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23 Cards in this Set
- Front
- Back
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What are the three potential reads on treasury yield curves? What do they imply?
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Upward sloping: Economic expansion and possibly inflation
Downward sloping: Recession and possibly deflation Flat: Whats coming next |
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What is a yield curve?
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A curve showing relation between the interest rate and the time to maturity of the debt
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What is monetary policy?
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Fed's changing of interest rates and / or money supply to control economic activity
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What is fiscal policy?
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The governments changes in taxing and overall spending to help stimulate or calm economic activity
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What is underwriting?
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Funding of borrows by bringing securities to the marketplace
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What is market-making?
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Managing the trading price structure for securities in the secondary market
Broker dealers facilitate trading of specific securities |
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What is positioning?
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Buying and selling securities for a dealer's own account
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What is brokering?
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Buying and selling securities for a client's account
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What is the difference between a primary market and a secondary market?
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Primary market is where underwriting occurs
Secondary market is where trading takes place |
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What is a prime rate?
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Base rate that banks use in pricing commercial loans to best and most creditworthy customers
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What is LIBOR?
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London Interbank Offered Rate
Rate that the most creditworthy international banks dealing in offshore currencies charge each other for large loans |
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What are the varying maturities of bonds?
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Short term: Up to 4 years
Medium term: 5-10 years Long term: More than 10 years |
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What is a call provision?
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Allows issuer to repay investors principal at a specified date before maturity
Commonly called when prevailing interest rates have dropped significantly since issue |
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What are puts?
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Allow investor to force the issuer to repurchase bonds at a specified time prior to maturity
Used when investors need cash or when interest rates have risen since issue |
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What are floating interest rates?
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Rates that are adjustable and track more closely to prevailing market rates
Often work in line with LIBOR or prime rates |
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What is an interest rate swap?
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Exchange of net interest payments based on a notional principal amount between the bank and the end users
Counter parties obtains desired structure at a lower cost - bank makes spread |
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What do forwards and futures do?
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Guarantee interest rate at a specified time in the future on borrowing or deposits
Can be used to hedge borrowing costs and to secure future prices |
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What is an option?
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Right but not obligation to buy or sell an underlying asset
Buyer pays writer a premium |
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What are the two types of risk?
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Credit
Interest rate |
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What is the relationship between bond prices and interest rates?
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Inverse - if bond prices go down interest rates go up
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What is a credit spread?
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Additional compensation for credit risk
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Where do securities stop being investment grade?
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Below BBB
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What is arbitrage?
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Buy low sell high same time
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