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What is the Federal Supplemental Education Opportunity Grant?

The Federal Government will give college students who have filled out a FAFSA and are found to be in dire financial need a grant of up to $4,000 a year. The grant does not have to be repaid. The Federal Supplemental Education Opportunity Grant provides funding for educational expenses to students with expected family contributions (EFCs). The maximum annual amount that can be received in a SEOG is $4,000 per student. Continue reading...

What is the Lifetime Learning Credit?

The Lifetime Learning Credit is a federal tax credit to offset expenses associated with higher education. There is no age limit and the credit can be applied to part-time student courses, even if it is only one class. The credit is for 20% of the related expenses up to a maximum of a $2,000 credit per household. Tax credits are a dollar-for-dollar reduction of taxes due. The Lifetime Learning Credit can be used for higher education expenses, regardless of the age of the student, but there is a household limit per year. 20% of educational expenses up to a household maximum of $2,000 can be applied as an income tax credit. The credit exists to make it easier for Americans to increase their skill-set and education. Continue reading...

What is a Run Rate?

Run rate is a term that can be applied to a certain type of accounting and management estimation or to the depletion of equity options. The first kind is when a current metric (such as sales revenue for a quarter) is assumed to extend out to the end of the year or accounting period for estimation or valuation purposes. The second kind uses the average dilution from the past three years, generally, to show the effect that convertible securities are having on the share price of a company. Continue reading...

What is Federal Reserve Credit?

The Federal Reserve extends credit in the form of short-term loans to member banks. Banks avoid taking loans from the Fed if they can, because it is viewed as a sign of instability. The Federal Discount Rate applies to loans taken from what is known as the discount window at the Fed, and it tends to be a higher rate than what is charged between two banks. The Federal Reserve will extend credit only to banking institutions that are members of the Federal Reserve system. Continue reading...

What is the Federal Reserve Bank?

The Federal Reserve banking system was created in 1913, the same year that income taxes were added to the US Constitution. 12 regional Fed banks were established, each of which plays a role in monitoring and implementing interventions to the flow of money in the economy. The Federal Reserve Bank is a 12-bank system in the United States that plays the role of the country’s central bank. Central banks in other countries are typically part of the government and print the actual currency, but in this case the Fed is independent of the actual US government, and the Treasury Department technically prints the money. Continue reading...

What is the Federal Discount Rate?

The Federal Discount Rate is the interest rate that the Federal Reserve charges banks for borrowing money. This is usually done overnight to satisfy reserve requirements on short notice. It is different than the Federal Funds Rate, which is the rate that banks charge each other. The 12 regional Federal Reserve Banks determine their Federal Discount Rate in board meetings every 14 days. It is the interest that will be charged to member banks to borrow directly from the Fed, which they do at times in order to make sure they have enough capital reserves to satisfy regulations. Continue reading...

What is the Federal Employee Retirement System (FERS)?

The FERS includes the Thrift Savings Plan (TSP) and other benefits available to employees of the federal government. The eligible features of FERS may be different for the employees of different branches and agencies of the government. Civilian and military personnel are included in FERS. FERS is essentially comprised of the Thrift Savings Plan (TSP), which is a 401(k)-type plan for federal employees, and, in most cases, a Federal employee retirement annuity. The Thrift Savings plan has lower fees than most 401(k)s and offers several kinds of index funds to employees. Continue reading...

What is the Federal Funds Rate?

The federal funds rate is the overnight rate at which commercial lenders lend excess reserves to other institutions, on an un-collateralized basis. This term is unique to the United States, though other central banks around the world also have an overnight rate. The federal funds rate is a closely watched and crucial rate for determining how easy capital is to access. The lower the fed funds rate, the more accessible the Federal Reserve is trying to make cash - to inspire banks to borrow and lend. The opposite is also true, where the Fed may raise the fed funds rate if an economy is overheating or lending needs to be curbed. Continue reading...

What is the Federal Reserve System?

The Federal Reserve System was established by the Federal Reserve Act of 1913, which created a network of reserve banks that could help to prevent economic meltdowns by serving as a regulator and a source of funds. There are 12 regional Federal Reserve Banks which monitor banks in their jurisdiction and make loans when necessary. The Federal Reserve System is sometimes referred to as one bank, but it is in fact a network of 12 banks with 24 branches, overseen by a Board with members nominated by the US Government. Continue reading...

What are Federal Reserve Regulations?

The Fed has been commissioned with upholding the directive of the Federal Reserve Act. The Fed is technically an independent institution from the US Government, even though it works hand-in-hand with the Treasury Department on monetary policy issues. It functions partially as a self-regulatory organization for the banking industry, and the Regulations, which are named with letters of the alphabet, are meant to protect consumers, member banks, and the economy as a whole. The leadership of the Fed is comprised of both government appointees and private sector banking leaders. Continue reading...

What is Bankruptcy Court?

