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Monetary policy glossary

financial intermediary

A commercial entity that serves as an interface between lenders and borrowers, e.g. by collecting deposits from the general public and extending loans to households and businesses.

financial markets

Markets in which those who have a surplus of funds lend to those who have a shortage.

financial stability

The condition in which the financial system – comprising financial intermediaries, markets and market infrastructures – is capable of withstanding shocks and the unravelling of financial imbalances, thereby mitigating the likelihood of disruptions in the financial intermediation process which are severe enough to significantly impair the allocation of savings to profitable investment opportunities.

fine-tuning operation

A non-regular open market operation executed by the Eurosystem mainly to deal with unexpected liquidity fluctuations in the market.

fiscal compact

A part (Title III) of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union which stipulates that the budgetary position of the general government of signatory Member States shall be balanced or in surplus. See also general government, Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG)

fiscal policy stance (fiscal stance)

A measure of discretionary fiscal policy with an impact on aggregate demand. It is calculated as the annual change in the cyclically adjusted primary balance net of any financial support provided to the financial sector. It is typically described as “neutral”, “tightening” or “loosening”. Tightening puts a brake on economic activity and has a positive effect on the government budget balance, whereas loosening stimulates economic activity and negatively affects the budget balance. Changes in the cyclically adjusted primary balance reflecting temporary measures or other special factors are taken into account, as they tend to have an impact on aggregate demand. Support provided to the financial sector is excluded as it is not considered to directly affect economic activity. See also budget balance, discretionary fiscal policy

fixed rate instrument

A financial instrument for which the coupon is fixed throughout the life of the instrument.

fixed rate tender

A tender procedure, in which the interest rate is specified in advance by the central bank and in which participating counterparties bid the amount of money they want to transact at that interest rate.

floating rate instrument

A financial instrument for which the coupon is periodically reset relative to a reference index to reflect changes in short or medium-term market interest rates. Floating rate instruments have either pre-fixed coupons or post-fixed coupons.

foreign exchange forward

A contract in which the outright purchase or sale of a certain amount denominated in a foreign currency against another currency, usually the domestic currency, is agreed on one day and the amount is to be delivered at a specified future date, more than two working days after the date of the contract, at a given price. This forward rate of exchange consists of the prevailing spot rate plus/minus an agreed premium/discount.

foreign exchange swap

Simultaneous spot and forward transactions exchanging one currency against another. The Eurosystem can execute open market monetary policy operations in the form of foreign exchange swaps, where the national central banks (or the ECB) buy or sell euro spot against a foreign currency and at the same time sell or buy them back in a forward transaction.

forward guidance

A communication by the Governing Council providing information about its future monetary policy intentions, based on its assessment of the outlook for price stability. The communication clarifies the Governing Council’s intentions with regard to the expected future path of the ECB’s key interest rates and/or its asset purchases.

forward rate agreement (FRA)

An agreement whereby one party undertakes to pay another party a certain interest rate on a certain principal amount for a certain period of time beginning at some point in the future.


See forward rate agreement (FRA)

futures contract

A contract to buy or sell securities or a commodity at a predetermined price on a specified future date.