Open Finance Academy

Glossary

Plain-language definitions of the terms introduced in our knowledge library. Follow a reference to see a term explained with examples.

The glossary grows as we publish lessons. Explore the knowledge areas.

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API

Application programming interface: a defined way for one piece of software to request data or actions from another, such as a fintech app connecting to a bank’s systems.

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Accounting

Recording, organizing, and reporting financial events so people can understand an organization’s finances.

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Accounts payable

Amounts owed to suppliers for goods or services already received.

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Accounts receivable

Amounts customers owe for goods or services already provided.

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Accrual accounting

Recording the financial effects of events when they occur, including revenue when earned and expenses when incurred, rather than only when cash changes hands.

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Acquirer

The bank or payment provider that enables a merchant to accept card payments and receives the funds from a card sale on the merchant’s behalf.

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Acquisition

A transaction in which one business buys another business or a controlling interest in it.

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Active investing

Selecting or changing investments based on judgments intended to meet an objective, often to outperform a benchmark.

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Actual cash value

An insurance valuation basis generally reflecting replacement cost less an allowance for age and wear; the precise method depends on the policy and applicable law.

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Actuary

A professional who uses mathematics, statistics, and financial methods to assess uncertain future costs and help price and fund financial promises.

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Algorithm

A defined set of steps or rules a computer follows to perform a task, such as selecting investments or flagging a transaction.

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Algorithmic transparency

The degree to which the factors, data, and logic behind an automated decision can be explained or examined, especially when the decision affects a person’s access to money or credit.

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Alternative investment

An investment outside conventional holdings of publicly traded stocks, bonds, and cash, or one using a nontraditional strategy; the category’s boundaries vary.

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Amortization

In lending, paying down loan principal over time through scheduled payments. The word also describes cost allocation for certain assets in accounting.

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Angel investor

An individual who invests their own money in early-stage businesses, often in exchange for an ownership interest.

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Annual percentage rate (APR)

An annualized borrowing-cost measure calculated under applicable disclosure rules. Which fees it includes and how it is calculated depend on the jurisdiction and product.

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Annual percentage yield (APY)

An annualized measure of deposit interest earnings that reflects compounding under stated assumptions. Actual earnings depend on the rate, balance, fees, and account terms.

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Appraisal

A supported professional opinion of value at a stated date for a stated purpose, rather than a guaranteed sale price.

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Ask price

A quoted price at which a seller is willing to sell a stated quantity of an instrument; also called the offer price.

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Asset

A resource controlled by a person or organization that is expected to provide future economic benefit.

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Asset allocation

How a portfolio is divided among asset classes, commonly expressed as percentages of its value.

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Asset class

A broad group of investments with similar characteristics, such as stocks or bonds. Investments within a class can still differ substantially.

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Audit

An independent examination of financial statements to support an opinion under applicable auditing standards. It provides reasonable rather than absolute assurance about material misstatements.

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Authentication

The process of confirming that someone attempting a payment or accessing an account is who they claim to be.

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Authorization

A card issuer’s approval that a specific transaction can proceed, based on available funds or credit and other checks, before the money actually moves.

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Automated market maker

A trading mechanism that prices exchanges using a formula and assets held in pools.

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Automation

Using technology to perform a task with reduced or no ongoing human action, following predefined rules or triggers.

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Backtesting

Evaluating how a strategy or model would have performed using historical data. A strong backtest does not guarantee future performance.

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Balance of payments

A record of an economy’s transactions with the rest of the world over a stated period, covering current, capital, and financial accounts.

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Balance sheet

A financial statement showing assets, liabilities, and equity at a particular date; also called a statement of financial position.

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Bank

A regulated institution that accepts deposits and provides services such as payments and lending. Its permitted activities depend on its charter and jurisdiction.

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Bank transfer

An instruction to move money directly from one bank account to another, also called a credit transfer.

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Bankruptcy

A legal process for addressing debts that cannot be paid, potentially involving repayment, sale of assets, or relief from some obligations. Rules and outcomes depend on jurisdiction and case.

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Behavioral bias

A recurring pattern in judgment that can distort financial decisions, such as favoring evidence that supports an existing belief.

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Benchmark

A reference used to evaluate investment performance. A useful comparison reflects the portfolio’s strategy, risks, period, and measurement conventions.

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Beneficiary

A person or organization entitled or designated to receive money, property, or benefits under an account, policy, will, or other arrangement.

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Bid price

A quoted price at which a buyer is willing to buy a stated quantity of an instrument.

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Bid–ask spread

The difference between the quoted ask price and bid price for an instrument. It is one component of trading cost.

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Blockchain

A shared digital record whose transactions are grouped into blocks linked using cryptographic techniques that make changes detectable.

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Blockchain bridge

A system connecting assets or messages across blockchain networks, with its own verification and asset-backing arrangements.

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Blockchain finality

When a transaction is treated as settled under a blockchain network’s rules and security assumptions.

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Blockchain node

A computer running blockchain network software; its duties depend on the network and node type.

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Blockchain oracle

A mechanism supplying outside information, such as prices, to blockchain programs. Its data and operators create additional dependencies.

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Bond

A debt investment under which an issuer promises payments to investors according to stated terms. Payments and repayment are subject to the issuer’s ability to meet its obligations.

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Bootstrapping

Building a business mainly with founders’ resources and cash generated by the business.

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Broker

A person or firm arranging or executing financial transactions for customers. A firm may also act as a dealer trading for its own account.

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Budget

A plan for how to use the money available over a stated period, including spending, saving, and debt payments.

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Budget deficit

The amount by which expenditure exceeds revenue during a stated budget period.

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Business cycle

The recurring, irregular pattern of economic expansion and contraction in a country or region over time.

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Business interruption insurance

Coverage for specified business income losses and sometimes additional expenses following a qualifying interruption, often requiring covered physical damage.

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Call option

An option giving its buyer the right to buy the referenced asset at the strike price under the contract’s timing and other terms.

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Capital account

In the balance of payments, the account recording capital transfers and transactions in non-produced, nonfinancial assets. It is distinct from the financial account.

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Capital allocation

Choosing how to use financial resources across operations, investments, debt repayment, and distributions to owners.

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Capital budgeting

Evaluating major investments whose costs and benefits extend into the future.

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Capital call

A request for an investor to provide a portion of previously committed investment money when due under the agreement.

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Capital commitment

An agreement to provide investment money under specified terms, potentially through payments requested over time.

