FRL 3151

Short-term debt markets with high liquidity and low risk.

Include T-bills, federal funds, repos, commercial paper, CDs, and bankers’ acceptances.

Converts short-term yields to annualized form.

Accounts for compounding to find true annual yield.

Sold below par and pay par at maturity.

Return on discount securities using face value.

Adjust yield to 365-day basis for comparison.

Pay interest and principal at maturity.

Yield based on price and face value of a single-payment security.

Short-term U.S. government discount securities.

Price = Face × [1 - (Discount rate × Days/360)].

Overnight loans between banks.

Short-term collateralized loans.

Unsecured short-term corporate debt.

Bank-issued time deposits that can be traded.

Time drafts guaranteed by a bank for trade financing.

Trade long-term debt instruments issued by governments and corporations.

Fixed-coupon long-term government debt.

Inflation-protected securities adjusting principal with CPI.

Zero-coupon bonds separated from coupons.

Interest earned since the last coupon payment.

Bond price excluding accrued interest.

Clean price plus accrued interest.

Issued by local governments; interest often tax-exempt.

Before-tax yield × (1 – tax rate).

Long-term company debt instruments.

Assess credit quality and default risk.

Offer higher yields due to higher risk.

Long-term loans secured by real estate.

Where mortgages are originated.

Property pledged as security for a loan.

Borrower’s initial equity investment.

Protects lenders when down payment <20%.

Backed by FHA or VA agencies.

Not government insured.

Constant interest rate and payments over loan term.

Interest rate changes with the market.

Fixed-rate loans have more; ARMs have less.

Gradual repayment of principal and interest.

PMT = (r × P) / [1 – (1 + r)^(-n)].

Portion of each payment covering loan interest.

Portion reducing the loan balance.

Decreases after each payment.

Loans exceeding conforming size limits.

Loans to borrowers with weak credit histories.

Buys and sells existing mortgages.

Pooling mortgages into tradeable securities.

Securities backed by mortgage pools.

Pass mortgage payments directly to investors.

MBSs divided into risk and maturity tranches.

Prepayment and credit risks.

Market for trading currencies globally.

Price of one currency in terms of another.

Exposure to exchange rate fluctuations.

London, New York, Tokyo, and Singapore.

Domestic currency per unit of foreign currency.

Foreign currency per unit of domestic currency.

Currency value increases relative to another.

Currency value decreases relative to another.

Affects import/export competitiveness.

(Ending rate – Beginning rate) / Beginning rate.

Financial contracts deriving value from underlying assets.

Customized agreements to trade in the future.

Default risk due to lack of standardization.

Standardized, exchange-traded agreements.

Determined by spot price and cost of carry.

Intermediary that guarantees futures contracts.

Give the right but not obligation to buy or sell.

Fixed exercise price of an option.

Cost paid for the option.

Right to buy an asset.

Right to sell an asset.

Can be exercised any time before expiration.

Can only be exercised at expiration.

Agreements to exchange cash flows, like fixed vs. floating interest.

Short-term debt markets with high liquidity and low risk.

Include T-bills, federal funds, repos, commercial paper, CDs, and bankers’ acceptances.

Converts short-term yields to annualized form.

Accounts for compounding to find true annual yield.

Sold below par and pay par at maturity.

Return on discount securities using face value.

Adjust yield to 365-day basis for comparison.

Pay interest and principal at maturity.

Yield based on price and face value of a single-payment security.

Short-term U.S. government discount securities.

Price = Face × [1 - (Discount rate × Days/360)].

Overnight loans between banks.

Short-term collateralized loans.

Unsecured short-term corporate debt.

Bank-issued time deposits that can be traded.

Time drafts guaranteed by a bank for trade financing.

Trade long-term debt instruments issued by governments and corporations.

Fixed-coupon long-term government debt.

Inflation-protected securities adjusting principal with CPI.

Zero-coupon bonds separated from coupons.

Interest earned since the last coupon payment.

Bond price excluding accrued interest.

Clean price plus accrued interest.

Issued by local governments; interest often tax-exempt.

Before-tax yield × (1 – tax rate).

Long-term company debt instruments.

Assess credit quality and default risk.

Offer higher yields due to higher risk.

Long-term loans secured by real estate.

Where mortgages are originated.

Property pledged as security for a loan.

Borrower’s initial equity investment.

Protects lenders when down payment <20%.

Backed by FHA or VA agencies.

Not government insured.

Constant interest rate and payments over loan term.

Interest rate changes with the market.

Fixed-rate loans have more; ARMs have less.

Gradual repayment of principal and interest.

PMT = (r × P) / [1 – (1 + r)^(-n)].

Portion of each payment covering loan interest.

Portion reducing the loan balance.

Decreases after each payment.

Loans exceeding conforming size limits.

Loans to borrowers with weak credit histories.

Buys and sells existing mortgages.

Pooling mortgages into tradeable securities.

Securities backed by mortgage pools.

Pass mortgage payments directly to investors.

MBSs divided into risk and maturity tranches.

Prepayment and credit risks.

Market for trading currencies globally.

Price of one currency in terms of another.

Exposure to exchange rate fluctuations.

London, New York, Tokyo, and Singapore.

Domestic currency per unit of foreign currency.

Foreign currency per unit of domestic currency.

Currency value increases relative to another.

Currency value decreases relative to another.

Affects import/export competitiveness.

(Ending rate – Beginning rate) / Beginning rate.

Financial contracts deriving value from underlying assets.

Customized agreements to trade in the future.

Default risk due to lack of standardization.

Standardized, exchange-traded agreements.

Determined by spot price and cost of carry.

Intermediary that guarantees futures contracts.

Give the right but not obligation to buy or sell.

Fixed exercise price of an option.

Cost paid for the option.

Right to buy an asset.

Right to sell an asset.

Can be exercised any time before expiration.

Can only be exercised at expiration.

Agreements to exchange cash flows, like fixed vs. floating interest.