, then the surviving co-owner automatically owns the asset. Each tenant has an equal right to th…

A J Curve is an economic theory which states that, under certain assumptions, a country's trade deficit will initially worsen after the depreciation of its currency—mainly because in the near term higher prices on imports will have a greater impact on total nominal imports than the reduced volume of imports. This results in a characteristic letter …

A null hypothesis is a type of statistical hypothesis that proposes that no statistical significance exists in a set of given observations. Hypothesis testing is used to assess the credibility of a hypothesis by using sample data. Sometimes referred to simply as the "null," it is represented as H0. The null hypothesis, also known as the conjecture,…

Hard skills are technical skills required for a job. They are learned abilities acquired and enhanced through education and experience. Hard skills are important for your resume, as employers look for them when hiring. Hard skills alone don’t translate into success, as employees also need other skills, such as soft skills. Unlike soft skills, hard …

The Gini index, or Gini coefficient, measures income distribution across a population. Developed by Italian statistician Corrado Gini in 1912, it often serves as a gauge of economic inequality, measuring income distribution or, less commonly, wealth distribution among a population. The coefficient ranges from 0 (or 0%) to 1 (or 100%), with 0 repres…

A Giffen good is a low-income, non-luxury product that defies standard economic and consumer demand theory. Demand for Giffen goods rises when the price rises and falls when the price falls. In econometrics, this results in an upward-sloping demand curve, contrary to the fundamental laws of demand which create a downward-sloping demand curve. The t…

The Chartered Financial Analyst designation is regarded by most to be the key certification for investment professionals, especially in the areas of research and portfolio management. It is, however, just one of many designations used today. This can cause some confusion, as investors and professionals alike puzzle out what each designation means a…

An endowment is a donation of money or property to a nonprofit organization, which uses the resulting investment income for a specific purpose. An endowment can also refer to the total of a nonprofit institution’s investable assets, also known as its “principal” or “corpus,” which is meant to be used for operations or programs that are consistent w…

Alpha is a term used in investing to describe an investment strategy's ability to beat the market, or its "edge." Alpha is thus also often referred to as “excess return” or the “abnormal rate of return” about a benchmark, when adjusted for risk. Alpha is often used in conjunction with beta , which measures the broad market's overall volatility or r…

Berkshire Hathaway is a holding company for a multitude of businesses, including GEICO and Fruit of the Loom. It's run by chair and CEO Warren Buffett. Berkshire Hathaway is headquartered in Omaha, Nebraska. Originally, it was a company comprised of a group of textile milling plants. Buffett assumed control of the struggling New England company in …

Junk bonds are bonds that carry a higher risk of default than most bonds issued by corporations and governments. A bond is a debt or promises to pay investors interest payments along with the return of invested principal in exchange for buying the bond. Junk bonds represent bonds issued by companies that are financially struggling and have a high r…

Creative destruction is the dismantling of long-standing practices in order to make way for innovation and is seen as a driving force of capitalism. Creative destruction is most often used to describe disruptive technologies such as the railroads or, in our own time, the internet. The term was coined in the early 1940s by economist Joseph Schumpete…

Business cycles are a type of fluctuation found in the aggregate economic activity of a nation -- a cycle that consists of expansions occurring at about the same time in many economic activities, followed by similarly general contractions (recessions). This sequence of changes is recurrent but not periodic. Business cycles are comprised of concerte…

An amalgamation is a combination of two or more companies into a new entity. Amalgamation is distinct from a merger because neither company involved survives as a legal entity. Instead, a completely new entity is formed to house the combined assets and liabilities of both companies. The term amalgamation has generally fallen out of popular use in t…

Adverse selection refers generally to a situation in which sellers have information that buyers do not have, or vice versa, about some aspect of product quality. In other words, it is a case where asymmetric information is exploited. Asymmetric information, also called information failure, happens when one party to a transaction has greater materia…

Absolute advantage is the ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time or to produce the same quantity of a good or service per unit of time using a lesser quantity of inputs, than its competitors. Absolute advantage can be accomplished by …

Pro rata is a Latin term used to describe a proportionate allocation. It essentially translates to proportion, which means a process where whatever is being allocated will be distributed in equal portions. If something is given out to people on a pro-rata basis, it means assigning an amount to one person according to their share of the whole. While…

A put option is a contract giving the option buyer the right, but not the obligation, to sell—or sell short—a specified amount of an underlying security at a predetermined price within a specified time frame. This predetermined price at which the buyer of the put option can sell the underlying security is called the strike price. Put options are tr…

A prospectus is a formal document required by and filed with the Securities and Exchange Commission that provides details about an investment offering to the public. A prospectus is filed for offerings of stocks, bonds, and mutual funds. The prospectus can help investors make more informed investment decisions because it contains a host of relevant…

Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry's weaknesses and strengths. Five Forces analysis is frequently used to identify an industry's structure to determine corporate strategy. Porter's model can be applied to any segment of the economy to underst…

The Phillips curve is an economic theory that inflation and unemployment have a stable and inverse relationship. Developed by William Phillips, it claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. The original concept of the Phillips curve has been somewhat disproven due to the occurrenc…

Operating income is an accounting figure that measures the amount of profit realized from a business's operations after deducting operating expenses such as wages, depreciation, and cost of goods sold. Operating income also called income from operations takes a company's gross income, which is equivalent to total revenue minus COGS, and subtracts a…

Fringe benefits are additions to compensation that companies give their employees. Some fringe benefits are given universally to all employees of a company while others may be offered only to those at executive levels. Some benefits are awarded to compensate employees for costs related to their work while others are geared to general job satisfacti…