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Capital controls

Rules restricting or conditioning cross-border financial transactions, potentially affecting the movement of investment money into or out of an economy.

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Capital expenditure

Spending to acquire, improve, or replace a long-lived asset, rather than cover ordinary day-to-day operations.

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Capital structure

The mix of debt and equity used to finance a business.

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Capitalization rate

Annual property net operating income divided by property value or purchase price, before financing costs; often called a cap rate.

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Card issuer

The bank or financial institution that provides a payment card to a cardholder and decides whether to approve or decline transactions on it.

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Card network

A system, such as Visa or Mastercard, that sets rules for card payments and routes transactions between the card issuer and the acquirer.

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Carrying amount

The amount at which an asset or liability appears in the accounts after applicable adjustments; also called book value.

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Cash basis accounting

An accounting approach that generally records revenue when cash is received and expenses when cash is paid. Tax rules may require exceptions.

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Cash burn rate

The rate at which a business consumes cash, usually measured monthly; specify whether it means gross outflows or net outflows after receipts.

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Cash flow

Money moving in and out over a period, including when it arrives and when it leaves. Positive totals do not guarantee enough money on every date.

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Cash flow statement

A financial statement explaining changes in cash and cash equivalents over a period, grouped into operating, investing, and financing activities.

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Cash runway

An estimate of how long available cash will support a business’s assumed spending pattern, optionally measured to a stated minimum balance.

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Cash-on-cash return

Annual cash available to an investment’s owner divided by the owner’s cash invested, using explicitly stated cost and reserve conventions; it is not total return.

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Central bank

A public institution responsible for a country or region’s currency and monetary policy, and often for bank supervision and financial stability.

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Chargeback

A reversal of a card payment, initiated through the card network after a successful dispute, that returns funds from the merchant to the cardholder.

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Checking account

A deposit account primarily used for receiving money and making everyday payments; often called a current account outside the United States.

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Clearing

The exchange and checking of transaction details and calculation of obligations before settlement. In payment systems, this establishes what participating institutions owe; in securities markets, it also covers obligations to deliver securities.

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Climate risk

The possibility of financial loss arising from climate change, whether through damage from weather events and long-term shifts or through economic changes as the economy responds.

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Collateral

Property pledged to support a borrowing obligation that a lender may be able to seize or sell following default under applicable law.

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Collectible

An item valued for rarity, desirability, or similar characteristics, such as art or coins, whose investment return usually depends on resale proceeds after costs.

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Commercial paper

Short-term debt issued by companies, commonly unsecured, to meet financing needs.

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Commission

Compensation tied to a sale or transaction; who pays it and how it is calculated depend on the arrangement.

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Commodity

A basic physical good, such as wheat, oil, or a metal, traded in physical markets or referenced by financial contracts.

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Compliance

Meeting applicable legal and regulatory requirements.

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Compound interest

Interest calculated on both principal and interest previously added to it.

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Compounding

The process of adding earnings to an amount so those earnings can themselves earn more. It can also increase debt when unpaid interest is added and begins attracting interest.

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Concessional loan

A loan with terms more favorable than comparable market borrowing, such as lower interest or longer repayment periods. It remains debt.

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Conflict of interest

A situation in which a person’s or firm’s own interests could influence how they serve someone else’s interests.

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Consensus mechanism

The system network participants use to agree on an accepted transaction history and state.

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In EU data protection, a freely given, specific, informed, and unambiguous indication of agreement to processing personal data. It is one possible legal basis for processing.

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Consumer complaint

A communication expressing dissatisfaction with a product, service, or treatment and seeking a response.

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Consumer protection

Rules and practices intended to prevent unfair treatment of consumers and provide ways to address harm.

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Consumption tax

A tax charged on the purchase or use of goods and services.

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Contribution

Money paid into a savings or retirement plan by a person, employer, or another contributor.

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Cooperative

An organization owned and controlled by the members who use its services rather than by outside shareholders, with profits typically returned to members or reinvested.

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Copayment

A fixed amount a health-plan member pays for a covered service under the plan’s rules.

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Corporate finance

How organizations obtain funding, invest resources, and manage the financial consequences of their decisions.

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Correlation

A tendency for two measures to move together to some degree. Correlation alone does not show that one causes the other.

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Correlation coefficient

A number between −1 and 1 summarizing the strength and direction of a straight-line relationship between two sets of data: 1 is perfect alignment, −1 is perfect opposition, and 0 is no straight-line relationship.

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Correspondent bank

A bank that provides services, such as processing payments, to another bank, often in a different country, helping money move across borders.

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Cost of capital

The return funding providers require for committing money to a business at a given level of risk.

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Cost of goods sold

The recorded cost of goods sold during a period, rather than the cost of all goods purchased during that period.

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Coupon

A bond’s contractual interest payment. A fixed coupon rate is applied to face value, not the current market price.

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Coverage limit

The maximum an insurer will pay under a stated part of a policy, which may apply per item, event, or period.

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Credential

Information, such as a password, code, or key, used to prove identity or authorize access to an account or service.

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Credit

An arrangement that lets someone borrow money or obtain goods or services now with an agreement to pay later.

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Credit discrimination

Unequal treatment in credit based on characteristics protected by applicable law. The protected grounds and legal tests depend on jurisdiction.

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Credit limit

The maximum amount a lender allows someone to borrow on a particular credit account.

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Credit report

A record of borrowing accounts and payment history compiled by a credit reporting organization. Its contents and uses depend on the country.

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Credit risk

The possibility of financial loss because a borrower or other counterparty fails to meet agreed payment obligations.

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Credit score

A number produced by a model to estimate borrowing repayment risk, often using information from a credit report. Different models can produce different scores.

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Credit union

A member-owned financial cooperative offering services such as deposit accounts and loans, subject to membership and local regulatory rules.

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Credit utilization

The share of available credit being used, commonly calculated for credit cards as reported balances divided by credit limits, expressed as a percentage.

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Cross-border payment

A payment sent from a payer in one country to a payee in another, usually involving a currency conversion.

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Crowdfunding

Raising money from many contributors, usually through a platform, using arrangements such as donations, rewards, loans, or ownership investments.

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Crypto wallet

An application or device used to interact with blockchain accounts and authorize actions. Asset records remain on the network.

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Currency

A particular system of money, such as the US dollar, euro, or Japanese yen.

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Currency appreciation

An increase in the value of one currency relative to another currency.

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Currency depreciation

A decrease in the value of one currency relative to another currency; distinct from depreciation in accounting.

