Glossary · 12 terms
Banking & Finance
All banking & finance terms in the EquitiesAmerica.com glossary — plain-English definitions for American investors.
Credit Rating(bond rating)
A credit rating is an independent assessment of the creditworthiness of a borrower — whether a corporation, government, or financial instrument — expressed as a letter grade that indicates the likelihood the borrower will repay its debt obligations on time and in full.
FDIC(Federal Deposit Insurance Corporation)
The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency that insures deposits at member banks and savings institutions up to $250,000 per depositor, per institution, per ownership category.
Federal Funds Rate(fed funds rate)
The federal funds rate is the interest rate at which U.S. commercial banks lend their excess reserves to one another overnight, and it serves as the primary tool the Federal Reserve uses to implement monetary policy.
Federal Reserve(the Fed)
The Federal Reserve, commonly called 'the Fed,' is the central banking system of the United States, responsible for conducting monetary policy, supervising financial institutions, and maintaining the stability of the financial system.
Inverted Yield Curve(yield curve inversion)
An inverted yield curve occurs when short-term U.S. Treasury yields exceed long-term Treasury yields — most commonly when the 2-year yield rises above the 10-year yield — and it is historically regarded as one of the most reliable leading indicators of a U.S. recession.
Money Market(money market fund)
The money market is the segment of the financial market where short-term debt instruments with maturities of one year or less — including Treasury bills, commercial paper, certificates of deposit, and repurchase agreements — are issued and traded.
Prime Rate(WSJ prime rate)
The prime rate is a benchmark interest rate set by major U.S. commercial banks that is typically 3 percentage points above the federal funds rate, and it serves as the basis for pricing consumer and small-business loans including home equity lines of credit and credit cards.
Quantitative Easing(QE)
Quantitative easing (QE) is an unconventional monetary policy tool in which the Federal Reserve purchases large quantities of longer-term securities — typically Treasury bonds and mortgage-backed securities — to inject liquidity into the financial system and push down long-term interest rates when short-term rates are already near zero.
SIPC(Securities Investor Protection Corporation)
The Securities Investor Protection Corporation (SIPC) is a nonprofit membership corporation that protects customers of failed SIPC-member brokerage firms, covering up to $500,000 in securities and cash — including up to $250,000 in cash — per customer account.
Treasury Bill(T-bill)
A Treasury bill (T-bill) is a short-term U.S. government debt obligation with a maturity of one year or less, sold at a discount to face value and redeemed at par, with the difference representing the investor's return.
Treasury Bond(T-bond)
A Treasury bond (T-bond) is a long-term U.S. government debt security with a maturity of 20 or 30 years that pays semi-annual interest (coupon payments) and returns the principal at maturity.
Yield Curve(Treasury yield curve)
The yield curve is a graphical representation of interest rates across different maturities for U.S. Treasury securities at a single point in time, typically sloping upward to reflect higher yields for longer-term bonds.