Bankruptcy court is a special judicial proceeding which determines how a debtor can settle accounts and move on. Bankruptcy courts are always federal, and not state, courts. They were established in the Constitution and given structure by the Bankruptcy Reform Act of 1978. They give debtors a means of moving beyond debts that cannot be fully repaid. There are several kinds of bankruptcy filings (found here — ‘chapter 7-15’, some for individuals, some for businesses, some involving foreign entities or persons operating in the US. Some are for absolution and the dissolution of a business entity, and other filings are requests for partial debt forgiveness and reorganization of the entity. Continue reading...

What is a Federally Covered Advisor?

The Investment Advisers Supervision Coordination Act of 1996 sought to delegate the responsibility of monitoring investment advisors between the states and the federal government. It amended the Investment Advisors Act of 1940, which required all advisors to register with the SEC. The Dodd-Frank Act further amended the IAA, such that only advisors with assets under management exceeding $100 million had to register with the SEC. The IASC was part of the NSMIA legislation passed in 1996. Up until that point, all advisors were regulated and monitored by the SEC. Continue reading...

What is the Discount Rate?

The Discount Rate can actually have multiple meanings, but the most prevalent one is in regards to the minimum interest rate the Federal Reserve will charge for lending to commercial banks. The Federal Reserve sets the discount rate in an effort to discourage or encourage commercial banks to borrow, depending on the economic conditions. The discount rate also refers to the rate used to calculate the present value of future cash flows, as part of Discounted Cash Flow (DCF) analysis. Continue reading...

How Many Dollars do We Have in Circulation?

According to the Federal Reserve, there are over 1.7 trillion U.S. Dollars in circulation. This number has been drastically increasing throughout the last few years, mostly due to programs such as Quantitative Easing. As of 2016, QE programs have ended and the Fed's balance sheet is shrinking, but M2 money supply still remains at elevated levels. What is the Size of our National Debt? What is Currency in Circulation? Continue reading...

What is the Prime Rate

The prime rate is the lowest interest rate that banks will charge on loans at a given time, based on the Federal Funds Rate. Individual banks set their own prime rate, which they may also call their "Reference Rate" or "Base Lending Rate." It is the least they will charge for a loan at a given time, based on the creditworthiness of the customer, and the only clients whose risk of default is low enough to approach the prime rate are very large commercial clients. Continue reading...

What is Monetary Policy?

Monetary policy is the stance of the central bank at any given time regarding the tightening or loosening of rates, or the issuance of new currency denominations, that will affect the money supply in the country. Monetary policy is the prerogative of the central bank but may be influenced by congress as well as private banking institutions and the central banks of other countries. The goal of monetary policy is to keep the Federal Funds Rate or the LIBOR, or whatever it might be depending on the country, at just the right level to keep the economy going in the direction that will be most helpful. Continue reading...

What is the Federal Home Loan Bank Act?

The Federal Home Loan Bank Act was signed into law by President Hoover in 1932. The goal of the legislation was to make liquidity more accessible to banks for the purpose of making home loans, so that more Americans could acquire permanent residences. The bill established the FHL Bank system, which now consists of 11 FHL banks. The Federal Home Loan Bank Act of 1932 established the FHL Bank system, which is a co-operative banking network for banks and other lending institutions who make home loans. The FHL banks are owned by their member institutions, who purchase stock in the bank and are then permitted to take loans out from it, using that money to provide loans to customers. Continue reading...

What is a Home Equity Conversion Mortgage?

The main type of reverse mortgage that people get today is the Home Equity Conversion Mortgage, backed by the US Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA). These reverse mortgages are available to people age 62 or older who are interested in leveraging their home equity to gain liquidity, either in the form of a lump sum, monthly payments, or other arrangement. A Home Equity Conversion Mortgage (HECM) is a reverse mortgage available to homeowners age 62 or older, insured by the Federal Housing Administration (FHA). Continue reading...

What is a REPO?

REPO is shorthand for Repurchase Agreement. It is a money-market practice where two entities agree to buy/sell government securities overnight and reverse the transaction the next day for the sake of providing the selling entity with short-term cash. Repurchase Agreements provide the selling party with short term liquidity, and are considered a money-market instrument. A third party usually acts as a clearing agent. Continue reading...

What is the Interbank Rate?

The interbank rate is the average lending rate used between banks of comparable size and creditworthiness when they borrow money from each other. The Federal Funds Rate is the benchmark in America, while LIBOR (the London Interbank Offered Rate) is more prevalent elsewhere. These are indexes which are used to determine rates and terms for other financial instruments and swaps. The Prime Rate, or the rate banks will used for their most credit-worthy customers, is tied to the interbank rate but is slightly higher of course. In America the Federal Funds Rate is so called because the Central bank participates in the lending. This is sometimes called the overnight rate when it refers to money that is lent between banks overnight. Continue reading...

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