Economics and Personal Finance Glossary (T-W)


T

Tax base- The dollar value of something such as income, property, or an amount spent for a good or service.

Tax credit- An amount directly deducted from the total tax owed.

Tax deductions- A fixed amount or percentage permitted by taxation authorities that a taxpayer could subtract from his or her gross income to reduce taxable income.

Tax exemption- Amount allowed by the IRS that can be deducted from taxable income to reduce the amount of income tax owed. There are two types: personal and dependency. The personal exemption is for the taxpayer; the dependency exemption is based on the number of dependents the taxpayer has. The exemption amount is a set amount that changes from year to year.

Tax refund- Money owed to taxpayers when their total tax payments are greater than the total tax. Refunds are received from the government.

Taxes- Fees charged on business and individual income, activities, property, or products by governments. People are required to pay taxes.

Technological change- An advance in overall knowledge in a specific area. Also known as technological advance.

Term Asset-Backed Securities Lending Facility (TALF)- A Federal Reserve funding facility that supports the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA). Under the TALF, the Federal Reserve Bank of New York (FRBNY) lends up to $200 billion on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans. The FRBNY lends an amount equal to the market value of the ABS less a “haircut” secured at all times by the ABS. The U.S. Treasury Department–under the Troubled Assets Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008–provides $20 billion of credit protection to the FRBNY in connection with the TALF. The TALF ended in December 2009.

Term Auction Facility (TAF)- A Federal Reserve program that auctions term funds (typically funds of 28- or 84-day maturity) to depository institutions. All depository institutions that are eligible to borrow under the primary credit program are eligible to participate in TAF auctions. All advances must be fully collateralized. The last auction was March 8, 2010.

Term insurance- A policy providing coverage for a specific time period, such as 10 years. When the policy term ends, the insurance expires.

Term repurchase (repo) agreements (transactions)- The sale of securities to an investor with an agreement to repurchase them at an agreed-upon price and date. The FOMC uses repos of eligible securities to vary the quantity of banking system reserves as part of its implementation of monetary policy.

Term Securities Lending Facility (TSLF)- A Federal Reserve loan facility that promotes liquidity in Treasury and other collateral markets by offering Treasury securities held by the System Open Market Account (SOMA) for loan over a one-month term against other program-eligible general collateral. Securities loans are awarded to primary dealers based on a competitive single-price auction. The TALF was closed February 1, 2010.

Term Securities Lending Facility (TSLF) and TSLF Options Program (TOP)- A Federal Reserve lending program that offers options to the primary dealers to draw upon short-term, fixed-rate Term Securities Lending Facility (TSLF) loans from the System Open Market Account (SOMA) portfolio in exchange for program-eligible collateral. The program is intended to enhance the effectiveness of TSLF by offering added liquidity over periods of heightened collateral market pressures, such as quarter-end dates.

The Truth in Lending Act- A federal law that requires the disclosure of information about the cost of credit. Both the finance charges and annual percentage rate (APR) must be displayed prominently on forms and statements.

Too-big-to-fail- Government practices that protect large banking organizations from the normal discipline of the marketplace because of concerns that such institutions are so important to markets and their positions so intertwined with those of other banks that their failure would be unacceptably disruptive, financially and economically.

Trade- The exchange of goods or services for other goods or services or for money.

Trade deficit- The difference that results when the value of a country’s imports exceeds the value of its exports.

Trade surplus- The difference that results when the value of a country’s exports exceeds the value of its imports.

Trade-off- Giving up some of one thing in order to gain some of something else.

Tragedy of the commons- The overuse of a resource, such as water, land, or air, due to poorly defined property rights.

Tranche- When mortgages are securitized, the bonds created are often divided into a number of tranches. Tranches are related bonds offered as part of the same transaction, where each bond is a different slice of the deal’s risk. Transaction documentation defines the tranches as different “classes” of notes, each identified by letter (e.g., Class A, Class B, and Class C securities). Bonds in the least-risky class have first claim on the cash flow from the pool of underlying mortgages, then bonds in the next class are paid, and so on, up to the riskiest bonds, which have the residual claim. Bonds in riskier tranches typically pay higher interest.

Transaction costs- The costs associated with buying or selling a good, service, or financial asset.

