Definition of Liability funding strategies

Liability funding strategies

Investment strategies that select assets so that cash flows will equal or exceed
the client's obligations.

Asset/liability management

Also called surplus management, the task of managing funds of a financial
institution to accomplish the two goals of a financial institution:
1) to earn an adequate return on funds invested, and
2) to maintain a comfortable surplus of assets beyond liabilities.

Basic business strategies

Key strategies a firm intends to pursue in carrying out its business plan.

Contingent pension liability

Under ERISA, the firm is liable to the plan participants for up to 39% of the net
worth of the firm.

Covered or hedge option strategies

strategies that involve a position in an option as well as a position in the
underlying stock, designed so that one position will help offset any unfavorable price movement in the other,
including covered call writing and protective put buying. Related: naked strategies

Funding ratio

The ratio of a pension plan's assets to its liabilities.

Funding risk

Related: interest rate risk

High-coupon bond refunding

Refunding of a high-coupon bond with a new, lower coupon bond.

Liability

A financial obligation, or the cash outlay that must be made at a specific time to satisfy the
contractual terms of such an obligation.

Liability swap

An interest rate swap used to alter the cash flow characteristics of an institution's liabilities so
as to provide a better match with its assets.

Limited liability

Limitation of possible loss to what has already been invested.

Limited-liability instrument

A security, such as a call option, in which the owner can only lose his initial
investment.

Low-coupon bond refunding

Refunding of a low coupon bond with a new, higher coupon bond.

Limited-liability instrument

A security, such as a call option, in which the owner can only lose his initial investment.

Naked option strategies

An unhedged strategy making exclusive use of one of the following: Long call
strategy (buying call options ), short call strategy (selling or writing call options), Long put strategy (buying
put options ), and short put strategy (selling or writing put options). By themselves, these positions are called
naked strategies because they do not involve an offsetting or risk-reducing position in another option or the
underlying security.
Related: covered option strategies.

Net advantage of refunding

The net present value of the savings from a refunding.

Private Export Funding Corporation (PEFCO)

Company that mobilizes private capital for financing the
export of big-ticket items by U.S. firms by purchasing at fixed interest rates the medium- to long-term debt
obligations of importers of U.S. products.

Refunding

The redemption of a bond with proceeds received from issuing lower-cost debt obligations
ranking equal to or superior to the debt to be redeemed.

Stopping curve refunding rate

A refunding rate that falls on the stopping curve.

Unlimited liability

Full liability for the debt and other obligations of a legal entity. The general partners of a
partnership have unlimited liability.

Yield curve strategies

Positioning a portfolio to capitalize on expected changes in the shape of the Treasury yield curve.

Yield spread strategies

strategies that involve positioning a portfolio to capitalize on expected changes in
yield spreads between sectors of the bond market.

limited liability company

an organizational form that is a hybrid of the corporate and partnership organizational
forms and used to limit the personal liability of the owners;
it is typically used by small professional (such as accounting) firms

limited liability partnership

an organizational form that is a hybrid of the corporate and partnership organizational
forms and used to limit the personal liability of the owners;
it is typically used by large professional (such as accounting) firms

Current liability

This is typically the accounts payable, short-term notes payable, and
accrued expense accounts on the balance sheet, or any other liabilities that are
expected to be liquidated within a short time interval.

Liability

A dollar amount of obligation payable to another entity.

limited liability

The owners of the corporation are not personally responsible for its obligations.

Contingent Liability

An obligation that is dependent on the occurrence or nonoccurrence of
one or more future events to confirm the existence of an obligation, the amount owed, the payee,
or the date payable.

Deferred Tax Liability

Future tax obligation that results from the origination of a temporary
difference that causes pretax book income to exceed taxable income.

Liability

A probable future sacrifice of economic benefits arising from present obligations of
a particular entity to transfer assets or provide services to other entities in the future as a result of
past transactions or events.

Funding Costs

The price of obtaining capital, either borrowed or equity, with intent to carry on business operations.

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