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Currency risk

The possibility that exchange-rate changes alter the value of an investment, payment, or obligation measured in the currency being used.

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Current account

In the balance of payments, the account recording trade in goods and services, primary income, and current transfers. This differs from a bank account with the same name.

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Current asset

An asset classified as short term, generally including cash and resources expected to be used, sold, or collected within the normal operating cycle or twelve months. Detailed classification depends on the reporting framework.

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Current liability

An obligation classified as short term, generally because it is due within the normal operating cycle or twelve months. Detailed classification depends on the reporting framework.

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Current ratio

Current assets divided by current liabilities at the same date. It compares recorded short-term resources with short-term obligations but does not guarantee timely payment.

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Current yield

For a bond, annual coupon payments divided by its current market price. It excludes changes in price and gains or losses on repayment of principal.

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Custody

Holding or controlling assets, or the means of accessing them, either for oneself or on behalf of someone else.

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Cybersecurity

Practices and technology used to protect systems, networks, and data from unauthorized access, disruption, or damage.

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Dark patterns

Design practices that manipulate or obstruct people’s choices, such as hiding costs or making cancellation difficult.

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Data aggregator

A service that collects account information from multiple financial institutions, often to display it together in one app, using either standardized APIs or other access methods.

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Data breach

An incident in which protected or sensitive data is accessed, disclosed, or used without authorization.

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Data portability

The ability to move your own data from one provider to another, or to a third party, in a usable format.

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Data quality

How accurate, complete, consistent, and timely a dataset is for a stated use. Poor data quality undermines any analysis built on it.

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Data standard

A published, shared specification for how financial data should be formatted and exchanged, so different institutions and applications interpret it consistently.

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Dataset

An organized collection of related values, such as a table of monthly investment returns.

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DeFi protocol

The set of program rules and mechanisms through which a decentralized finance service operates.

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Debt

Money owed that must be repaid, sometimes with interest or fees.

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Debt avalanche

A repayment approach that makes required payments on all debts and directs extra money to the debt with the highest interest rate first.

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Debt restructuring

Changing the terms of an existing debt, such as its payment schedule or interest rate, by agreement or through a legal process.

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Debt service

Principal and interest payments due on borrowing over a stated period.

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Debt snowball

A repayment approach that makes required payments on all debts and directs extra money to the debt with the smallest balance first.

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Debt-service coverage ratio (DSCR)

Income available for debt payments divided by principal and interest due over the same period; property lending commonly uses adjusted net operating income.

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Debt-to-income ratio (DTI)

Monthly debt payments divided by gross monthly income, usually expressed as a percentage. Included obligations and qualifying limits depend on the lender and product.

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Decentralized exchange

A trading system using blockchain programs to execute exchanges; its design and degree of decentralized control can vary.

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Decentralized finance (DeFi)

Financial functions such as trading and lending implemented through blockchain-based programs. The degree of decentralized control varies.

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Default

Failure to meet obligations under a borrowing agreement, as defined by the contract and applicable law. It can include missed payments or other breaches.

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Delinquency

Being overdue on a required payment. Reporting and legal consequences depend on the agreement and local rules.

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Demand

The quantity of a good or service that buyers are willing to purchase at a given price over a stated period.

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Deposit

Money held in an account at a deposit-taking institution, representing an amount that institution owes the account holder under the account terms.

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Deposit insurance

Protection for eligible deposits if an insured institution fails, subject to the scheme’s limits and conditions. It is not insurance against all financial losses.

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Depreciation

Systematically allocating the depreciable cost of a tangible long-lived asset over its estimated useful life. It is not a direct measure of changes in market price.

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Derivative

A contract whose value or payments depend on a referenced asset, rate, index, or other measure.

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Development finance

Funding intended to support economic and social development, potentially involving public institutions, private investors, and international organizations.

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Digital identity

A set of electronic attributes and credentials used to verify who someone is when accessing a service online.

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Dilution

A reduction in an existing owner’s percentage ownership when additional shares are issued.

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Direct debit

An arrangement letting a payee collect money directly from a payer’s bank account, usually for recurring payments, under the payer’s advance authorization.

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Disability income insurance

Coverage that replaces part of earnings when a qualifying disability prevents work under the policy definition and conditions.

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Disclosure

Information provided about a product, service, or relationship, such as costs, risks, restrictions, and conflicts of interest.

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Discount rate

The rate used to convert a future amount into its present value. In other contexts, this phrase may describe a central bank lending rate; here it means the rate used for comparing money at different times.

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Discounting

Calculating the present value of a future amount by working backward using a discount rate.

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Dispute

A payer’s formal challenge to a transaction, such as a claim that it was unauthorized, incorrect, or for goods or services never received.

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Diversification

Spreading investments across different holdings and sources of risk to reduce dependence on any one outcome. It does not eliminate the possibility of loss.

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Dividend

A distribution by a company to its shareholders, commonly in cash. A company may reduce, suspend, or omit dividends.

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Due diligence

Investigating an investment’s features, risks, costs, and supporting information before deciding whether it fits a goal.

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Economic expansion

A period during which overall economic activity, such as production and employment, is generally increasing.

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Economic indicator

A statistic, such as GDP, the unemployment rate, or an inflation measure, used to assess the condition or direction of an economy.

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Emergency fund

Money set aside for unexpected costs or a loss of income, kept available for use when needed.

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Emerging markets

A classification commonly used for economies with developing financial markets and growing international integration. Definitions and country lists vary.

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Employer match

Money an employer adds to a retirement plan based on an employee’s contributions, subject to the plan’s rules and limits.

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Encryption

A process that scrambles data using a mathematical method so that only someone with the correct key can read it.

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Environmental, social, and governance (ESG)

A set of non-financial factors — environmental impact, treatment of people, and how an organization is run — used by some investors to evaluate companies or funds. Ratings and methods differ between providers.

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Equity

The residual interest in an organization’s recorded assets after subtracting its liabilities. Accounting equity is not necessarily its market value.

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Equity financing

Raising money by providing investors with an ownership interest in a business.

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Estate planning

Preparing arrangements for who will manage your affairs if you cannot and how your money and property will be handled after death.

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Exchange

An organized trading venue operating under rules for bringing buyers and sellers together.

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Exchange rate

The price of one currency stated in terms of another, used to convert an amount from one currency into another.

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Exchange-traded fund (ETF)

An investment fund with shares traded on an exchange during the trading day. The trading price can differ from the per-share value of the fund’s underlying net assets.

