Definition of Federally related institutions

Federally related institutions

Arms of the federal government that are exempt from SEC registration and
whose securities are backed by the full faith and credit of the U.S. government (with the exception of the
Tennessee Valley Authority).

Arms index

Also known as a trading index (TRIN)= (number of advancing issues)/ (number of declining
issues) (Total up volume )/ (total down volume). An advance/decline market indicator. Less than 1.0 indicates
bullish demand, while above 1.0 is bearish. The index often is smoothed with a simple moving average.

Asset-backed security

A SECurity that is collateralized by loans, leases, receivables, or installment contracts
on personal property, not real estate.

Best-interests-of-creditors test

The requirement that a claim holder voting against a plan of reorganization
must receive at least as much as he would have if the debtor were liquidated.

Book-entry securities

The Treasury and federal agencies are moving to a book-entry system in which SECurities are not represented by engraved pieces of paper but are maintained in computerized records at the
Fed in the names of member banks, which in turn keep records of the SECurities they own as well as those they
are holding for customers. In the case of other SECurities where a book-entry has developed, engraved
SECurities do exist somewhere in quite a few cases. These SECurities do not move from holder to holder but are
usually kept in a central clearinghouse or by another agent.

Comparative credit analysis

A method of analysis in which a firm is compared to others that have a desired
target debt rating in order to infer an appropriate financial ratio target.

Consumer credit

credit granted by a firm to consumers for the purchase of goods or services. Also called
retail credit.

Convertible security

A SECurity that can be converted into common stock at the option of the SECurity holder,
including convertible bonds and convertible preferred stock.

Credit

Money loaned.

Credit analysis

The process of analyzing information on companies and bond issues in order to estimate the
ability of the issuer to live up to its future contractual obligations. Related: default risk

Credit enhancement

Purchase of the financial guarantee of a large insurance company to raise funds.

Credit period

The length of time for which the customer is granted credit.

Credit risk

The risk that an issuer of debt SECurities or a borrower may default on his obligations, or that the
payment may not be made on a negotiable instrument. Related: Default risk

Credit scoring

A statistical technique wherein several financial characteristics are combined to form a single
score to represent a customer's creditworthiness.

Credit spread

Related:Quality spread

Crediting rate

The interest rate offered on an investment type insurance policy.

Creditor

Lender of money.

Cross-sectional approach

A statistical methodology applied to a set of firms at a particular point in time.

Debt securities

IOUs created through loan-type transactions - commercial paper, bank CDs, bills, bonds, and
other instruments.

Demand line of credit

A bank line of credit that enables a customer to borrow on a daily or on-demand basis.

Derivative security

A financial SECurity, such as an option, or future, whose value is derived in part from the
value and characteristics of another SECurity, the underlying SECurity.

Discount securities

Non-interest-bearing money market instruments that are issued at a discount and
redeemed at maturity for full face value, e.g. U.S. Treasury bills.

Eurocredits

Intermediate-term loans of Eurocurrencies made by banking syndicates to corporate and
government borrowers.

Evergreen credit

Revolving credit without maturity.

Exchangeable Security

SECurity that grants the SECurity holder the right to exchange the SECurity for the
common stock of a firm other than the issuer of the SECurity.

Exempt securities

Instruments exempt from the registration requirements of the SECurities Act of 1933 or the
margin requirements of the SEC Act of 1934. Such SECurities include government bonds, agencies, munis,
commercial paper, and private placements.

Federal agency securities

SECurities issued by corporations and agencies created by the U.S. government,
such as the federal Home Loan Bank Board and Ginnie Mae.

Federal credit agencies

Agencies of the federal government set up to supply credit to various classes of
institutions and individuals, e.g. S&Ls, small business firms, students, farmers, and exporters.

Federal Deposit Insurance Corporation (FDIC)

A federal institution that insures bank deposits.

Federal Financing Bank

A federal institution that lends to a wide array of federal credit agencies funds it
obtains by borrowing from the U.S. Treasury.

Federal funds

Non-interest bearing deposits held in reserve for depository institutions at their district federal
Reserve Bank. Also, excess reserves lent by banks to each other.

Federal funds market

The market where banks can borrow or lend reserves, allowing banks temporarily
short of their required reserves to borrow reserves from banks that have excess reserves.

Federal funds rate

This is the interest rate that banks with excess reserves at a federal Reserve district bank
charge other banks that need overnight loans. The Fed Funds rate, as it is called, often points to the direction
of U.S. interest rates.

Federal Home Loan Banks

The institutions that regulate and lend to savings and loan associations. The
federal Home Loan Banks play a role analogous to that played by the federal Reserve Banks vis-à-vis
member commercial banks.