Transfer- A one-way payment for which no money, good, or service is given or exchanged.

Transfer payments- Payments by governments to people who do not supply goods, services, or labor in exchange for the payments.

Transfer payments (elementary)- Money collected from some people and distributed to other people.

Transfer programs- Government programs designed to improve economic equity.

Travelers checks- Checks issued by a financial institution which function as cash but are protected against loss or theft.

Treasury bill- A security issued by the Treasury with an original maturity of no more than one year. Interest on a Treasury bill is the difference between the purchase price and the value paid at redemption.

Treasury bond- A fixed-rate, interest-bearing security issued by the Treasury with an original maturity of more than 10 years.

Treasury note- A fixed-rate, interest-bearing security issued by the Treasury with an original maturity of more than 1 year but not more than 10 years.

Tri-party repurchase agreement- A repurchase transaction involving three parties: an investor, a financial institution, and a clearing bank, which acts an intermediary. In these transactions, which usually involve large amounts of cash and securities, the investor deposits money with the clearing bank, which then lends it to another institution.

Troubled Asset Relief Program (TARP)- The Emergency Economic Stabilization Act of 2008 authorized the Secretary of the Treasury to establish the Troubled Asset Relief Program (TARP) to purchase, and to make and fund commitments to purchase, troubled assets from financial institutions. The program closed on December 23, 2009.

Troubled assets- Under the Emergency Economic Stabilization Act, Congress authorized the Treasury to use up to $700 billion to purchase “troubled assets” (i) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary of the Treasury determines promotes financial market stability; and (ii) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.

Truth-in-Lending Act (Regulation Z)- A federal law intended to promote the informed use of consumer credit by requiring disclosure about its terms and costs. Creditors are required to disclose the cost of credit as a dollar amount (the finance charge) and as an annual percentage rate (APR).

U

U.S. Treasury securities- Bonds, notes, and other debt instruments sold by the U.S. Treasury to finance U.S. government operations.

Unbanked- Consumers who have no account at a bank or a financial institution.

Underbanked- Consumers or businesses that have limited or poor access to primary financial services provided by banks and rely on alternative financial services.

Underemployed- Wanting a full-time job but having only a part-time job; being overqualified for a job and receiving less pay than would be earned at a job requiring a higher skill level.

Underemployment (resource)- A situation that occurs when scarce resources are not put to their highest-valued use in the production of goods and services.

Unemployment- A condition where people at least 16 years old are without jobs and actively seeking work.

Unemployment insurance (compensation)- A program providing cash benefits for a specified period of time to workers who lose a job through no fault of their own.

Unemployment rate- The percentage of the labor force that is willing and able to work, does not currently have a job, and is actively looking for employment.

Unintended consequences- The unexpected and unplanned results of a decision or action.

Unit of account- A common measurement used to compare the value of goods and services.

Unsecured loan- A loan not backed with collateral.

V

Volatile- Likely to change in a sudden or extreme way.

W

W-2 form, Wage and Tax Statement- A summary of a person’s earnings and tax withholdings for an entire year. Employers must provide a W-2 to employees by the end of January for the previous year’s employment to report annual income and withholding on the employees’ tax returns.

W-4 form, Employee’s Withholding Allowance Certificate- A form completed by the employee and used by the employer to determine the amount of income tax to withhold.

Wages- Income earned for providing human resources (labor) in the market. Wages are usually computed by multiplying an hourly pay rate by the number of hours worked.

Wants- Desires that can be satisfied by consuming goods and services.

Warrant- A security that entitles the holder to buy stock of the issuing company at a specified price on or after a specified date.

Wealth effect- The effect on consumer spending caused by a change in the aggregate price level on the purchasing power of the consumers’ assets.

Wholesale- The selling of goods in large quantities to be retailed by others.

Willingness to pay- The maximum amount that a buyer will pay for a good or service.

Withholding allowance- The amount of money that an employer withholds from an employee’s paycheck. This money is deposited for the government on behalf of the individual taxpayer. (It will be credited against the employee’s tax liability when he or she files a tax return.) Employers withhold money for federal income taxes, Social Security taxes, and state and local income taxes in some states and localities.

Workout- A workout is a process where the terms of a loan are modified or the lender agrees to some forbearance in order to avoid default, foreclosure or bankruptcy.