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Expected loss

The probability-weighted average loss across possible outcomes for a stated period or exposure; actual loss can differ substantially.

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Expected value

The probability-weighted average of all possible outcomes of an uncertain situation. It is a long-run average, not a promise about any single outcome.

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Expense

A cost of goods, services, or other obligations. In a household budget, expenses are the costs you plan to cover.

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Expense ratio

A fund’s annual operating expenses expressed as a percentage of its average net assets. It does not include every possible cost to an investor.

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Exports

Goods and services sold by residents of an economy to nonresidents.

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Face value

The stated principal amount of a debt instrument, used to calculate payments such as a bond’s coupon and normally due at maturity under its terms.

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Fiduciary duty

A legal obligation to act for another person’s benefit within a defined relationship, with duties and scope set by applicable law.

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Financial account

In the balance of payments, the account recording transactions in financial assets and liabilities between residents and nonresidents.

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Financial analysis

Examining financial information to understand performance, financial position, and questions that need further investigation.

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Financial crisis

A period of severe disruption to financial institutions or markets, often involving sharp asset price declines, credit shortages, or institution failures.

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Financial ethics

Principles of responsible conduct in financial decisions, including honesty, fairness, and consideration of the people affected.

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Financial exclusion

Being unable to access or use affordable financial services that meet basic needs, whether because of cost, documentation, location, or other barriers.

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Financial forecast

An estimate of future financial results based on stated assumptions that can be revised as information changes.

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Financial goal

A desired outcome involving money, made more concrete by specifying an amount and a target date.

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Financial inclusion

The extent to which people and businesses can access and use affordable financial services that meet their needs, such as accounts, payments, credit, and insurance.

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Financial institution

An organization, such as a bank, credit union, insurer, or investment firm, that provides financial services like accepting deposits, lending, or managing investments.

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Financial instrument

A financial claim or contract with specified rights or obligations, such as a share, bond, or derivative.

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Financial market

A system in which participants issue or trade financial claims and contracts. It may operate through exchanges or networks of dealers.

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Financial privacy

How information about a person’s money and financial activity is collected, used, shared, and protected.

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Financial ratio

A comparison calculated by dividing one financial amount by another to help assess a business. Its definition, period, and context matter.

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Financial regulation

The system of rules governing financial activities and firms.

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Financial statement notes

Explanations accompanying financial statements that provide accounting policies, estimates, breakdowns, and other relevant disclosures.

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Financial wellbeing

Being able to manage ongoing money needs, handle financial setbacks, work toward future goals, and make choices that support your life.

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Fiscal policy

Government decisions about spending and taxation used to influence economic activity, separate from a central bank’s monetary policy.

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Fixed exchange rate

An arrangement in which authorities commit to maintaining a currency’s stated value against another currency or reference, sometimes within a band. The arrangement can change.

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Fixed interest rate

An interest rate that stays unchanged for a specified period, which may or may not be the full loan term.

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Floating exchange rate

An exchange-rate arrangement in which a currency’s price is mainly determined in markets.

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Forecast

An estimate of a future or unknown value produced from data and assumptions. How accurate it is becomes clear only later.

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Foreign direct investment

Cross-border investment involving a lasting interest and significant influence in an enterprise in another economy.

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Foreign exchange

Exchanging one currency for another, or the markets where those exchanges take place.

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Foreign-exchange margin

The difference between the exchange rate a provider applies to a customer’s payment and the market’s reference exchange rate, which functions as an extra, often less visible, cost.

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Forward contract

An agreement between parties to buy or sell an asset at a price agreed today for a future date, often customized and privately negotiated.

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Fraud

Intentional deception carried out to obtain money or property unlawfully, including using someone else’s payment details without permission.

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Future value

The amount that money today would grow to by a future date using an assumed rate of growth.

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Futures contract

A standardized exchange-traded agreement referencing an asset or measure for future delivery or cash settlement, with gains and losses generally settled daily.

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Gas

On Ethereum, a measure of computational work used by a transaction. The fee depends on gas used and the effective price per gas unit.

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Giving circle

A group that combines its members’ contributions and jointly chooses the causes or organizations to support.

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Grant

Funding that generally does not need to be repaid if its conditions are met.

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Green bond

A bond whose proceeds are committed to specified environmental projects, with reporting expected on how the money is used. The strength of the label depends on the framework and verification behind it.

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Greenwashing

Making a product, fund, or company appear more environmentally or socially beneficial than the evidence supports, through naming, marketing, or selective disclosure.

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Gross domestic product (GDP)

The total monetary value of goods and services produced within a country over a stated period, commonly used to measure the size and growth of an economy.

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Gross profit

Revenue from sales minus the cost of the goods or services sold, before other expenses are deducted.

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Gross profit margin

Gross profit divided by sales revenue, usually expressed as a percentage.

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Health insurance

Coverage that helps pay for covered healthcare services under a plan’s rules.

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Health-insurance coinsurance

The percentage of a covered service’s allowed cost paid by a health-plan member under the plan’s cost-sharing rules.

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Hedge fund

A private pooled investment fund using strategies that may include leverage, derivatives, or positions designed to profit from falling prices; the name does not imply protection from loss.

In the knowledge library:

Hedging

Taking a position intended to offset a particular risk in another exposure. A hedge can involve costs, imperfect offsets, and new risks.

In the knowledge library:

Impact investing

Investing with the intention of generating a measurable social or environmental benefit alongside a financial return.

In the knowledge library:

Impermanent loss

A liquidity provider’s shortfall relative to holding deposited assets outside a pool as relative prices change, usually measured before fees. The name does not promise recovery.

In the knowledge library:

Imports

Goods and services bought by residents of an economy from nonresidents.

In the knowledge library:

Incentive

Something, such as a price, cost, reward, or penalty, that encourages a particular choice or behavior.

In the knowledge library:

Income

Money received over a period, such as pay from work, benefits, or a pension. Borrowed money is not income.

In the knowledge library:

Income statement

A financial statement showing revenue, expenses, and resulting profit or loss over a period.

In the knowledge library:

Incremental cash flow

The difference in cash flow caused by a decision, compared with what would happen without it.

In the knowledge library:

Index fund

An investment fund that seeks to track a specified market index. Costs and implementation can cause its results to differ from the index.

In the knowledge library:

Inflation

An increase in the general level of prices over time, which reduces what an unchanged amount of money can buy.

In the knowledge library:

Infrastructure investment

Ownership or financing of systems and facilities such as energy networks, transport assets, or communications infrastructure.

