Credit unions are financial cooperatives set up by employee and community asso- ciations, labor unions, church groups, and other organizations. They provide afford- able financial services to members of the sponsoring organization.
In some cases, they’re created in rural or economically disadvantaged areas, where commercial banks may be scarce or prohibitively expensive.
Because they are not-for-profit, credit unions tend to charge lower fees and interest rates on loans than commercial banks while paying higher interest rates on savings and investment accounts.
The services offered at large credit unions can be as comprehensive as those at large banks. At smaller credit unions, however, services and hours may be more limited, and a few deposits may not be insured.
Assets in most credit unions are insured by the National Credit Union Share Insurance Fund on the same terms that deposits in national and state banks are insured by the Federal Deposit Insurance Corporation (FDIC).
Creditor
A person or company who provides credit to another person or company functions as a creditor.
For example, if you take a mortgage or car loan at your bank, then the bank is your creditor. But if you buy a bond, you are the creditor because the money you pay to buy the bond is actually a loan to the issuer.
Crossed market
A market in a particular stock or option is described as crossed when a bid to buy that stock or option is higher than the offer to sell it, or when an offer to sell is lower than a bid to buy.
A crossed market reverses the normal relationship of a stock quotation in which the bid price is always lower than the ask price. It’s illegal for market makers to cross a market deliberately.
A crossed market may occur when investors place after-hours orders electronically for execution at opening, or when investors trade directly through an electronic communications
network (ECN).
NASD has introduced a set of pre- opening procedures for market makers on the Nasdaq Stock Market. They help prevent the confusion and potential inequalities in pricing that a crossed market can produce.
Cumulative voting
With this method of voting for a corpora- tion’s board of directors, you may cast the total number of votes you’re entitled to any way you choose. For example, you can either split your votes equally among the nominees, or you can cast all of them for a single candidate.
Generally, you receive one vote for each share of company stock you own times the number of directors to be elected.
Cumulative voting is designed to give individual stockholders greater influence in shaping the board. They can designate all their votes for a single candidate who represents their interests instead of spreading their votes equally among the candidates, as is the case with statutory voting.
Currency fluctuation
A currency has value, or worth, in rela- tion to other currencies, and those values change constantly.
For example, if demand for a particular currency is high because investors want to invest in that country’s stock market or buy exports, the price of its currency will increase. Just the opposite will hap- pen if that country suffers an economic slowdown, or investors lose confidence in its markets.
While some currencies fluctuate freely against each other, such as the Japanese yen and the US dollar, others are pegged, or linked. They may be pegged to the value of another currency, such as the US dollar or the euro, or to a basket, or weighted average, of currencies.
Currency swap
In a currency swap, the parties to the contract exchange the principal of two different currencies immediately, so that each party has the use of the different currency. They also make interest pay- ments to each other on the principal during the contract term.
In many cases, one of the parties pays a fixed interest rate and the other pays a floating interest rate, but both could pay fixed or floating rates. When the contract ends, the parties re-exchange the principal amount of the swap.
Originally, currency swaps were used to give each party access to enough foreign currency to make purchases in foreign markets. Increasingly, parties arrange currency swaps as a way to enter new capital markets or to provide predictable revenue streams in another currency.
Currency trading
The global currency market, where roughly $1.9 trillion a day changes hands, is by far the largest financial market in the world.
Banks, other financial institutions, and multinational corporations buy and sell currencies in enormous quantities to handle the demands of international trade. In some cases, traders seek profits from minor fluctuations in exchange rates or speculate on currency fluctuations.
Creditor
Current return
Current return, also called current yield, is the amount of interest you earn on a bond in any given year, expressed as a percent of the current market price.
The current return will, in most cases, not be the same as the coupon rate, or the interest rate the bond pays calculated as a percentage of its par value.
For example, if the par, or face value, of a bond is $1,000 and the coupon rate is 5%, then the interest payments, or annual income, from the bond is $50 per year. If, however, the bond is trading at $900, then that $50 annual income is actually a current return of 5.6%.
The current return does not take capital gains or losses into account, so it is not a reflection of the total return on your bond investment.
Current yield
Current yield is a measure of your rate of return on an investment, expressed as a percentage. With a bond, current yield is calculated by dividing the interest you collect by the current market price.
For example, if a bond paying 5% interest, or $50, is selling for $900, the current yield is 5.6%. If the market price is $1,200, the current yield is 4.2%. And if bond is selling exactly at par, or $1,000, the current yield is 5%, the same as the coupon rate.
If you own a stock, its current yield is the annual dividend divided by its market price.
Custodial account
If you want to make investments on a minor’s behalf, or transfer property you own to that person, you can open a custodial account with a bank, broker- age firm, mutual fund company, or insurance company.
You name an adult custodian for the account—either yourself or someone else—who is responsible for managing the account until the child reaches the age of majority.
That age may be 18, 21, or 25 depend- ing on the state and the type of account you choose. At majority, the child has the legal right to control the account and use the assets as he or she chooses.
There may be some tax advantages in transferring assets to a minor. If the child is under 18, investment earnings above a specific level that Congress sets each year are taxed at the parents’ marginal tax rate.
But if the child is 18 or older, all investment earnings are taxed at the child’s rate—again, typically the lowest rate. In addition, gifts you make to the account are no longer part of your estate, which may reduce vulnerability to estate taxes. However, it’s wise to review your plans with your legal and tax advisers.
One drawback of a custodial account is that the assets are considered the property of the child, and may reduce the amount of financial aid the child qualifies for when he or she enrolls in a college or university.
Custodian
A custodian is legally responsible for ensuring that an item or person is safe and secure. In investment terms, a custodian is the financial services company that maintains electronic records of financial assets or has physical possession of specific securities.
The custodian’s client may be another institution, such as a mutual fund, a cor- poration, or an individual. For example, with an individual retirement account (IRA), the custodian is the bank, broker- age firm, or other financial services company that holds your account.
Similarly, the Depository Trust Company, a subsidiary of the Depository Trust and Clearing Corporation (DTCC), is the custodian of millions of stock certificates held in its vaults.