Federal Reserve System (The Fed) The central bank system of the United States, composed chiefly of the Federal Reserve Board, the Federal Open Market Committee, the nine Reserve District Banks, a nd member banks. Its chief responsibility is to regulate the flow of money and credit.

Federal Funds Cash reserves of banks and certain other institutions above and beyond those needed as reserve requirements. These funds are available to other banks as loans to meet reserve requirements.

Federal Funds Rate (fed funds rate) The interest charged by one institution lending federal funds to another. This rate is largely controlled by short-term open market operations by the Fed.

firm quote The actual price at which a financial instrument (100 shares of stock, 5 bonds, and so on) may be bought or sold.

floor trader A member of an exchange who enters transactions for his or her own account from the floor of the exchange; synonymous with local.

FOMC (The Federal Open Market Committee) A committee within the Federal Reserve System comprised of the seven members of the Federal Reserve Board, the President of the Federal Reserve Bank of New York, and four of the eight other district bank presidents, who serve on a rotating basis. The main purpose of the committee is to make decisions regarding open market operations.

free reserves A measure of reserves held within the entire Federal Reserve System above and beyond required reserves. It is used as an indicator of the potential credit availability within the Federal Reserve System.

fundamental analysis A method securities analysis that employs study of the overall economy, industry conditions, and the financial condition and management of a particular company i n an effort to evaluate the intrinsic value of a specific stock.

futures Contracts standardized by an exchange for the purchase or sale of a commodity at a future date.

futures contract A standardized, exchange-traded contract to make or take delivery of a particular type and grade of commodity at an agreed, upon place and point in the future. Futures contracts are transferable between parties.

glamour stock A favored, highly traded stock, usually of an established company that has performed well and paid dividends in good times and bad.

growth stock A relatively speculative stock, usually one of a relatively new company that is expected to grow at a fast rate.

Consequently, the stocks usually sell at high price/earnings ratios while paying low divi dends. H

hedge Investing to reduce the risk of a position in a security or commodity, normally by taking the reverse position in a related security. For example, owning 10,000 shares of XYZ at 100 may be hedged by owning 100 puts of XYZ with a strike price at 98.

high The highest price a security or commodity reaches within a specified time period. I

inflation An increase in the supply of money. When the increase in the supply of money outstrips the increase in the supply of goods and services, the result is a general rise in the level of prices.

insider Anyone who has information not available to the public that may affect the future price of a stock.

in-the-money An option that has intrinsic value. For a call, the option is in -the-money if the current market price of the underlying

instrument is above the strike price stated in the call contract. For a put, the option is in -the-money if the current market price is below the strike price stated in the put contract.

index futures Futures contracts traded on the basis of an underlying cash index or average. Unlike commodities futures, there is no tangible asset traded for delivery other than the cash value of the futures contract at the time of expiration.

intermediate-term trend The price trend in any market lasting from weeks to months.

investor One who buys and holds securities for a long-tetTn period (months to years), usually for the

purpose of obtaining income or value appreciation.

junk bonds A general term for bonds issued by corporations during a leveraged buyout (LBO) for the purpose of raising capital to buy a controlling position of the companys shares. The differences between junk bonds and other corporate bonds are the size of the bond issue and the purpose for which the bonds are issued. They eamed the nebulous title "junk" because so many of the bond issues depreciated dramatically in market value after the issue because the market value of the underlying assets securing them depreciated. There was no other collateral.

leverage The use of borrowed capital to increase the potential net retum in trading or investment.

leveraged buyout The acquisition of a controlling interest in the stock of a company by borrowing the money from the public or from private sources in which capital is raised by the issue and sale of bonds (junk bonds) secured by the assets of the company.

liabilities Debts or legal obligations to pay owned by a person or legal entity.

line A technical term used to describe price movements within a market t hat stay within a narrow range (usually within 5%) over a given time period.

long Owning securities or commodities in anticipation of an increase in value or price.

long-term trend Price movements tending to be generally up or generally down lasting over a period of months to years.

low The lowest price of a security or commodity reached during a specific time period. M

Major Market Index (MMI) A 20-stock index designed to track and augment the Dow Jones Industrials Average of 30 stocks. The MMI is composed of 15 of the 30 stocks on the DJIA plus five other large NYSE listed stocks.

manipulation An undefined securities violation sometimes enforced by the SEC. Manipulation is the

act of influencing prices in a market by artful or skillful (and sometime s insidious) means.

margin The amount of equity (cash) as a percentage of market value of the underlying market interest held in a margin account.

offer An indication by a trader or investor of the willingness to sell a security or commodity; or, in a quote, the current lowest price anyone is willing to sell a security or commodity.

open market operations The buying and selling of govemment and govemment agency securities by the Federal Open Market Committee for the purpose of increasing or dec reasing the level of bank reserves to effect control of the money supply.

option The right to buy (a call) or sell (a put) a specified amount of a security (stock, bonds, futures, and so on) at a specified price within a specified time period.

out-of-the-money An option that has no intrinsic value. A call is out-of-the-money if the value of the underlying instmment is below the strike price stated in the call contract. A put is out-of-the-money if the market price of the underlying instmment is above th at stated in the options contract.

overbought A technical term used to describe the opinion that more and stronger buying has occurred in a market than is warranted by fundamental considerations.

oversold A technical term used to describe the opinion that more and stronger selling has occurred in a market than the market fundamentals would justify.

over the counter (OTC) market A market of stocks traded that are not listed on the major exchanges.

premium The market price of an option-the price one pays for an option, which varies with market volatility, time, and the price of the underlying instmment.

price/eamings ratio (PE) The ratio of the current price of a stock divided by the annual eamings per share, primary Of first importance, most important, or essential.

program trading Any of a variety of trading strategies carried out through electronic means that are executed in a preplanned sequence, usually by computer.

put An option that gives the owner the right to sell a specific amount of a se curity at a specified price within a specified time period.

quote The current bid and offer for a security on the floor of the exchange on which it is traded.

range The price bounds between which a market or specific security or commod ity trades within a particular trading period (namely, close of the days trading, day, month, year, and so on).

reaction A price movement against the prevailing trend. A reaction differs from a secondary correction in that it may occur within the short-term trend, intermediate term trend, or the long-term trend.