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13 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Default risk |
– Treasuries lowest, FDIC-insured deposits (<=$250K) same as Treasuries, federal agencies low, others depend on risk of issuer or credit enhancements |
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Interest rate risk |
– shorter terms less risky than longer terms |
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Liquidity (aka marketability) |
is ability to sell the security quickly and close to the current market price – Treasuries best, federal agencies next; others depend on market for issuer’s securities; as size of issue decreases liquidity decreases. |
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Taxation of returns |
-Munis’(state and local government securities) interest is exempt from federal incometax and often from state or local income tax in the same state as the issuer;capital gains are not exempt; Treasuries’(U.S. Treasury securities) interest is exempt from state and local income tax. |
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Investment securities portfolio contains? |
1) Available-for-sale (AFS) (81% in Q2’14) 2) Held-to-maturity(HTM) (19% in Q2’14)
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AFS AND HTM |
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Fair value to amortized cost (%) for TotalSecurities on _______ = _______ |
6/30/14 ;100.9% |
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Investment Maturity strategies (5 of them) |
A. Ladder - equal distribution across maturityrange B. Front-end load- all short-term investments C. Back-end load - all long-term investments D. Barbell - divided between short- andlong-term investments E. Rate expectations - as expectations changeso does mix, i.e., as expect I to increase, shift more to short andas expect I to decrease, shift more to long |
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Differences Held–to-maturity (HTM) vs. available-for-sale (AFS) |
-With HTM we use amortized costs and returns where market value changes do not affect the balance sheet or income statement. -With AFS, securities are valued at market and market values DIFFERENT than the amortized cost value are assigned to “unrealized gains/losses”in equity section
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Trading account assets and liabilities |
Valued on the balance sheet at market and changes in value are reported as trading profits/revenues or losses/expenses. For example, increases in values of assets and decreases in value of liabilities would be considered profits or revenue. |
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Nationally RecognizedStatistical Rating Organizations (NAME 3) |
1) A.M. Best Company, Inc. 2) DBRS Ltd. (Dominion Bond RatingService in Canada) 3) Fitch, Inc. |
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In terms of liquidity when size of issue ________ liquidity ________? |
Decreases; Decreases |
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The tier 1 capital looks ________ for the HTM treatment than the AFS treatment when market values ________. |
Higher; decrease |
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One problem with moving securities from AFS to HTM is that it ? |
restricts the bank’s ability to sell them before maturity touse for liquidity. |
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