Federal Reserve System

The central bank of the U.S., established in 1913, and governed by the federal
Reserve Board located in Washington, D.C. The system includes 12 federal Reserve Banks and is authorized
to regulate monetary policy in the U.S. as well as to supervise federal Reserve member banks, bank holding
companies, international operations of U.S.banks, and U.S.operations of foreign banks.

Five Cs of credit

Five characteristics that are used to form a judgement about a customer's creditworthiness:
character, capacity, capital, collateral, and conditions.

Fixed-dollar security

A nonnegotiable debt SECurity that can be redeemed at some fixed price or according to
some schedule of fixed values, e.g., bank deposits and government savings bonds.

Foreign tax credit

Home country credit against domestic income tax for foreign taxes paid on foreign
derived earnings.

Freddie Mac (Federal Home Loan Mortgage Corporation)

A Congressionally chartered corporation that
purchases residential mortgages in the SECondary market from S&Ls, banks, and mortgage bankers and
SECuritizes these mortgages for sale into the capital markets.

Full faith-and-credit obligations

The SECurity pledges for larger municipal bond issuers, such as states and
large cities which have diverse funding sources.

Full coupon bond

A bond with a coupon equal to the going market rate, thereby, the bond is selling at par.

Full price

Also called dirty price, the price of a bond including accrued interest. Related: flat price.

Full-payout lease

See: financial lease.

Full-service lease

Also called rental lease. Lease in which the lessor promises to maintain and insure the
equipment leased.

Fully diluted earnings per shares

Earnings per share expressed as if all outstanding convertible SECurities
and warrants have been exercised.

Fully modified pass-throughs

Agency pass-throughs that guarantee the timely payment of both interest and
principal. Related: modified pass-throughs
Functional currency As defined by FASB No. 52, an affiliate's functional currency is the currency of the
primary economic environment in which the affiliate generates and expends cash.

Government bond

See: government SECurities.

Government National Mortgage Association (Ginnie Mae)

A wholly owned U.S. government corporation
within the Department of Housing & Urban Development. Ginnie Mae guarantees the timely payment of
principal and interest on SECurities issued by approved servicers that are collateralized by FHA-issued, VAguaranteed,
or Farmers Home Administration (FmHA)-guaranteed mortgages.

Government sponsored enterprises

Privately owned, publicly chartered entities, such as the Student Loan
Marketing Association, created by Congress to reduce the cost of capital for certain borrowing SECtors of the
economy including farmers, homeowners, and students.

Government securities

Negotiable U.S. Treasury SECurities.

Host security

The SECurity to which a warrant is attached.

Hybrid security

A convertible SECurity whose optioned common stock is trading in a middle range, causing
the convertible SECurity to trade with the characteristics of both a fixed-income SECurity and a common stock
instrument.

Intermarket sector

spread The spread between the interest rate offered in two SECtors of the bond market for
issues of the same maturity.

Intramarket sector spread

The spread between two issues of the same maturity within a market SECtor. For
instance, the difference in interest rates offered for five-year industrial corporate bonds and five-year utility
corporate bonds.

Investment tax credit

Proportion of new capital investment that can be used to reduce a company's tax bill
(abolished in 1986).

Letter of credit (L/C)

A form of guarantee of payment issued by a bank used to guarantee the payment of
interest and repayment of principal on bond issues.

Line of credit

An informal arrangement between a bank and a customer establishing a maximum loan
balance that the bank will permit the borrower to maintain.

Line of credit

An informal arrangement between a bank and a customer establishing a maximum loan
balance that the bank will permit the borrower to maintain.

Manufactured housing securities (MHSs)

Loans on manufactured homes - that is, factory-built or
prefabricated housing, including mobile homes.

Market sectors

The classifications of bonds by issuer characteristics, such as state government, corporate, or utility.

Monthly income preferred security (MIP)

Preferred stock issued by a subsidiary located in a tax haven.
The subsidiary relends the money to the parent.

Mortgage pass-through security

Also called a passthrough, a SECurity created when one or more mortgage
holders form a collection (pool) of mortgages sells shares or participation certificates in the pool. The cash
flow from the collateral pool is "passed through" to the SECurity holder as monthly payments of principal,
interest, and prepayments. This is the predominant type of MBS traded in the SECondary market.

Mortgage-Backed Securities Clearing Corporation

A wholly owned subsidiary of the Midwest Stock
Exchange that operates a clearing service for the comparison, netting, and margining of agency-guaranteed
MBSs transacted for forward delivery.

Mortgage-backed securities

SECurities backed by a pool of mortgage loans.