Futures are derivative financial contracts that obligate parties to buy or sell an asset at a predetermined future date and price. The buyer must purchase or the seller must sell the underlying asset at the set price, regardless of the current market price at the expiration date. Underlying assets include physical commodities and financial instrume…

Free carrier is a trade term dictating that a seller of goods is responsible for the delivery of those goods to a destination specified by the buyer. When used in trade, the word free means the seller has an obligation to deliver goods to a named place for transfer to a carrier. The destination is typically an airport, shipping terminal, warehouse,…

Escrow is a legal concept describing a financial agreement whereby an asset or money is held by a third party on behalf of two other parties that are in the process of completing a transaction. Escrow accounts are managed by the escrow agent. The agent releases the assets or funds only upon the fulfilment of predetermined contractual obligations. M…

A bill of lading is a legal document issued by a carrier (transportation company) to a shipper that details the type, quantity, and destination of the goods being carried. A bill of lading also serves as a shipment receipt when the carrier delivers the goods at a predetermined destination. This document must accompany the shipped products, no matte…

The term balanced scorecard refers to a strategic management performance metric used to identify and improve various internal business functions and their resulting external outcomes. Used to measure and provide feedback to organizations, balanced scorecards are common among companies in the United States, the United Kingdom, Japan, and Europe. Dat…

A Bollinger Band is a technical analysis tool defined by a set of trendlines. They are plotted as two standard deviations, both positively and negatively, away from a simple moving average of a security's price and can be adjusted to user preferences. Bollinger Bands was developed by technical trader John Bollinger and designed to give investors a …

The term annuity refers to an insurance contract issued and distributed by financial institutions to pay out invested funds in a fixed income stream in the future. Investors invest in or purchase annuities with monthly premiums or lump-sum payments. The holding institution issues a stream of payments in the future for a specified period or the rema…

Analysis of variance is an analysis tool used in statistics that splits an observed aggregate variability found inside a data set into two parts: systematic factors and random factors. The systematic factors have a statistical influence on the given data set, while the random factors do not. Analysts use the ANOVA test to determine the influence th…

The last mile describes the short geographical segment of delivery of communication and media services or the delivery of products to customers located in dense areas. Last-mile logistics tend to be complex and costly to providers of goods and services who deliver to these areas. Delivery of telecommunications and media content is instantaneous and…

Environmental, social, and governance investing refers to a set of standards for a company’s behaviour used by socially conscious investors to screen potential investments. Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change, for example. Governance deals with a company’s …

A shelf offering is a Securities and Exchange Commission provision that allows an equity issuer to register a new issue of securities without having to sell the entire issue at once. The issuer can instead sell portions of the issue over a three-year period without re-registering the security or incurring penalties. A shelf offering is also known a…

A command economy is a key aspect of a political system in which a central governmental authority dictates the levels of production that are permissible and the prices that may be charged for goods and services. Most industries are publicly owned. The main alternative to a command economy is a free market system in which demand dictates production …

A bull market is the condition of a financial market in which prices are rising or are expected to rise. The term bull market is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities. Because prices of securities rise and fall essentially continuously duri…

Open interest is the total number of outstanding derivative contracts, such as options or futures that have not been settled for an asset. Open interest keeps track of every open position in a particular contract, rather than tracking the total volume traded in it, which may also include netting or closing positions. Thus, open interest can provide…

A U.S. savings bond is a government bond offered to its citizens to help fund federal spending, and it provides savers with a guaranteed, although modest, return. These bonds are issued with zero coupons at a discount with an implied fixed rate of interest over a fixed period of time. Series EE savings bonds are sold at 50% of their face value, and…

Student loan forgiveness releases borrowers from their obligation to repay part or all of their federal student loan debt. These borrowers have taken out loans to pay for their post-secondary education. Forgiveness is available for some types of loans, but eligibility is limited to borrowers in certain public service, educational, or military profe…

An IRA rollover is a transfer of funds from a retirement account, such as an employer-sponsored plan, into an individual retirement account. The purpose of a rollover is to maintain the tax-deferred status of those assets. IRA rollovers are commonly used to hold 401(k), 403(b), or profit-sharing plan assets that are transferred from a former employ…

The statutory debt limit often referred to as the debt ceiling, was the limit set by Congress to the amount of debt that the U.S. government can take on. It also includes interest payments on existing debt. Once the government reaches the statutory debt limit, it cannot take on new obligations. The statutory debt limit was a legal limit to the tota…

Gemini is a privately-owned cryptocurrency exchange that lets you buy, sell, trade, and securely store more than 60 cryptocurrencies. It was launched in 2014 by Cameron and Tyler Winklevoss under the formal name Gemini Trust Co., LLC.1 Gemini has a tiered service with separate interfaces and fee structures for casual investors and hardcore traders.…

ChatGPT, the free chatbot released in November 2022 by artificial intelligence research company OpenAI, has taken the internet by storm. In its first months of existence, The “GPT” in ChatGPT refers to the “Generative Pre-training Transformer,” referring to the way that ChatGPT processes language. ChatGPT inspired users to imagine a host of use cas…

A people poison pill is a defensive strategy designed to deter or prevent unwanted takeovers from happening. Once an unwelcomed approach is made to assume control of the target company, its management team reacts by signing a pact vowing to all resign if the deal somehow gets completed. The people pill strategy is a variation of the poison pill def…

An exchange-traded fund is a type of pooled investment security that operates much like a mutual fund. ETFs will track a particular index, sector, commodity, or other assets, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can. An ETF can be structured to track anything from the price of …