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Definition of Mortgage-pipeline risk
The risk associated with taking applications from prospective mortgage borrowers
A type of mortgage pipeline risk that is generally created when the terms of the loan to be
Variations of mortgage instruments such as adjustable-rate and variablerate
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
The risk that the cash flow of an issuer will be impaired because of adverse economic
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
mortgage against which no additional debt may be issued.
A security backed by a pool of pass-throughs , structured so that
The risk that a foreign debtor will be unable to pay its debts because of business events,
Related: Unsystematic risk
The risk that a project will not be brought into operation successfully.
A loan based on the credit of the borrower and on the collateral for the mortgage.
The risk that the other party to an agreement will default. In an options contract, the risk
The ability of the national economy to generate enough foreign exchange to meet
Level of political and economic uncertainty in a country affecting the value of loans or
The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
Refers to the volatility of returns on international investments caused by events associated
Related: Exchange rate risk
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
Related: unsystematic risk.
In project financing, the risk that the project's output will not be salable at a price that will
Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the
The risk that the ability of an issuer to make interest and principal payments will change because
Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency
The variability of a firm's value that results from unexpected exchange rate changes or the
The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
See:diversifiable risk or unsystematic risk.
Flat price risk
Taking a position either long or short that does not involve spreading.
Force majeure risk
The risk that there will be an interruption of operations for a prolonged period after a
Foreign exchange risk
The risk that a long or short position in a foreign currency might have to be closed out
Freddie Mac (Federal Home Loan Mortgage Corporation)
A Congressionally chartered corporation that
Related: interest rate risk
GEMs (growing-equity mortgages)
mortgages in which annual increases in monthly payments are used to
risk that arises when an issuer has policies concentrated within certain geographic areas,
GMCs (guaranteed mortgage certificates)
First issued by Freddie Mac in 1975, GMCs, like PCs, represent
Government National Mortgage Association (Ginnie Mae)
A wholly owned U.S. government corporation
Graduated-payment mortgages (GPMs)
A type of stepped-payment loan in which the borrower's payments
The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to deliver its end of the contract. It is also referred to as settlement risk.
Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words,
Also called purchasing-power risk, the risk that changes in the real return the investor will
The risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk.
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
The risk that arises from the difficulty of selling an asset. It can be thought of as the difference
Market price of risk
A measure of the extra return, or risk premium, that investors demand to bear risk. The
risk that cannot be diversified away. Related: systematic risk
A loan secured by the collateral of some specified real estate property which obliges the borrower
A bond in which the issuer has granted the bondholders a lien against the pledged assets.
A modification of standard duration to account for the impact on duration of MBSs of
Mortgage pass-through security
Also called a passthrough, a security created when one or more mortgage
The period from the taking of applications from prospective mortgage borrowers to the
The interest rate on a mortgage loan.
Mortgage-Backed Securities Clearing Corporation
A wholly owned subsidiary of the Midwest Stock
Securities backed by a pool of mortgage loans.
The lender of a loan secured by property.
The borrower of a loan secured by property.
risk that cannot be eliminated by diversification.
Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also
mortgage against which additional debts may be issued. Related: closed-end mortgage.
The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is
Overnight delivery risk
A risk brought about because differences in time zones between settlement centers
Possibility of the expropriation of assets, changes in tax policy, restrictions on the exchange of
The risk that the value of a security (or a portfolio) will decline in the future. Or, a type of
A type of mortgage-pipeline risk that occurs when a lender has an unusual loan in production or
Related: inflation risk
RAMs (Reverse-annuity mortgages)
mortgages in which the bank makes a loan for an amount equal to a
In banking, the risk that profits may decline or losses occur because a rise in interest rates forces up
Regulatory pricing risk
risk that arises when regulators restrict the premium rates that insurance companies
The risk that proceeds received in the future will have to be reinvested at a lower potential
REMIC (real estate mortgage investment conduit)
A pass-through tax entity that can hold mortgages
Related: unsystematic risk
Reverse price risk
A type of mortgage-pipeline risk that occurs when a lender commits to sell loans to an
Typically defined as the standard deviation of the return on total investment. Degree of uncertainty of
A probability used to determine a "sure" expected value (sometimes called a
Speculation on perceived mispriced securities, usually in connection with merger and
A risk-averse investor is one who, when faced with two investments with the same expected
Groups of projects that have approximately the same amount of risk.
Risk controlled arbitrage
A self-funding, self-hedged series of transactions that generally utilize mortgage
Categories of risk used to calculate fundamental beta, including (1) market variability, (2)
A person willing to accept lower expected returns on prospects with higher amounts of risk.
The process of identifying and evaluating risks and selecting and managing techniques to
Insensitive to risk.
Willing to pay money to transfer risk from others.
The reward for holding the risky market portfolio rather than the risk-free asset. The spread
Risk premium approach
The most common approach for tactical asset allocation to determine the relative
The rate earned on a riskless investment, typically the rate earned on the 90-day U.S. Treasury Bill.
Riskless rate of return
The rate earned on a riskless asset.
The simultaneous purchase and sale of the same asset to yield a profit.
Riskless or risk-free asset
An asset whose future return is known today with certainty. The risk free asset is
An asset whose future return is uncertain.
return Return earned on an asset normalized for the amount of risk associated with that asset.
An asset whose future return is known today with certainty.
The rate earned on a riskless asset.
The risk of falling short of any investment target.
The risk that a central bank will impose foreign exchange regulations that will reduce or
Strip mortgage participation certificate (strip PC)
Ownership interests in specified mortgages purchased
Stripped mortgage-backed securities (SMBSs)
Securities that redistribute the cash flows from the
Also called undiversifiable risk or market risk, the minimum level of risk that can be
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