Part II Chapter 5

Question 1

asset-backed commercial paper

ABCP

Answer 1

An investment that has most of the features of
standard commercial paper (CP), but is secured
against specific assets—usually short-term trade
receivables from a single company or a range of
companies.

Question 2

bank obligation

Answer 2

A debt instrument issued by a bank to raise funds

Question 3

certificate of deposit (CD)

Answer 3

A type of time deposit account that pays the
bearer some stated rate of interest (either fixed or
variable) over its maturity. It may be issued in any
denomination, with maturities generally ranging from
one month to five years

Question 4

commercial paper (CP)

Answer 4

Tradable promissory notes issued by companies,
as opposed to banks. Companies raise funds in the
short-term money market through these issuances.
Maturity can range from overnight to 270 days in the
publicly traded market and up to 397 days for private
placement, but most of this instrument are issued
with maturities of less than 45 days.

Question 5

default/credit risk

Answer 5

A form of risk that is related to how a change in the
credit quality of a company, including its ability to
make payments in a timely manner, would affect the
value of a security or portfolio of investments.

Question 6

Depository Trust & Clearing

Corporation (DTCC)

Answer 6

An investment-industry-owned corporation that
works through its subsidiaries to provide clearing,
settlement, and information services for equities,
corporate and municipal bonds, government
and mortgage-backed securities, money market
instruments, and over-the-counter derivatives.

Question 7

Eurodollar

Answer 7

A deposit denominated in US dollars held in a
financial institution outside of the United States,
typically in Europe.

Question 8

Federal Open Market Committee

FOMC

Answer 8

The committee of the US Federal Reserve that runs
the open market operations that help to implement
US monetary policy and control the money supply.

Question 9

floating-rate note (FRN)

Answer 9

A note with a variable interest rate.

Question 10

government paper

Answer 10

A range of short-term paper, generally referred to
as treasury bills or government-issued promissory
notes, issued by national, provincial, and local
government agencies and authorities, as well as
other government entities, in order to raise funds in
the short-term money market.

Question 11

liquidity risk

Answer 11

The risk that an organization’s may falter in its ability
to raise necessary cash to meet its obligations as
they come due.

Question 12

mark to market

Answer 12

The accounting act of recording the price or value of
a security, portfolio, or account to reflect its current
market value rather than its book value.

Question 13

money market

Answer 13

That part of the global financial market that deals
with financial instruments that are easily converted
to cash (highly liquid) and have very short maturities,
typically one year or less.

Question 14

money market fund (MMF)

Answer 14

A commingled pool of money market instruments,
typically held by banks or investment firms, in which
fund investors have an ownership interest.

Question 15

mortgage-backed security (MBS)

Answer 15

A type of asset-backed security that uses pools of
mortgages (mainly residential) as the source of cash
flows to the investors.

Question 16

mutual fund

Answer 16

A company that brings together money from many
people and invests it in stocks, bonds, or other
assets. The combined holdings of stocks, bonds, or
other assets the fund owns are known as its portfolio.

Question 17

net asset value (NAV)

Answer 17

A value that represents the price per share of
a mutual fund or an exchange-traded fund. It is
generally calculated as the total value of all the
securities or assets in the fund (less any liabilities),
divided by the number of shares outstanding.

Question 18

repurchase agreement (repo)

Answer 18

An agreement in which a bank or securities dealer
sells government securities it owns to an investor
and agrees to repurchase them at a later date and at
a slightly higher price.

Question 19

spread

Answer 19

The difference between the bid and ask price of a

particular security or asset.

Question 20

Treasury bill (T-bill)

Answer 20

A short-term debt obligation backed by the US

government with a maturity of less than one year.

Question 21

variable-rate demand obligation (VRDO)

Answer 21

A type of security issued as a long-term bond that

carries a short-term liquidity feature, or put.

Question 22

yield

Answer 22

The income return on an investment. This refers to
the interest or dividends received from a security and
is usually expressed annually as a percentage based
on the investment’s cost, its current market value, or
its face value.