In the knowledge library:

Inheritance

Money or property received from someone after their death.

In the knowledge library:

Installment loan

A loan repaid through a scheduled series of payments over an agreed period. Payments need not all be the same size.

In the knowledge library:

Instant payment

A bank transfer that is processed and made available to the payee within seconds, at any time, rather than only during business hours or after a delay of hours or days.

In the knowledge library:

Insurance

A contract under which an insurer agrees to provide specified payments or services when covered events occur, in exchange for a price.

In the knowledge library:

Insurance claim

A request for payment or services under an insurance policy.

In the knowledge library:

Insurance deductible

The portion of covered costs the insured must bear before specified insurer payments apply, calculated as the policy defines.

In the knowledge library:

Insurance endorsement

An amendment to an insurance policy, also called a rider, that adds, restricts, or otherwise changes coverage or terms.

In the knowledge library:

Insurance exclusion

A policy provision removing specified events, property, activities, or circumstances from coverage.

In the knowledge library:

Insurance policy

The contract specifying who and what is insured, covered events, exclusions, conditions, and payment terms.

In the knowledge library:

Insurance premium

The price paid for insurance coverage over a stated period.

In the knowledge library:

Insurance underwriting

Evaluating an exposure to decide whether to offer insurance and on what terms.

In the knowledge library:

Interchange fee

A fee the acquirer pays the card issuer for each card transaction, which is normally built into what merchants pay to accept card payments.

In the knowledge library:

Interest

Money paid for the use of money, such as money earned on savings or charged on borrowing.

In the knowledge library:

Interest rate

Interest expressed as a percentage of an amount over a stated period, such as 5% per year.

In the knowledge library:

Interoperability

The ability of different systems, such as banks and third-party apps, to exchange and use data or work together, especially when following a shared data standard.

In the knowledge library:

Interval fund

A U.S. closed-end investment fund offering periodic repurchases of a limited portion of its outstanding shares rather than daily redemptions.

In the knowledge library:

Inventory

Goods held for sale, or materials and unfinished goods intended to become products for sale.

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Investing

Committing money to assets with the aim of receiving future income or growth, while accepting uncertainty and possible loss.

In the knowledge library:

Investment fund

A vehicle that pools investors’ money and invests it according to a stated strategy.

In the knowledge library:

Investment vehicle

The legal or financial structure through which an investment is held, such as a fund or company.

In the knowledge library:

Leverage

Using borrowing or contracts to obtain exposure larger than the money initially committed, magnifying gains and losses relative to that amount.

In the knowledge library:

Liability

A present obligation to transfer money, goods, services, or other economic resources to another party.

In the knowledge library:

Liability insurance

Coverage for specified legal liabilities to others, which may also include legal defense costs under the policy terms.

In the knowledge library:

Life insurance

Coverage that pays an agreed death benefit if the insured person dies while qualifying coverage is in force.

In the knowledge library:

Limit order

An instruction to buy at a specified price or lower, or sell at a specified price or higher. Execution is not guaranteed.

In the knowledge library:

Linear regression

A method that fits a straight line to data to summarize how one measure tends to change with another. The fitted line describes past data and may not hold in the future.

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Liquidation

In collateralized DeFi lending, repayment of some or all of a risky loan in exchange for taking collateral under protocol rules. The word has other meanings in business and investing.

In the knowledge library:

Liquidity

How easily and quickly something can be converted into spendable money without a large loss in value.

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Liquidity pool

A shared reserve of assets available for trading or other financial functions under a protocol’s rules.

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Liquidity risk

The risk of being unable to meet payments when due without unacceptable losses, including difficulty raising cash or selling assets.

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Loan

Money provided by a lender under an agreement requiring repayment, usually with interest or other charges.

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Loan covenant

A contractual requirement or restriction a borrower agrees to, such as maintaining a financial ratio or limiting additional borrowing.

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Loan term

The agreed length of a loan until its scheduled final repayment. A longer term can lower scheduled payments while increasing total interest.

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Loan-to-value ratio (LTV)

A loan amount divided by the value of the property securing it, using a stated valuation basis.

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Lock-up period

A specified period during which withdrawals or transfers of an investment are restricted.

In the knowledge library:

Look-ahead bias

Using information in an analysis that would not have been available at the time being simulated, making historical results look better than was actually possible.

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Management fee

A charge for managing investments, calculated using the base and timing specified in the investment agreement.

In the knowledge library:

Margin

Money or eligible assets required to support a trading position. In securities borrowing it supports a loan; in futures it supports performance of the contract rather than purchasing the underlying asset.

In the knowledge library:

Margin call

A demand for additional money or eligible assets when an account no longer meets applicable margin requirements. Positions may be closed without waiting for the investor to respond.

In the knowledge library:

Market

An arrangement, physical or online, in which buyers and sellers exchange goods, services, or assets, often coordinated through prices.

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Market index

A rules-based measure tracking a selected group of investments. An index is a measurement, not an investment that can be purchased directly.

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Market maker

A firm that stands ready to buy and sell an instrument at quoted prices for stated quantities, subject to market rules and conditions.

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Market order

An instruction to buy or sell at the best available prices when executed, without guaranteeing a particular price.

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Market risk

The possibility of financial loss from changes in market prices or rates.

In the knowledge library:

Maturity

The scheduled date on which a debt instrument’s principal becomes due under its terms.

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Mean

The sum of a set of values divided by how many values there are; also called the average. Extreme values can pull it away from the middle of the data.

In the knowledge library:

Median

The middle value when a set of values is placed in order; half the values lie at or below it and half at or above it.

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Medium of exchange

Something people accept as payment, allowing them to trade without directly swapping goods or services.

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Merger

A transaction combining businesses into one organization, with the legal form depending on the agreed structure and jurisdiction.

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Microfinance

Providing small-scale financial services, such as small loans and savings, to people excluded from conventional banking, often to support very small businesses.

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Minimum payment

The smallest payment required by a lender for a billing period. Paying it may still leave a balance that attracts interest.

In the knowledge library:

Model

A simplified description of a situation used to estimate, explain, or test something. Every model leaves things out, so its results depend on its assumptions.

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Model risk

The possibility of loss or poor decisions arising from a model that is wrong, built on flawed data, or used for a purpose it does not suit.

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Monetary policy

Actions a central bank takes to influence the availability and cost of money and credit, commonly to pursue goals such as stable prices and full employment.

