“Bankers’ acceptances (BAs):” Bankers acceptances are a form of a loan used in import-export financing transactions which become negotiable when accepted by a bank. The issuing bank is liable for the payment at its maturity. Terms vary but normally they are under six months and are purchased on a discount basis.
“Broker:” An intermediary who brings buyers and sellers together, handling their orders, and generally charging a commission for their services.
“Certificates of deposit:” Instruments issued by a bank specifying that a sum of money has been deposited, payable with interest to the bearer of the certificate on a certain date.
“Collateral:” Securities evidence of deposit or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies.
“Commercial paper:” A short-term promissory note issued by a bank holding company for the purpose of financing current transactions. Issues are sold on a discount basis with maturities up to two hundred and seventy days.
“Dealer:” A dealer, as opposed to broker, acts as a principal in all transactions, buying and selling for his or her own account.
“Delivery vs. payment:” Securities are transferred over the federal wire system from one bank to another. Under this system funds are not transferred until the securities are delivered. If a third party acts as custodian, funds are released by the custodian only when delivery is accomplished.
“Depository:” A bank or financial institution accepting cash deposits and investments.
“Derivatives:” Derivatives are structured securities whose performance is based on the actions of similar underlying securities. The structured securities “derive” their value from the underlying securities. The structural securities pay interest rates that vary and are based on formula’s that can be quite complex.
“Diversification:” Dividing available funds among a variety of securities and institutions so as to minimize market risk.
“Federal agency securities:” The Federal agency issues most actively traded are interest bearing obligations of four agencies, Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA), Federal Home Loan Banks (FHLB) and Federal Farm Credit Banks (FFCB). Agency issues usually offer higher yields than treasury issues with comparable maturities. All new issues are now in book entry form only.
“Federal funds rate:” The rate of interest at which Federal funds are traded between banks. Federal funds are excess reserves held by banks that desire to invest or lend them to banks needing reserves. The particular rate is influenced through open market operations of the Federal Reserve Board (purchases and sales of government and other securities to stimulate or lessen money growth).
“Liquidity:” The length of time required to convert any investment to cash.
“Local government investment pool:” The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment.
“Market value:” The market value of a security is the price at which the last sale of the same issue was sold.
“Maturity:” The date upon which the principal or stated value of an investment becomes due.
“Principal:” The invested amount on which interest is earned.
“Repurchase agreement:” Range in maturity from overnight to fixed time to open end. Repos involve a simultaneous sale of securities by a bank or government securities dealer to a city with an agreement for the bank to repurchase the securities at a fixed date at a specified rate of interest.
“Safekeeping:” An arrangement under which an organization’s securities are kept in a bank vault or in the case of book entry securities, are held and recorded in the customer’s name evidence of this arrangement is a safekeeping receipt.
“Secondary market:” A market where certain securities may be bought and sold at prevailing market prices after their initial distribution but before their stated maturity date.
“Treasury bills:” Short-term marketable securities issued by the U.S. Treasury and secured by the Federal Government and have maximum liquidity.
“Treasury notes and bonds:” These are direct obligations of the U.S. Government with maturities from one to ten years on the notes and ten to thirty years on the bonds.
“Yield:” The rate of annual return on an investment expressed as a percentage. (Ord. 2937 § 1, 2014)