26BUDGET(FULL-LINKED) - Flipbook - Page 275
DURATION: A measure of the timing of the cash flows, such as the interest payments and the principal
repayment, to be received from a given fixed-income security. This calculation is based on three variables;
term to maturity, coupon rate, and yield to maturity. The duration of a security is a useful indicator of its
price volatility for given changes in interest rates.
FDIC (FEDERAL DEPOSIT INSURANCE CORPORATION: U.S. agency that insures bank deposits
up to the statutory limit, currently $250,000 per depositor, per bank.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA, was
chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation
working under the auspices of the Department of Housing and Urban Development (HUD). It is the
largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is
called, is a private stockholder-owned corporation. The corporation’s purchases include a variety of
adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA’s securities are also
highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive
timely payment of principal and interest.
FOREIGN-CURRENCY RISK: Risk that exchange-rate changes reduce the value of an investment
denominated in another currency (mitigated here by only buying U.S.-dollar securities).
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA OR GINNIE MAE):
Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers,
commercial banks, savings and loan associations, and other institutions. Security holder is protected by full
faith and credit of the U. S. Government. Ginnie Mae securities are backed by the FHA, VA or FMHA
mortgages. The term “pass-through” is often used to describe Ginnie Maes.
INTEREST-RATE RISK: Risk that market interest-rate movements cause the value of an investment to
fall before it matures.
INVESTMENT POLICY: A concise and clear statement of the objectives and parameters formulated by
an investor or investment manager for a portfolio of investment securities.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss
of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is
narrow and reasonable size can be done at those quotes.
MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold.
MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between
the parties to repurchase---reverse repurchase agreements that establishes each party’s rights in the
transactions. A master agreement will often specify, among other things, the right of the buyer-lender to
liquidate the underlying securities in the event of default by the seller-borrower.
MATURITY: The date upon which the principal or stated value of an investment becomes due and
payable.
MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers’
acceptances, etc.) are issued and traded.
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