Chapter 2 Flashcards
(46 cards)
Money Market
Includes short term, marketable, liquid, low risk debt securities. Sometimes called cash equivalents because of their safety and liquidity. We calculate yield with them.
Capital market
Includes longer term, riskier securities. These are more diverse than those found within the money market. For this, we subdivide the capital market into four segments.
Treasury Bills
Most marketable of CAD money. They are simplest form of borrowing; the government raises money by selling bills to the public. Investors buy the bills at discount from the stated maturity value. At bill’s maturity, holder receives from gov a payment equal to face value.
Certificate of deposit (CD)
a time deposit with a chartered bank. Time deposits may not be withdrawn on demand. The bank pays interest and principal to the depositer only at the end of the fixed term of the deposit.
Guaranteed investment certificate (GIC)
A fixed term deposit with a trust company that pays interest and principal upon maturity and is non-transferable.
Bearer Deposit notes (BDNs)
A negotiable bank time deposit in Canada.
Commercial Paper
Short-term unsecured paper (or note) issues by large corporations.
Bankers’ acceptance
Money market instrument consisting of an order to a bank by a customer to pay a fixed amount at a future debt; the bank has accepted this order.
Eurodollars
Dollar - denominated deposits at foreign banks or foreign branches of American banks.
Repurchase agreements (repos)
Short term, often overnight, sales of government securities with an agreement to repurchase the securities at a slightly higher price. A reverse repo is a purchase with an agreement to resell at a specified price on a future date.
Federal Funds,
Interbank, uncollateralized loans through the US federal reserve system that are of a short term nature (usually overnight). The interest rate on such loans is known as the federal funds rate.
Bond equivalent yield
Bond yield calculated on an annual percentage rate method. Differs from Effective annual yield.
Effective annual yield
Annualized interest rate on a security computed using compound interest techniques.
Bank discount yield
An annualized interest rate assuming simple interest and a 360 day year, and using the face value of the security rather than purchase price to compute return per dollar invested.
Yield to maturity
A measure of the average rate of return that will be earned on a bond if held to maturity.
Debentures
A bond not backed by specific collateral.
Subordinated debentures
unsecured bonds that have been made inferior as claims to higher ranked borrowings of a firm.
Callable bonds
A bond that the issuer may repurchase at a given price in some specified period.
Retractable bond
A bond that gives the right to the holder to redeem early at par value, instead of holding it till maturity date.
Convertible bonds
Bonds with an option allowing the bondholder to exchange the bond for a number of shares. The market conversion price is the current value of the shares for which the bond may be exchanged. The conversion premium is the excess of the bond’s value over the conversion price.
Variable rate mortgage
A conventional mortgage loan with interest payment varying in response to market rates.
Pass throughs
A pool of loans (such as mortgage) sold in a package and entitling the owner to receive all principal and interest payments made by the borrowers.
Common Stocks
Also known as equities, or equity securities, issued as ownership shares in a publicly held corporation. Shareholders have voting rights and may receive dividends based on their proportionate ownership.
Proxy
An instrument empowering an agent to vote in the name of a shareholder.