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Money

Something widely accepted as payment for goods and services and to settle amounts owed. Modern money includes notes, coins, and bank account balances.

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Money market

Markets for short-term borrowing and lending, commonly involving debt due within a year.

In the knowledge library:

Money supply

The total amount of money circulating in an economy at a given time, measured using different definitions that include varying combinations of cash and bank deposits.

In the knowledge library:

Mortgage

A loan secured by real property, commonly used to purchase a home. Failure to meet its terms can put the property at risk.

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Mutual fund

A pooled investment vehicle whose ordinary open-end shares are generally bought or redeemed at the next calculated per-share net asset value, subject to applicable fees and rules.

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Net operating income (NOI)

Property income after operating expenses, before financing costs, income taxes, depreciation, and generally major capital expenditure; reserve conventions can vary.

In the knowledge library:

Net present value (NPV)

The sum of the present values of cash inflows less the present values of cash outflows, including any initial investment.

In the knowledge library:

Net profit

The amount remaining after all recognized expenses are subtracted from revenue and other income for a period. A negative result is a net loss.

In the knowledge library:

Net profit margin

Net profit divided by revenue for the same period, usually expressed as a percentage.

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Nominal return

A gain or loss over a period measured before adjusting for inflation.

In the knowledge library:

Non-traded REIT

A real estate investment trust whose shares are not listed on a public exchange; resale or repurchase opportunities may be limited.

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Normal distribution

A symmetric, bell-shaped pattern of data fully described by its mean and standard deviation. Real financial data often produce extreme outcomes more frequently than this pattern predicts.

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Ombudsman

An independent body or official that examines complaints within a defined scope. Its powers and the effect of its decisions vary by scheme.

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Open banking

A framework that lets customers authorize third-party providers to view their bank account information or initiate payments directly from their account, typically through standardized APIs.

In the knowledge library:

Open finance

A broader extension of open banking that can include a wider range of financial data, such as investments, pensions, or insurance, shared with a customer’s authorization.

In the knowledge library:

Operational risk

The risk of loss from inadequate or failed processes, people, systems, or external events.

In the knowledge library:

Opportunity cost

The value of the best alternative given up when making a choice. It can include money, time, experiences, or convenience.

In the knowledge library:

Option

A contract giving its buyer a right, rather than an obligation, to buy or sell a referenced asset at specified terms within a stated time. The seller takes on the corresponding obligation if exercised.

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Option premium

The price paid by an option buyer to acquire the contract and received by its seller.

In the knowledge library:

Out-of-pocket maximum

A health plan’s limit on qualifying member cost sharing during a plan year; premiums and other excluded costs do not count toward the limit.

In the knowledge library:

Overdraft

A situation in which an institution pays a transaction despite insufficient available money in the account, creating an amount owed by the account holder.

In the knowledge library:

Overfitting

Building a model that matches past data, including its random noise, so closely that it performs poorly on new data.

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Passive investing

Following a stated market index or systematic exposure rather than trying to select investments that outperform it.

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Payback period

The time required for cumulative undiscounted project cash flows to recover the initial investment.

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Payday loan

A small, short-term loan typically due in full on the borrower’s next payday, with fees that imply a high annualized cost. Rules, costs, and availability vary by jurisdiction.

In the knowledge library:

Payee

The person or organization receiving money in a payment.

In the knowledge library:

Payer

The person or organization sending money in a payment.

In the knowledge library:

Payment

The transfer of money from a payer to a payee, whether to buy something, repay a debt, or move money for another purpose.

In the knowledge library:

Payment instrument

A method used to start a payment, such as a card, bank transfer, or direct debit.

In the knowledge library:

Payment processor

A company that handles the technical steps of accepting, checking, and routing a payment on behalf of a merchant or a bank.

In the knowledge library:

Payment rail

The underlying network and infrastructure used to move money for a particular type of payment, such as a card network or a bank transfer system.

In the knowledge library:

Pension

A retirement arrangement intended to provide money later in life. Its structure and use of the name vary by country and plan.

In the knowledge library:

Performance fee

Compensation to an investment manager based on performance under agreed calculation rules and conditions.

In the knowledge library:

Permanent life insurance

Life insurance designed to provide continuing lifetime coverage if policy requirements are met, generally including a cash-value component.

In the knowledge library:

Personal data

Information relating to an identified or identifiable person.

In the knowledge library:

Personal finance

How a person or household manages money, including spending, saving, borrowing, and planning for the future.

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Philanthropist

Someone who contributes money, time, skills, or other resources to help others. Taking part does not require wealth or fame.

In the knowledge library:

Philanthropy

Voluntary contributions of money, time, skills, or other resources to help others and support the common good.

In the knowledge library:

Phishing

An attempt to trick someone into revealing information or taking an action by impersonating a trusted source.

In the knowledge library:

Physical risk

Financial risk from climate-related events and trends themselves, such as floods, storms, heat, or rising sea levels damaging property or disrupting activity.

In the knowledge library:

Policy rate

A short-term interest rate set or targeted by a central bank, used as its main tool to influence borrowing costs and economic activity.

In the knowledge library:

Portfolio

A collection of investments held by a person or organization.

In the knowledge library:

Portfolio investment

In international accounts, cross-border holdings and transactions in shares and debt securities outside direct investment and reserve assets.

In the knowledge library:

Post-money valuation

The value of a business’s ownership immediately after a funding round; in a simple round, pre-money valuation plus new investment.

In the knowledge library:

Poverty premium

The higher relative cost that people with low incomes can pay for the same basic services, such as payments, credit, or insurance, compared with wealthier households.

In the knowledge library:

Power of attorney

A legal document authorizing someone to act on another person’s behalf. Its scope, when it takes effect, and how long it lasts depend on the document and local law.

In the knowledge library:

Pre-money valuation

The negotiated value of a business’s existing ownership immediately before new investment in a funding round.

In the knowledge library:

Present value

Today’s equivalent of a future amount, calculated using a chosen discount rate.

In the knowledge library:

Price discovery

The process through which orders, trades, and information help establish market prices. It does not ensure that prices equal an asset’s true value.

In the knowledge library:

Price impact

The change in execution price caused by a trade’s own effect on available liquidity.

In the knowledge library:

Primary market

The market in which newly issued financial instruments are sold, typically to raise funds for their issuer.

In the knowledge library:

Principal

The starting amount saved, invested, or borrowed, separate from interest. For a loan being repaid, remaining principal means the borrowed amount still unpaid, excluding interest.

