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25 Cards in this Set
- Front
- Back
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A "riskless" security maturing in 52 weeks or less is a:
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Treasury bill
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Treasury bills are issued:
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By the U.S. Government at a discount to par
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Treasury Bill
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Long-term securities issued with maturities of 30 years. Issued in minimum denomination of $100 and pay interest semi-annually. Quoted in increments of 1/32.
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Treasury Bills
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Short-term securities issued with 1, 3, 6 and 12 month maturities. Issued at a discount from par ($100 minimum) and mature at par. The discount earned is considered to be the interest income. They are quoted on a discount yield basis.
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Discount Notes
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Short-Term Obligations of 1 year or less, sold at a discount from minimum $5,000 face amount, with $1,000 increments thereafter. Yield more than equivalent maturity T-Bills
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Designated Bonds
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Traditional non-callable bonds that pay interest semi-annually issued in 2-10 year maturities. These are issued in $5,000 minimum face amounts, with $1,000 increments thereafter
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Bonds
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Traditional callable bonds issued with up to a 30 year maturity that pay interest semi-annually
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Retail Bonds
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Are available in minimum $1,000 denominations and they have a unique estate planning feature. These bonds have a "survivor's option" which allows the bond to be redeemed at par plus accrued interest upon death.
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The U.S. Government promotes home ownership through the activities
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Federal Home Loan Banks (FHLB)
Federal National Mortgage Association ("Fannie Mae") Government National Mortgage Association ("Ginnie Mae") Federal Home Loan Mortgage Corporation ("Freddie Mac |
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Discount Notes
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Short-Term Obligations of 1 year or less, sold at a discount from minimum $100,000 face amount, with $1,000 increments thereafter
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Bullet Bonds
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bond" comes from the fact that these non-callable bonds are identified in dealer offering listings with a "bullet" next to the listing, indicating a non-callable bond.
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Fannie Mae
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Buys government guaranteed and insured mortgages (such as Veterans Administration "VA" insured and Federal Housing Administration "FHA" guaranteed mortgages) as well as conventional mortgages from banks
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Ginnie Mae
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The "Government National Mortgage Association" was created in 1968 - the same year that Fannie Mae was spun off by the Federal government. It is the only housing agency that is directly owned and backed by the Federal government. Buys FHA, VA, and Farmer's Home Administration (FmHA) insured mortgages from banks and places them into mortgage pools.
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Freddie Mac
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Buy conventional mortgages that do not carry government insurance or a government guarantee
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"Derivative" security
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The value of each tranch is derived from the method used to allocate cash flows
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Pro Rata
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Proportionately according to an exactly calculable factor
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PAC tranch
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Given the most certain repayment date by being buffered against prepayment risk and extension. Because it is being relieved of these risks, it is the safest tranch and is offered at a lower yield.
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Companion tranches
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Absorb prepayment risk and extension risk out of the PAC. The Companion tranches have the highest risk and are offered at higher yields.
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Yield Spread
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The dealer quotes the CMO at the same yield as an equivalent maturity Treasury issue plus a spread
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"Secondary" dealers
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These firms buy and sell Treasuries in the market through the primary dealers and can also bid in the weekly auction
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Open market operations
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The Federal Reserve maintains its own trading account and buys and sells large quantities of government securities in the market to manage interest rates.
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Fed Loosening
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When the Fed wishes to loosen credit, it will buy Treasury securities from the primary dealers, which places cash into the dealers (most of whom are banks). This lowers market interest rates, since banks have more cash to lend.
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Fed Tightening
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When the Fed wishes to tighten credit, it will sell Treasury securities to the primary dealers, which removes cash from the dealers (most of whom are banks). This raises market interest rates, since banks have less cash to lend.
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Fed Funds
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Good funds immediately payable at a Federal Reserve Branch member institution.
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Discount
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(Days to Maturity/Days in Year) X Interest Rate X Par
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