See: Flat

Face Amount Certificate
A debt instrument issued by a face amount certificate company, which is a type of investment company. Face amount certificates offer a predetermined rate of interest and may be purchased in lump-sums, or more commonly, in periodic installments. Certificate holders are entitled to redeem their certificates at maturity for the face amount, or they may redeem them prior to maturity for their surrender value.

See: Debt Instrument; Face Amount Certificate Company; Investment Company

Face Amount Certificate Company
One of three basic types of investment companies defined by the Investment Company Act of 1940. This kind of investment company issues debt certificates, called face amount certificates, at a predetermined rate of interest to investors. They may be purchased in lump-sums, or more commonly, in periodic installments. Certificate holders are entitled to redeem their certificates at maturity for the face amount, or they may redeem them prior to maturity for their surrender value.

See: Face Amount Certificate; Investment Company; Investment Company Act Of 1940

Face Value
The value of a bond (or other debt instrument) that appears on the front, or face, of the certificate. Although a bond's price may change due to market conditions, the face value does not change. At maturity, the issuer redeems the bond at the face value amount. If the bonds are retired before maturity, the bondholder usually receives a slight premium over the face value. The face value is also the amount used to compute interest payments. For instance, a 10% bond with a face value of $1,000 pays $100 interest annually. Corporate bonds usually are issued with $1,000 face values, municipals with $5,000 face values, and federal government bonds with $10,000 face values. Other terms for face value include par value, nominal value and principal amount.

See: Debt Instrument; Municipal Bond; Par; Principal Amount

Fail Position
A position that is the result of a broker-dealer's failure to settle a transaction with another broker. Generally a broker has a fail when his client fails to either make payment or deliver securities in time to meet the settlement date of a trade. A fail position may be either a fail to deliver or a fail to receive.

See: Fail To Deliver; Fail To Receive; Settlement

Fail to Deliver
A situation that occurs when the broker-dealer on the sell side of a transaction does not deliver securities to the broker-dealer on the buy side by the settlement date of the transaction. Usually this occurs because the selling broker-dealer has not received the certificates from the selling customer. The buying broker-dealer will not pay for the securities until the fail to deliver is eliminated by delivery of the certificates.

See: Fail Position; Fail To Receive; Partial Delivery; Settlement

Fail to Receive
A situation that occurs when the broker-dealer on the buy side of a transaction has not received securities from the broker-dealer on the sell side by the settlement date of the transaction. The buying broker-dealer will not pay for the securities until the fail to receive is eliminated by delivery of the certificates.

See: Fail Position; Fail To Deliver; Settlement

Fair Market Value
The price of an asset or service as determined by the buyer and seller of the asset or service, where both parties have sufficient information to make a rational decision.

See: Market

Fallen Angel
A bond that was rated investment grade (AAA to BBB) at issuance, but has fallen below investment grade (BB or lower). Bonds rated below investment grade are called junk bonds.

See: Investment Grade; Junk Bond

Family of Funds
A group of mutual funds in which each fund has a different objective, yet all are managed by the same investment company. Usually shareholders of one fund can switch their money into one of the family's other funds, sometimes without incurring a charge. This makes it easier for investors to move their assets in response to changes in the market or in their needs. There may be tax consequences when money is transferred from one fund to another.

See: Investment Company; Mutual Fund

Fannie Mae
Nickname for the Federal National Mortgage Association.

See: Federal National Mortgage Association

Farther Out; Farther In
Terms used to describe the length of option contracts relative to the present. For example, in February, an option expiring in May would be farther in than an option expiring in August. The August option, on the other hand, would be farther out.

See: Options

Federal Agency Security
A debt instrument issued by an agency of the federal government such as the Federal National Mortgage Association. Although these securities generally have high credit ratings due to the fact that they are sponsored by the federal government, they are not backed by the full faith and credit of the U.S. government, unlike Treasury securities.

See: Debt Instrument; Federal National Mortgage Association; Governments; Treasuries

Federal National Mortgage Association (FNMA)
A government-sponsored corporation that purchases mortgages from lenders, repackages them and sells them. The agency, which is known as Fannie Mae, deals in both government-backed and conventional mortgages

Federal Reserve Board (FRB)
The governing body of the Federal Reserve System. The Board is comprised of seven members appointed by the President and subject to confirmation by the Senate. In order to ensure members' independence from political influence, each member serves a 14-year term. The Board is responsible for setting monetary policy for the U.S. and has the authority to determine bank reserve requirements, set the discount rate, regulate the availability of credit, and control the purchase of securities on margin.

See: Discount Rate; Federal Reserve System

Federal Reserve System
A system established by the Federal Reserve Act of 1913 to manage the monetary and banking system within the U.S. The Federal Reserve System, also known as the Fed, is broken up into 12 regions and is governed by the Federal Reserve Board. National banks are stockholders of the Federal Reserve Bank in their region.

The Fed is responsible for regulating the national money supply, setting bank reserve requirements, controlling the printing of currency and acting as a clearinghouse for the transfer of funds throughout the banking system. The Fed also establishes and enforces bank regulations.

See: Discount Rate; Federal Reserve Board