Category: Financial Terms

Euro Interbank Offered Rate (Euribor) The Euro Interbank Offered Rate (Euribor) is a benchmark interest rate that reflects the average rate at which selected eurozone banks lend unsecured funds to one another on the short-term money market. It is widely used as a reference for euro-denominated financial products including mortgages, consumer loans, savings accounts, and…

Euro Overview The euro (EUR) is the official currency of the European Union’s monetary union. Launched in 1999 as an electronic currency and introduced in banknote and coin form in 2002, it is the world’s second-most widely held reserve currency and the second-most traded currency after the U.S. dollar. The euro facilitates trade and travel…

Ethical Investing: Overview and How to Do It Key takeaways * Ethical investing uses personal moral or ethical values to guide investment choices. * It can mean excluding certain industries (e.g., gambling, tobacco, firearms) or favoring companies with positive social or environmental impacts. * Ethical selection does not guarantee better financial returns. * Due diligence…

Ethereum Explained: Blockchain, Smart Contracts, and Its Future What is Ethereum? Ethereum is a decentralized, programmable blockchain platform whose native cryptocurrency is ether (ETH). More than a digital currency, Ethereum provides a global infrastructure for building decentralized applications (dApps), executing smart contracts, and enabling decentralized finance (DeFi). Ether is used to pay transaction fees and…

Ethereum Classic (ETC): Definition, History, and Future Key takeaways Ethereum Classic (ETC) is the original Ethereum blockchain that continued unchanged after the 2016 DAO hack. It is an open-source, decentralized platform that runs smart contracts and uses a proof-of-work (PoW) consensus mechanism. ETC has a capped supply of 210.7 million coins and applies a scheduled…

Ether (ETH): Definition, Uses, and Comparison with Bitcoin Ether (ETH) is the native cryptocurrency of the Ethereum network. It powers transaction processing and smart contracts on Ethereum, serves as a medium of exchange and store of value, and is used as collateral for securing the network through staking. Key takeaways Ether is the native token…

Estoppel: Definition, How It Works, and History What is estoppel? Estoppel is a common-law legal principle that prevents a person from asserting a position that contradicts a prior statement, action, or legal finding when doing so would harm another who relied on the original position. In short, estoppel enforces consistency: a party cannot “go back…

Estimated Ultimate Recovery (EUR) What is EUR? Estimated Ultimate Recovery (EUR) is an industry term for the total quantity of oil or gas that is expected to be economically recoverable from a well, field, or reservoir over its productive life. It includes volumes already produced plus the remaining recoverable resource and is conceptually similar to…

Estate Tax: Rates, Exclusions, and Impact on Gifts and Inheritances What is an estate tax? An estate tax is a tax on the transfer of a deceased person’s estate. It is assessed on the estate’s fair market value (FMV) at death, and applies only to the portion that exceeds a statutory exclusion (exemption) amount. Estate…

Estate Planning: Basics and Key Steps What is estate planning? Estate planning is the process of preparing how your assets, debts, and personal affairs will be managed if you become incapacitated and how they will be distributed after you die. It covers wills, trusts, beneficiary designations, guardianship for minors, powers of attorney, funeral wishes, and…

Understanding Estates: Planning and Writing Your Will Effectively An estate is everything a person owns or controls that contributes to their net worth: real estate, personal property, investments, insurance, cash, and other assets minus liabilities. Estate planning determines how those assets will be managed and distributed after death (or in some cases, during incapacity). A…

Esoteric Debt Overview Esoteric debt describes debt instruments and related investments that are structurally complex and understood by only a small group of specialists. These instruments often arise through securitization or bespoke financing arrangements and can present opaque pricing, unusual payment mechanics, and fragile liquidity. When markets are calm they may offer attractive yields; when…

Escrowed Shares What are escrowed shares? Escrowed shares are equity securities held by a neutral third party (an escrow agent) until specified conditions are met. They remain under the agent’s control and are released only when contractual, regulatory, or time-based requirements are satisfied. Escrow arrangements reduce counterparty risk and help ensure obligations are fulfilled before…

Escrow Agreements An escrow agreement is a contract that appoints an independent third party (the escrow agent) to hold assets—cash, securities, deeds, or other property—until specific contractual conditions are satisfied. Escrows add certainty and protect the interests of all parties in high-value or high-risk transactions by ensuring assets are released only according to agreed terms….

Escrow Agent Key takeaways An escrow agent is a neutral third party that holds assets, funds, or documents until the contractual conditions between two parties are met. Escrow agents have a fiduciary duty to follow the escrow agreement and protect the interests of both sides. Common uses include real estate closings, business transactions, online sales,…

Escrow: How It Works and Why It Matters Definition Escrow is a financial arrangement in which a neutral third party (an escrow agent) holds funds, documents, or other assets on behalf of two parties involved in a transaction. The escrow agent releases those assets only after predefined contractual conditions are met. Key points Escrow protects…

Escheat: Meaning, Process, and Reclaiming Assets Escheat is the legal process by which government authority takes ownership of property or financial accounts that remain unclaimed and have no identifiable heirs or beneficiaries. It typically applies after a prolonged period of inactivity or when someone dies intestate (without a valid will) and no lawful heirs can…

