Investment Glossary

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Face value

the maturity value of a bond. See also par value; maturity value.

FIF Regime(NZ)

(NZ) Part of the Income Tax Act 1994 dealing with investment in Foreign Investment Funds (FIF)

Financial planner

a person who counsels individuals and corporations with respect to evaluating financial status, identifying goals and determining ways in which the goals can be met. - See also Certified Financial Planner (CFP)

First mortgage

a loan secured against real estate with the right to payment in full before payments to other lenders are made. First mortgages are generally considered low risk investments although the quality of real estate pledged as collateral and the ability of the borrower to service the loan, is of crucial importance in determining the riskiness of the mortgage.

Float an issue

to sell a security issue in the primary market. For example, a firm may decide that it needs to expand its manufacturing facilities and float a new issue of shares to pay for the expansion. Issuers generally employ an investment banker to assist in floating an issue. See also Initial Public Offer (IPO)

Foreign exchange risk

the risk that the exchange rate on a foreign currency will move against the position held by an investor such that the value of the investment is reduced. For example, if an investor residing in New Zealand purchases a bond denominated in Japanese yen, a deterioration in the rate at which the yen exchanges for NZ dollars (ie a depreciation of the yen) will reduce the investor's rate of return, since he or she must exchange the yen for NZ dollars to realise the investment. The term is also used in association with 'natural' buyers and sellers of a currency, eg. exporters and importers, who are constantly exposed to foreign exchange risk.

Foreign Investment Fund

(NZ) an investment fund that has certain characteristics as defined in the Income Tax Act 1994 (sCG15). Generally refers to investments which are resident in certain countries. (Low tax jursidictions). Subject to certain exemptions, NZ investors in such funds must disclose their interests in such investments and pay tax on capital gains as well as income. (FIF Regime) NZ, Australian and UK registered managed investment funds are generally not considered to be FIFs.

Foreign tax credit

the reduction in a New Zealand tax liability because of taxes accrued or paid to a foreign government during the same taxable year.

Forward contract

(Australian version of imputed dividend). Dividends that carry an imputation credit. A company is able to declare that a percentage (up to 100%) of a dividend is franked depending on the amount of tax the company has already paid. If a company pays the full company tax rate, the dividends are fully franked. Currently, NZ investors cannot apply Australian franking credits against their NZ tax liabilities.

Fully diluted earnings per share

net income for a period divided by the average number of shares that would be outstanding if all convertible securities were converted into ordinary shares. Fully diluted earnings per share is a particularly effective method of presenting earnings-per-share data for companies with complex capital structures.

Fully invested

having committed nearly all available funds to assets other than short-term investments such as savings and money market accounts. Generally used in reference to institutional investors (investment funds).

Fully valued

pertaining to a share selling at a price most analysts believe fully reflects the company's asset values and earnings potential. If a share is in fact fully valued, it is considered to have limited appreciation potential.

Fund switching

selling units in one investment fund and reinvesting the proceeds in another. For example, an individual may become bearish and switch money from a growth fund to a money market fund.

Fundamental analysis

analysis of security values based on factors such as earnings, balance sheet variables and management quality. Fundamental analysis attempts to determine the true value of a security, and, if the market price of the share deviates from this value, takes advantage of the difference by acquiring or selling the share. Fundamental analysis may involve investigating a firm's financial statements, visiting its managers, or examining how a particular industry is affected by changes in the economy. See also Technical Analysis.

Future value

the amount to which a specific sum or series of sums will grow at a given point in the future using assumptions about future returns. For example, $1,000 has a future value of $1,120 in one year, assuming an annual return of 12%. See also Present Value

Futures contract

an agreement to take (ie by the buyer) or make (ie by the seller) delivery of a specific commodity or financial instrument on a particular (future) date. The commodities and instruments and contracts are standardised in order that an active resale of items including grains, metals, foreign currencies and share indices.

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