Page 27 - City of Moreno Valley Invstment and Cash Management Program

GLOSSARY

AGENCY – A debt security issued by a federal or federally sponsored INVESTMENT STRATEGY– An investor’s plan of attack to guide their
agency. See Government Sponsored Enterprises (GSE). investment decisions based on individual goals, risk tolerance and
future needs for capital. The components covered in most investment
AMORTIZATION – The systematic reduction of the amount owed on a strategies include asset allocation, buy and sell guidelines, and
debt issue through periodic payments of principal. risk guidelines.

AVERAGE LIFE – The average length of time that an issue of serial LIQUIDITY – The ability of an asset to be easily and quickly converted
bonds and/or term bonds with a mandatory sinking fund feature is into cash.
expected to be outstanding.
LOCAL AGENCY INVESTMENT FUND (LAIF) – A fund maintained
BASIS POINT – A unit of measure used in the valuation of fixed- and operated by the State of California which pools investment funds
income securities equal to 1/100 of 1 percent of yield, e.g., ¼ of 1 for local agencies who voluntarily participate.
percent is equal to 25 basis points.
MATURITY – The date on which payment of a financial obligation is due.
BENCHMARK – A comparative base for measuring the performance
or risk tolerance of the investment portfolio.
MEDIUM TERM NOTES (MTN) – A medium term note is a note that
usually matures in five to 10 years or a corporate note continuously
BOND LADDER – A strategy for managing fixed-income investments offered by a company to investors through a dealer.
with which the investor builds a ladder by dividing his or her investment
dollars evenly among bonds that mature at regular intervals. The
advantages of bond ladders are consistent returns, low risk and PRINCIPAL – The face value or par value of a debt instrument. Also
ongoing liquidity. may refer to the amount of capital invested in a given security.

BOND RATING – A specification of the possibility of default by a bond REINVESTMENT RISK – The risk that a fixed-income investor will
issuer based on an analysis of the issuer’s financial condition. be unable to reinvest income proceeds from a security holding at the
same rate of return currently generated by that holding.
BROKER – A broker brings together buyers and sellers for a commission.
SAFEKEEPING – Holding of assets (e.g., securities) by a
CREDIT QUALITY – The measurement of the financial strength of a financial institution.
bond issuer. This measurement helps an investor to understand an
issuer’s ability to make timely interest payments and repay the loan SECONDARY MARKET – The market on which previously offered or
principal upon maturity. Generally the higher the credit rating the lower sold securities are traded.
the interest rate paid by the issuer because the risk of default is lower.
Credit quality ratings are provided by nationally recognized
rating agencies. SPREAD – The difference between the bid and ask prices of a security
or asset. The difference between yields.
CREDIT RISK – The risk to an investor that an issuer will default in the
payment of interest and/or principal on a security. SUPRANATIONALS – Supranational is an international organization
or union in which member states transcend national boundaries or
interests to share in the decision making and vote on issues pertaining
FEDERAL FUNDS RATE – Interest rate charged by one institution
lending federal funds to the other. to the wider grouping.

FEDERAL OPEN MARKET COMMITTEE (FOMC)- A committee TREASURY BILLS – Short-term U.S. government non-interest
of the Federal Reserve Board that reviews economic and financial bearing debt securities with maturities of no longer than one year and
conditions, determines the appropriate stance of monetary policy, issued in minimum denominations of $10,000. The yields on these
and assesses the risks to its long-run goals of price stability and bills are monitored closely in the money markets for signs of interest
sustainable economic growth. rate trends.

GOVERNMENT SECURITIES – An obligation of the U.S. government, TREASURY NOTES – Intermediate U.S. government debt securities
backed by the full faith and credit of the government. These securities with maturities of one to ten years and issued in denominations
are regarded as the highest quality of investment securities available ranging from $1,000 to $ 1 million or more.
in the U. S. securities market. See Treasury Bills, Notes, and Bonds.
TREASURY BONDS – Long-term U.S. government debt securities
GOVERNMENT SPONSORED ENTERPRISES (GSE) – Entities with maturities of ten years or longer and issued in minimum
chartered by Congress to achieve specific goals and objectives denominations of $1,000.
which include, FHLB, FNMA, FHLMC, FFCB, FACO, FICO, GNMA,
REFCORP, SBA and TVA. Debt issued by GSE’s is not the obligation VOLATILITY – A degree of fluctuation in the price and valuation
of the federal government and typically falls just below Treasuries of securities.
in creditworthiness.
YIELD – The current rate of return on an investment security generally
INTEREST RATE RISK – The risk associated with declines or rises in expressed as a percentage of the security’s current price.
interest rates which cause an investment in a fixed-income security to
increase or decrease in value.
YIELD CURVE – A graphic representation that depicts the relationship
INVESTMENT POLICY – A concise and clear statement of the at a given point in time between yields and maturity for bonds that
objectives and parameters formulated by an investor of investment are identical in every way except maturity. A normal yield curve may
manager for a portfolio of investment securities. alternatively be referred to as a positive yield curve.