Terms 18-32

Question 1

Federal Funds

Answer 1

Excess reserves lent among Federal Reserve member banks; called overnight borrowing.

Question 2

GNMA

Answer 2

Ginnie Mae; Government National Mortgage Association; sells government-backed securities to raise funds for VA and FHA residential mortgages; explicitly backed.

Question 3

Fannie Mae

Answer 3

FNMA Federal National Mortgage Association; Issues securities to purchase VA, FHA, and conventional mortgages in the markets, implicitly backed.

Question 4

Pre-payment risks

Answer 4

Risk that homeowners pay off mortgages early, causing the funds used for bond issues to be redeemed earlier than expected.

Question 5

CMO

Answer 5

Collateralized Mortgage Obligations; mortgages made into a derivative product, which derives its value from the performance of another investment.

Question 6

Fiscal Agent

Answer 6

Brokerage house acting as a representative of a government agency to market and sell new issues to the public.

Question 7

Round lot

Answer 7

Municipal security is 5 bonds for individual and 100 bonds for brokers/dealers.

Question 8

Redemption

Answer 8

Bond retired by the issuer either at maturity or at an ealier date.

Question 9

Mandatory redemption

Answer 9

Munipical bond retired in yearly increments according to call schedule.

Question 10

Refunding

Answer 10

Replacing existing municipal debt with a new issue when the old issue matures.

Question 11

Defeasance

Answer 11

Purchase of US government securities from the trustee; used to effectively retire existing debt for a municipality

Question 12

Overlapping Debt

Answer 12

Municipal debt owned by multiple municipalities such as school districts

Question 13

General Obligation Bonds

Answer 13

Bonds backed by taxation of the issuing municipality.

Question 14

Revenue Bonds

Answer 14

Bonds issued for new project funding, such as new roads.

Question 15

Gross Revenue Pledge

Answer 15

Revenue bonds fund pay bondholders before operation and maintenance costs.