Fixed-Income Markets Issuance Trading and Funding Part 4 Flashcards

1
Q

Capital protected instruments

A

Offered different levels of capital protection and are only as good as the issuer of the instrument
guarantee certificate that offers full capital protection

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2
Q

Yield enhancement instruments

A

Higher risk exposure and possibly a higher expected return
credit-linked note

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3
Q

Characteristics of credit-linked note

A

Pays regular coupons, but its redemption value depends on a well-defined credit event
investors receive par value at maturity if the event does not occur
investor receives the par value minus nominal value if the event occurs
allows the issuer to transfer the credit risk to investors

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4
Q

Participation instrument

A

A type of instrument that allows investors to participate in the return of an underlying instrument
floating-rate bond
do not offer capital protection

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5
Q

Leveraged instrument

A

Structured financial instruments that offer higher returns for small investments
inverse floater

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6
Q

Inverse floater coupon rate

A

C - (L x R)

C = maximum coupon rate if reference rate is 0
L = coupon leverage
R = reference rate on reset date

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7
Q

Deleveraged inverse floaters

A

Inverse floaters with a coupon leverage greater than 0 but lower than one

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8
Q

Leveraged inverse floater

A

Inverse floater with the coupon level is greater than 1

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9
Q

Retail deposits

A

Demand deposits or checking account
savings account
money market account

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10
Q

Demand deposit or checking account

A

Depositors have access to funds anytime
funds may be used to pay for transactions
little or no interest paid

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11
Q

Savings accounts

A

Depositors have access to funds
pays an interest

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12
Q

Money market account

A

Funds are available at short or no notice
offer money market rates of return

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13
Q

Short-term wholesale funds

A

Central Bank funds
interbank funds
certificates of deposit

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14
Q

Certificate of deposit

A

Savings instrument with a maturity date, a fixed interest rate, and can be issued in any denomination
negotiable and non-negotiable

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15
Q

Non negotiable certificate of deposit

A

The interest and deposit or paid at maturity

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16
Q

Negotiable certificate of deposits

A

Deposit rates are allowed to sell the deposits before maturity
large denomination ($1m; institutional investors)
small denomination (retail investors)

17
Q

Repurchase and reverse repurchase agreement

A

An agreement between two parties where the seller sells a security with a commitment to buy the same security back in the future

18
Q

Structure of repurchase and reverse repurchase agreement

A

Reverse Repo
Repurchase price
Repurchase date
repo rate

19
Q

Reverse repo

A

Repo (seller of security)
Reverse repo (purchaser of security)

20
Q

Repurchase price

A

The price at which the dealer repurchases the security

21
Q

Repurchase date

A

The date on which the dealer repurchases the security
Overnight repo (next day)
Term repo (more than a day)
Repo at maturity

22
Q

Repo rate

A

The interest rate negotiated between two parties

23
Q

Factors that affect the repo rate

A

The risk of the collateral
Term of the repurchase agreement
Delivery requirement
Supply and demand

24
Q

Credit risk if dealer cannot repurchase collateral

A

The investor keeps the collateral and retains any income
The investor is disadvantaged if the price falls below the repurchase price

25
Q

Credit risk if investor can not deliver the collateral

A

Dealer keeps cash
The dealer is disadvantaged if the price rises above the repurchase price
The lender carries greater credit risk
Repo margin = market value of security - amount lent to dealer