In the knowledge library:

Private credit

Privately negotiated lending, often provided by nonbank lenders or investment funds rather than through publicly traded debt markets.

In the knowledge library:

Private equity

Ownership investments outside public stock markets, including investments that take publicly traded businesses private.

In the knowledge library:

Private key

Secret cryptographic information used to authorize actions or perform other cryptographic operations. In a blockchain account, control of the relevant key can enable control of assets.

In the knowledge library:

Probability

A measure of how likely an event is, expressed from 0 (impossible) to 1 (certain), or equivalently as a percentage.

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Progressive tax

A tax whose rate or average share generally increases as the tax base increases.

In the knowledge library:

Proof of stake

A consensus approach in which participants commit network assets to help secure the system, with rewards and penalties under its rules.

In the knowledge library:

Property equity

A property’s estimated market value minus debt secured against it, before selling costs.

In the knowledge library:

Property insurance

Coverage for specified damage to or loss of insured property.

In the knowledge library:

Prospectus

A formal disclosure document describing an investment offering, including information such as its objectives, risks, costs, and terms. Requirements depend on the jurisdiction and product.

In the knowledge library:

Protocol governance

The process for deciding changes to a protocol, which may involve voting, delegated powers, or administrators.

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Public budget

A plan for a public authority’s revenue and expenditure over a stated period.

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Public debt

The accumulated amount a public authority owes to lenders.

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Public expenditure

Money spent by a public authority on services, infrastructure, transfers, wages, interest, and other obligations.

In the knowledge library:

Public finance

The study of how public authorities raise money, spend it, provide services, make transfers, and borrow.

In the knowledge library:

Public good

A service or benefit that can be difficult to restrict to paying users and where one person’s use may not substantially reduce what is available to others.

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Public revenue

Money received by a public authority, including taxes, fees, fines, and some income from public assets.

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Purchasing power

The quantity of goods and services an amount of money can buy.

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Put option

An option giving its buyer the right to sell the referenced asset at the strike price under the contract’s timing and other terms.

In the knowledge library:

Quantitative finance

Using mathematical, statistical, and computing methods to investigate financial questions, price instruments, and manage risk.

In the knowledge library:

Real estate

Land and the buildings or improvements attached to it.

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Real estate investment trust (REIT)

A company organized under applicable REIT rules that owns or finances income-producing real estate.

In the knowledge library:

Real return

A return adjusted for inflation to measure the change in purchasing power. For the same period, it equals (1 + nominal return) divided by (1 + inflation rate), minus 1, with rates written as decimals.

In the knowledge library:

Rebalancing

Adjusting a portfolio back toward its target allocation after its proportions change. Trades, new contributions, or withdrawals can be used.

In the knowledge library:

Recession

A period during which overall economic activity is generally declining. Exact definitions and dating methods vary by country and institution.

In the knowledge library:

Recovery phrase

A sequence of words that many crypto wallets use to recover private keys. Someone who obtains it may be able to control the associated accounts.

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Redemption

Repurchase or repayment of an investment by its fund or issuer under applicable terms; in a fund, investors may request repurchase subject to its rules.

In the knowledge library:

Redemption gate

A restriction limiting how much investors can withdraw from a fund during a stated period.

In the knowledge library:

Redress

Action to put a problem right, such as correcting a record or refunding an improper charge. Available remedies depend on the facts and applicable rules.

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Refinancing

Replacing an existing debt with a new loan. A lower payment does not necessarily mean a lower total cost.

In the knowledge library:

Regulatory register

An official listing used to check a firm’s or individual’s regulatory status and permitted activities. An entry is not a guarantee of product quality or safety.

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Reinsurance

Insurance purchased by an insurer to transfer specified portions of its insurance risk to another insurer.

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Remittance

A transfer of money, often sent by a person working in one country to family or others in another country.

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Rental income

Money earned by allowing others to use property under a rental agreement.

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Replacement cost

The cost to replace covered property with comparable new property, subject to the insurance contract’s conditions and limits.

In the knowledge library:

Reproducibility

The ability to obtain the same result again from the same data and methods, typically by keeping raw data unchanged and documenting or scripting each step.

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Retirement

A stage of life when someone reduces or stops paid work and relies more on other sources of money.

In the knowledge library:

Return

The gain or loss from saving or investing over a stated period, including money received and changes in value. It can be expressed as an amount or a percentage.

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Return of capital

A distribution representing repayment of invested capital rather than investment earnings.

In the knowledge library:

Revenue

Amounts earned from an organization’s ordinary activities, such as selling goods or providing services, before subtracting expenses.

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Revolving credit

An arrangement allowing repeated borrowing and repayment up to an agreed limit, subject to the lender’s terms.

In the knowledge library:

Risk

Uncertainty about a financial outcome, including the possibility of losing money or falling short of a financial need or expectation.

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Risk capacity

How much financial loss a person can absorb without undermining essential needs or important goals.

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Risk exposure

Something that could suffer loss or create a financial obligation, such as property, earnings, or responsibility for harm to others.

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Risk management

Identifying, assessing, responding to, and monitoring uncertainty and its potential consequences.

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Risk pooling

Combining many exposures so that resources collected across a group can support losses suffered by some members.

In the knowledge library:

Risk retention

Keeping responsibility for some or all of the financial consequences of a risk.

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Risk tolerance

How willing an investor is to accept uncertainty and investment losses.

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Risk transfer

Shifting specified financial consequences of a risk to another party through a contract or other arrangement.

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Robo-advisor

An automated service that builds or manages an investment portfolio using an algorithm, typically based on answers to a questionnaire, usually with limited or no ongoing human advisor involvement.

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Sandbox

A controlled testing environment, sometimes provided by a regulator, that lets a new financial product or technology be tested with limits before a wider launch.

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Savings account

A deposit account intended for setting money aside, often paying interest and subject to account-specific access rules.

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Scenario analysis

Changing a set of assumptions together to examine a possible outcome.

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Screen scraping

A method of retrieving account information by automating the same login and web pages a customer would use, rather than through a dedicated API, which can require sharing login credentials with a third party.

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Seasonality

Patterns in a time series that repeat at roughly the same times each year, such as stronger retail sales in certain months.

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Secondary market

The market in which existing financial instruments are traded between holders, rather than newly issued by the issuer.

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Secured loan

A loan backed by specified collateral. The collateral can be at risk if the borrower fails to meet the agreement.

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Self-custody

An arrangement in which a user controls their own asset keys or authorization methods rather than relying on a custodial provider.