Errors and Omissions (E&O) Insurance: What It Is and How It Protects Your Business Key takeaways * Errors and omissions (E&O), or professional liability insurance, protects businesses and professionals against client claims alleging negligence, errors, or inadequate performance of services. * E&O typically covers legal defense costs, settlements, and judgments for covered claims, but excludes…

Error Term What is an error term? An error term is the component in a statistical model that captures the difference between predicted values and actual outcomes. It represents factors affecting the dependent variable that are not included in the model’s independent variables. Common symbols for the error term are e, ε, or u. Formal…

Erosion: What it Is, How It Works, and Its Types Erosion describes longer-term declines in a company’s value, performance, or assets. It refers to gradual, often persistent reductions in profits, sales, or the worth of tangible and intangible assets. Unlike one-time losses or normal cyclical depreciation, erosion implies a lasting change in business conditions that…

Equivalent Annual Cost (EAC) Equivalent Annual Cost (EAC) converts the total cost of owning and operating an asset over its life into an equal annual amount. It is commonly used in capital budgeting to compare alternatives with different lifespans on a consistent, annual basis. Key takeaways EAC standardizes lifetime costs as an annual figure, making…

Equivalent Annual Annuity (EAA) Approach The Equivalent Annual Annuity (EAA) approach converts the net present value (NPV) of a project into a constant annual cash flow—an “annuity”—that yields the same present value over the project’s life. EAA is commonly used in capital budgeting to compare mutually exclusive projects that have unequal lives. When comparing such…

Equity Swap Key takeaways An equity swap is a private (over‑the‑counter) derivative in which two parties exchange cash flows tied to an equity return and a separate payment stream (typically a fixed or floating interest‑rate leg). It lets a party gain exposure to an equity index or stock return without owning the underlying shares. Equity…

Equity Risk Premium What it is The equity risk premium (ERP) is the extra return investors expect to earn from holding stocks instead of a risk-free asset (typically government bonds). It compensates for the higher volatility, business risk, and potential for loss associated with equities. Key points: * ERP = expected return on equities −…

Equity Premium Puzzle (EPP) What is the Equity Premium Puzzle? The Equity Premium Puzzle (EPP) describes the historically large excess return that U.S. stocks have delivered over short‑term Treasury bills. Measured as the equity risk premium (equity returns minus Treasury bill returns), this gap has averaged roughly 5%–8% historically. The puzzle arises because that size…

Equity Multiplier The equity multiplier is a financial leverage ratio that shows how much of a company’s assets are financed by shareholders’ equity versus debt. It helps investors assess financial risk and the degree to which a company uses debt to amplify returns. Key takeaways Equity Multiplier (EM) = Total Assets ÷ Total Shareholders’ Equity….

Equity Method of Accounting Definition The equity method is used to account for investments in other entities when the investor has significant influence but not control over the investee. It typically applies when ownership is between 20% and 50% of voting stock, though significant influence can exist with a smaller stake (or be absent with…

Understanding Equity Markets Equity markets—commonly called stock markets—are central to modern finance. They enable companies to raise capital by issuing shares and allow investors to buy ownership stakes that can appreciate in value or pay dividends. Equity markets also serve as indicators of economic health and play a key role in corporate governance and financial…

Equity-Linked Security (ELKS) Key takeaways * An equity-linked security (ELKS) is a debt instrument whose payments and/or return are tied to the performance of an equity benchmark (a stock, a basket of stocks, or an equity index). * ELKS are structured products—often issued as bonds or notes—used by corporations and banks to raise capital. *…

Equity-Linked Note (ELN) Key takeaways * An Equity-Linked Note (ELN) is a structured product that combines a fixed‑income component with exposure to an equity or equity index. * ELNs can offer principal protection at maturity while providing upside linked to stock performance via participation rates, caps, or option-like payoffs. * Returns are typically realized only…

Equity Funds: A Beginner’s Guide What is an equity fund? An equity fund pools money from multiple investors to buy a diversified portfolio of stocks. Managed by professional portfolio managers (or set up to track an index), equity funds provide broad exposure to equities while spreading the risk of any single stock’s poor performance. Key…

Equity Financing What is equity financing? Equity financing is raising capital by selling ownership shares in a company. Instead of borrowing, a business transfers part of its ownership to investors in exchange for cash. Equity can support short-term needs (working capital) or long-term projects (growth, R&D, acquisitions). How it works Companies issue equity instruments such…

Equity-Efficiency Tradeoff Key takeaways * The equity‑efficiency tradeoff describes a conflict between maximizing economic efficiency and promoting fairness (equity) in the distribution of resources. * Economic efficiency is often framed in utilitarian terms—maximizing total utility—while equity reflects moral or rights‑based concerns that may override pure utility maximization. * Income redistribution is a common example: policies…

Equity Derivative: Definition, Uses, and Examples Key takeaways * Equity derivatives derive their value from underlying equity assets (individual stocks or stock indices). * Common uses are hedging and speculation. * Major types include equity options and equity index futures; other forms include swaps, warrants, single-stock futures, and convertible bonds. * Derivatives offer leverage and…

Equity Compensation Equity compensation is pay in the form of ownership or the right to ownership in the employer’s company rather than (or in addition to) cash. It’s commonly used by public companies and startups to attract, reward, and retain employees, and ties employee incentives to company performance. Key takeaways Equity compensation gives employees an…