Finance Glossary A to F: Plain-English Definitions

About this page

Finance is full of terms that sound simple until you have to use them. This page is a plain-English glossary for Finance Encyclopedia, covering entries such as Acknowledgment letter, Adjusted funds from operations (AFFO), Advance pricing agreement (APA), Adverse selection, Aged break, each with a short definition and a pointer to the part of the volume where it is explained.

Keep it open while you read, or use it to settle an argument about what a term really means. Every entry is written to stand on its own, with no jargon left undefined, and the part number beside it tells you where to read more. Use it as a quick reference whenever a term trips you up.

A sample of the entries (97 terms on the full page)

Acknowledgment letter — A letter a bank countersigns confirming an account holds client money it cannot use against the firm’s debts; required before client money is held there (CASS spells it “acknowledgement”). (Part 8.1)

Aged break — A reconciliation break still unresolved past the firm’s threshold, commonly 5 or 10 business days, and escalated to more senior owners as it ages (Part 8.5).

Arm’s length principle — The rule that prices between companies in the same group must match what independent parties would agree in comparable circumstances; Article 9 of the OECD Model Tax Convention and 26 U.S.C. §482 (Part 4.2).

Availability payment — A fixed periodic payment from a government to a PPP concessionaire for keeping an asset open and up to standard, independent of usage (Part 2.7).

Begin-construction test — The IRS standard for when a project’s construction starts for tax-credit purposes; for wind and solar not begun before September 2, 2025, it requires physical work of a significant nature, with the 5% cost safe harbor kept only for solar of 1.5 MW or less (Part 10.3).

Bornhuetter-Ferguson — A reserving method that adds to reported losses only the unreported share of an a priori expected loss, used where the chain ladder would amplify thin early data (Part 1.4).

Call auction — A matching method that collects orders for a period and executes them all at one price, the price that maximizes traded volume; used at the open and close. (Part 5.4)

Cash flow available for debt service — A project’s revenue minus operating costs, taxes and maintenance spending; the cash from which debt is repaid and on which it is sized (Part 2.5).

Chain ladder — The development technique: projects each accident year’s reported or paid losses to ultimate with age-to-age factors taken from a loss development triangle (Part 1.4).

Client money requirement — What a firm should hold for clients: under the standard method, the sum of client balances with negative (debtor) balances counted as zero, plus margin and any extra segregation. (Part 8.1)

Coinsurance — The insured’s percentage share of a covered loss above the deductible (Part 1.5).

Common Framework — The G20 framework endorsed in November 2020 for coordinated debt treatments of low-income countries, bringing non-Paris Club lenders such as China to the table. (Part 3.8)

Controlled foreign company (CFC) rules — Rules that tax a parent currently on certain income of its foreign subsidiaries; the US version for active income is net CFC tested income, taxed at an effective 12.6% from 2026 (Part 4.5).

Critical third party (CTP) — A provider designated by HM Treasury, such as a major cloud firm, that is overseen directly by the Bank of England, PRA and FCA; the first four were designated in July 2026 (Part 8.6).

Debt deflation — Irving Fisher’s 1933 mechanism in which distress selling by debtors lowers prices and so raises the real burden of the remaining debt. (Part 9.5)

Debt yield — NOI divided by the loan amount: the lender’s cash return if it owned the building outright, independent of interest rates and cap rates (Part 2.4).

Defeasance — Replacing a CMBS loan’s collateral with Treasury securities that replicate its remaining payments, used instead of prepayment (Part 2.4).

Disaster recovery (DR) — Restoring IT systems and data after an outage, usually within a recovery time objective per system (Part 8.6).

Double materiality — The EU principle that companies report both financial materiality and impact materiality, meaning their effects on people and the environment (Part 7.2).

Effective gross income — Potential gross rent minus vacancy and credit loss plus other income such as parking; the top line from which operating expenses are subtracted to reach NOI (Part 2.2).

Equation of exchange — The identity M × V = P × Y linking money, its velocity, the price level and real output; the basis of the quantity theory of money. (Part 9.6)