Introduction to Finance

European Central Bank (ECB)
Conducts 
monetary policy for the 12 european countries 
that joined the european monetary union and 
adopted the euro as their common currency
European Union (EU)
Organization 
estab-
lished to promote trade and economic develop-
ment among european countries
Eurozone members
Countries that have 
adopted the euro as their common currency
Ex ante
Expected or forecasted
Excess reserves
Amount by which a deposi-
tory institution’s bank reserves are greater than 
required reserves
Exchange rate risk
(1) 
eff ect on revenues 
and expenses from variations in the value of 
the U.S. Dollar in terms of other currencies; 
(2) fl uctuating exchange rates lead to varying 
levels of U.S. Dollar-denominated cash fl ows
Exercise price (strike price)
Price at which 
the asset can be traded under a futures or option 
contract
Expectations theory
States that the shape of 
the yield curve refl ects investor expectations 
about future infl ation rates
Export Import bank
Bank established to 
help fi nance and facilitate exports and imports 
between the United States and other countries
Extendable notes
Have their coupons reset 
every two or three years to refl ect the current 
interest rate environment and any changes in the 
fi rm’s credit quality; the investor can accept the 
new coupon rate or put the bonds back to the fi rm
Factor
A fi rm that engages in accounts 
receivable fi nancing by purchasing accounts 
and assuming all credit risks
Fed discount rate
Interest rate that a bank 
must pay to borrow from its regional reserve 
bank
Fed’s board of governors
Seven-member 
board of the federal reserve that sets monetary 
policy
Federal budget
Annual revenue and expend-
iture plans that refl ect fi scal policy objectives 
concerning government infl uence on economic 
activity

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GLOSSARY