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Sensitivity analysis

Changing one assumption at a time to examine how it affects an estimated result.

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Settlement

The completion of a transaction through the required transfers. In payment systems, it is the final transfer of funds fulfilling payment obligations; in securities markets, it also involves delivery of the securities.

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Simple interest

Interest calculated only on the original principal, without charging or earning interest on earlier interest.

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Sinking fund

In household budgeting, money gradually set aside for a known future cost, such as an annual bill. The term has other uses in business finance.

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Slippage

The difference between an expected trade execution result and the actual result, potentially caused by market changes before execution. Trading interfaces may use the term differently.

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Smart contract

A program deployed on a blockchain that executes according to its code when invoked. The name does not establish legal enforceability or freedom from defects.

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Smart-contract security audit

A review of smart-contract code for vulnerabilities within a stated scope. It does not guarantee safety or cover every future code change.

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Social insurance

A public program that collects contributions or taxes to provide defined support when people face risks such as old age, disability, unemployment, or illness.

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Sovereign risk

The risk that a government will fail to meet its debt obligations as agreed.

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Stablecoin

A cryptoasset designed to track a reference value, commonly one unit of a currency. Its market value and redemption terms may differ from that target.

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Standard deviation

A measure of how spread out values are around their mean, equal to the square root of the variance and expressed in the same units as the data. It does not capture every form of risk.

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Statement of changes in equity

A financial statement explaining changes in owners’ recorded interest over a period, including profits, losses, contributions, and distributions.

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Stock

An ownership interest in a company, usually divided into shares. Its value can rise or fall, and distributions to owners are not guaranteed.

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Stop order

An order that becomes a market order after its specified stop condition is triggered. The eventual execution price can differ from the stop price.

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Store of value

Something that carries value into the future. Its ability to buy goods and services may still change over time.

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Stress testing

Examining potential outcomes under severe adverse assumptions to assess resilience, rather than predict a specific event.

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Strike price

The agreed purchase or sale price used when an option is exercised.

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Strong customer authentication

A requirement, used in some jurisdictions, that a payment be confirmed using at least two independent forms of identity verification, such as something the payer knows and something they possess.

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Sunk cost

A cost already incurred that cannot be recovered and does not change with the decision now being evaluated.

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Supervision

In financial regulation, oversight of firms to assess their behavior, risks, and adherence to applicable rules.

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Supply

The quantity of a good or service that sellers are willing to offer at a given price over a stated period.

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Survivorship bias

Distortion in results caused when data include only cases that survived or persisted, such as a fund database that omits funds that closed.

In the knowledge library:

Sustainable finance

Financial activity that takes environmental and social effects into account alongside financial returns. What counts as sustainable varies by framework and provider.

In the knowledge library:

Sustainable investing

Investing that considers environmental or social effects alongside financial return, using approaches such as screening, selection, or engagement. Labels and methods vary widely.

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Swap

A contract to exchange payments determined by agreed formulas, such as fixed-rate payments for variable-rate payments.

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Synergy

An expected benefit from combining businesses beyond what they could achieve separately, such as lower duplicated costs.

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Systemic risk

The possibility that the failure or distress of one financial institution or market spreads to others, threatening the stability of the wider financial system.

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Take-home pay

Pay received after taxes and other payroll deductions have been removed.

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Tax

A compulsory payment to a public authority, usually used to fund public purposes.

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Tax base

The income, spending, property value, transaction, or other measure to which a tax rate applies.

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Term deposit

A deposit held for an agreed period under stated terms; early withdrawal may be restricted or penalized. Common forms include certificates of deposit.

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Term life insurance

Life insurance providing coverage for a stated period, subject to the policy terms.

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Time horizon

The length of time before money is expected to be needed for a particular goal.

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Time series

A sequence of observations recorded in time order, such as monthly inflation readings or daily prices.

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Time value of money

The idea that the timing of receiving or paying money affects its value because money available now can be used or earn a return before a future date.

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Token

A digital unit recorded on a blockchain that may represent access, a claim, voting power, or another function defined by its design.

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Tokenization

Representing an asset or claim with a digital token. Enforceable rights and backing depend on the associated legal and operational arrangements.

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Trade balance

Exports minus imports over a stated period. Specify whether the measure covers goods alone or both goods and services.

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Transition risk

Financial risk from changes in policy, technology, or markets as the economy shifts away from emissions-intensive activity, which can reduce the value of some assets and businesses.

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Treasury

The business function responsible for managing cash, funding, and related financial risks.

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Treasury bill

A short-term government debt instrument. U.S. Treasury bills pay face value at maturity and are sold at a discount or at face value.

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Trend

A persistent general direction of a time series over a period, separate from shorter-term ups and downs.

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Unbanked

Describes a person or household without an account at a bank or similar institution. Exact definitions vary by survey.

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Underbanked

Describes a person or household that has an account but still relies on services outside the banking system, such as check cashing or high-cost short-term credit, for some needs.

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Underwriting

In lending, evaluating a borrower and proposed loan to decide whether to lend and on what terms.

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Unemployment rate

The share of people in the labor force who do not have a job but are available for and actively seeking work, according to a given country’s definition.

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Unit of account

A shared unit used to state, record, and compare prices and amounts owed.

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Unsecured loan

A loan not backed by specified collateral. The borrower remains legally obligated to repay, and lenders may pursue remedies allowed by law.

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Vacancy allowance

An estimate of rental revenue lost because space is unoccupied; unpaid rent may require a separate or explicitly combined allowance.

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Valuation

Estimating what an asset or business is worth using assumptions about future benefits, risks, and relevant comparisons.

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Variable interest rate

An interest rate that can change under the agreement’s rules, often in relation to a reference rate.

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Variance

A measure of how spread out values are around their mean, calculated as the average of the squared differences from the mean. Its units are the square of the data’s units.

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Venture capital

Professionally managed investment, typically in young businesses with high growth potential, seeking substantial future gains.

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Vesting

Earning a non-forfeitable right to a benefit or contribution, often after meeting a retirement plan’s service requirements.

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Weighted average cost of capital (WACC)

An average of the costs of a business’s funding sources, weighted by their shares of total capital value, commonly including applicable tax adjustments to debt cost.

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Will

A legal document directing how certain money and property should be handled after death. Its requirements and effect depend on local law.

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Wire transfer

A direct, typically same-day transfer of funds between banks, often used for large payments or international payments.

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Working capital

Current assets minus current liabilities at a particular date. It is an amount, not a ratio or a cash balance.

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