26BUDGET(FULL-LINKED) - Flipbook - Page 274
APPENDIX B
GLOSSARY
AGENCY: A debt security issued by a federal or federally sponsored agency. Federal agencies are backed
by the full faith and credit of the U. S. Government. Federally sponsored agencies (FSAs) are backed by
each particular agency with a market perception that there is an implicit government guarantee. An example
of a federal agency is the Government National Mortgage Association (GNMA). An example of an FSA is
the Federal National Mortgage Association (FNMA).
BANKERS’ ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust company. The
accepting institution guarantees payment of the bill, as well as the issuer.
BENCHMARK: A comparative base for measuring the performance or risk tolerance of the investment
portfolio. A benchmark should represent a close correlation to the duration of the portfolio’s investment,
such as a U.S. Treasury security whose maturity matches the average duration of the portfolio.
BROKER: A broker brings buyers and sellers together for a commission.
BROKER-DEALER: A firm that buys and sells securities for its own account or for clients.
CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a certificate.
Large-denomination CDs are typically negotiable.
COLLATERAL: Securities, evidence of deposit or other property which a borrower pledges to secure
repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies.
COMMERCIAL PAPER: An unsecured short-term promissory note issued by corporations, with
maturities ranging from 2 to 270 days.
CONCENTRATION OF CREDIT RISK: Risk of loss if too much of the portfolio is invested in one
issuer or sector.
CREDIT RISK: Risk that the issuer of a security will be unable to repay principal or interest.
CUSTODIAL CREDIT RISK: Risk that a counter-party fails and securities or cash cannot be recovered
because they were not held in the owner’s name.
CUSTODY: The holding of securities by a financial institution or other agent on behalf of the City, with
responsibility for safeguarding those assets.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus
payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of
money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed
receipt for the securities.
DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent
returns.
INVPOL25
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