Pass-through securities

A pool of fixed-income SECurities backed by a package of assets (i.e. mortgages)
where the holder receives the principal and interest payments. Related: mortgage pass-through SECurity

Primitive security

An instrument such as a stock or bond for which payments depend only on the financial
status of the issuer.

Project loan securities

SECurities backed by a variety of FHA-insured loan types - primarily multi-family
apartment buildings, hospitals, and nursing homes.

Public Securities Administration (PSA)

The trade association for primary dealers in U.S. government
SECurities, including MBSs.

Registration statement

A legal document that is filed with the SEC to register SECurities for public offering.

Retail credit

credit granted by a firm to consumers for the purchase of goods or services.
See: consumer credit.

Revolving credit agreement

A legal commitment wherein a bank promises to lend a customer up to a
specified maximum amount during a specified period.

Revolving line of credit

A bank line of credit on which the customer pays a commitment fee and can take
down and repay funds according to his needs. Normally the line involves a firm commitment from the bank
for a period of several years.

SEC

The SECurities and Exchange Commission, the primary federal regulatory agency of the SECurities
industry.

Second pass regression

A cross-SECtional regression of portfolio returns on betas. The estimated slope is the
measurement of the reward for bearing systematic risk during the period analyzed.

Secondary issue

1) Procedure for selling blocks of seasoned issues of stocks.
2) More generally, sale of already issued stock.

Secondary market

The market where SECurities are traded after they are initially offered in the primary
market. Most trading is done in the SECondary market. The New York stock Exchange, as well as all other stock exchanges, the bond markets, etc., are SECondary markets. Seasoned SECurities are traded in the
SECondary market.

Sector

Refers to a group of SECurities that are similar with respect to maturity, type, rating, industry, and/or coupon.

Section 482

United States Department of Treasury regulations governing transfer prices.

Secured debt

Debt that, in the event of default, has first claim on specified assets.

Securities & Exchange Commission

The SEC is a federal agency that regulates the U.S.financial markets.

Securities analysts

Related:financial analysts

Securitization

The process of creating a passthrough, such as the mortgage pass-through SECurity, by which
the pooled assets become standard SECurities backed by those assets. Also, refers to the replacement of
nonmarketable loans and/or cash flows provided by financial intermediaries with negotiable SECurities issued
in the public capital markets.

Security

Piece of paper that proves ownership of stocks, bonds and other investments.

Security characteristic line

A plot of the excess return on a SECurity over the risk-free rate as a function of
the excess return on the market.

Security deposit (initial)

Synonymous with the term margin. A cash amount of funds that must be deposited
with the broker for each contract as a guarantee of fulfillment of the futures contract. It is not considered as
part payment or purchase. Related: margin

Security deposit (maintenance)

Related: Maintenance margin SECurity market line (SML). A description of
the risk return relationship for individual SECurities, expressed in a form similar to the capital market line.

Security market line

Line representing the relationship between expected return and market risk.
SECurity market plane A plane that shows the equilibrium between expected return and the beta coefficient
of more than one factor.
SECurity selection
See: SECurity selection decision.

Security selection decision

Choosing the particular SECurities to include in a portfolio.

Shelf registration

A procedure that allows firms to file one registration statement covering several issues of
the same SECurity.

Short-term tax exempts

Short-term SECurities issued by states, municipalities, local housing agencies, and
urban renewal agencies.

Small issues exemption

SECurities issues that involve less than $1.5 million are not required to file a
registration statement with the SEC. Instead, they are governed by Regulation A, for which only a brief
offering statement is needed.

Stripped mortgage-backed securities (SMBSs)

SECurities that redistribute the cash flows from the
underlying generic MBS collateral into the principal and interest components of the MBS to enhance their use
in meeting special needs of investors.

Tax-exempt sector

The municipal bond market where state and local governments raise funds. Bonds issued
in this SECtor are exempt from federal income taxes.

Trade credit

credit granted by a firm to another firm for the purchase of goods or services.

Treasury securities

SECurities issued by the U.S. Department of the Treasury.

Underlying security

Options: the SECurity subject to being purchased or sold upon exercise of an option
contract. For example, IBM stock is the underlying SECurity to IBM options. Depository receipts: The class,
series and number of the foreign shares represented by the depository receipt.

Unsecured debt

Debt that does not identify specific assets that can be taken over by the debtholder in case of default.

Variable price security

A SECurity, such as stocks or bonds, that sells at a fluctuating, market-determined price.

Credit

Buying or selling goods or services now with the intention of payment following at some time in
the future (as opposed to buying or selling goods or services for cash).

Creditors

Purchases of goods or services from suppliers on credit to whom the debt is not yet paid. Or a
term used in the Balance Sheet to denote current liabilities.

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