Subprime mortgage crisis/Glossary

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Capital adequacy ratio [r]: The ratio of a bank's capital to its risk weighted credit exposures. May be defined in terms of tier 1 (core) or tier 2 capital. ^[e]
CDO [r]: Collateralised Debt Obligation. A portfolio of corporate bonds, grouped into tranches that are ranked by estimated risk. ^[e]
CDS [r]: Credit-Default Swap. An insurance agreement that guarantees protection against a bond default in return for a fee. ^[e]
Central Bank [r]: A government agency that is responsible for monetary policy and the support of the banking system (for example the Federal Reserve Board and the Bank of England). Usually responsible for controlling a country's monetary policy and preserving the value of its currency. ^[e]
CMO [r]: Collateralised Mortgage Obligation. A portfolio of mortgages, grouped into tranches that are ranked by estimated risk ^[e]
Commercial paper [r]: unsecured debt_instruments that are issued by corporations to meet short term financing needs (usually repayable after 3 months). ^[e]
Debt_instrument [r]: A formal obligation assumed by a borrower to replay the lender in accordance with the terms of an agreement, including bonds, debentures, promissory notes, leases and mortgages. ^[e]
Derivative [r]: An asset whose value depends upon the expected value of another asset. ^[e]
Fannie Mae [r]: (Federal National Mortgage Association) US government-sponsored enterprise created to provide financial support to Savings and Loans. Privatised in 1968. ^[e]
Gearing: see Leverage
Freddie Mac [r]: (Federal Home Loan Mortgage Corporation) Fannie Mae clone created to provide competition to Fannie Mae. ^[e]
Hedging [r]: Protecting against price changes by simultaneously buying(/selling) an asset and making a futures contract to sell(/buy) it. ^[e]
Hedge fund [r]: A limited-membership, aggressively-managed investment fund, often escaping regulation. ^[e]
Leverage [r]: (i) The use of borrowing to increase the amount of money that is available for investment or consumption. (ii) A proportional measure of indebtedness, such as the ratio of a company's debt to its shareholders' equity (the same as British "gearing"), or the ratio of the indebtedness of a household to the net value of its assets (ie net of its debts). ^[e]
Liquidity [r]: (i) The quantity of available assets in its possession that an organisation could rapidly exchange for cash (assets that cannot be exchanged for cash at a particular time are considered to be "illiquid" at that time); (ii) the funding that is unconditionally available to settle claims through monetary authorities (termed "official liquidity"). ^[e]
Liquidity risk [r]: the risk that assets cannot be sold at time when cash is needed to meet a commitment. ^[e]
Margin call [r]: a demand for the additional securities required to maintain the minimum maintenance level of a margin account when security prices fall. ^[e]
Money market [r]: A market for short-term debt instruments (generally of maturity after less than one year) such as certificates of deposit, commercial paper, and Treasury bills. ^[e]
Moral hazard [r]: Motivation to take an otherwise unwarranted risk because the cost of an unfavourable outcome would be borne by someone other than the risk-taker. ^[e]
Portfolio insurance [r]: Add brief definition or description
Prime rate [r]: Add brief definition or description
Reserve ratio [r]: Add brief definition or description
Risk premium [r]: Add brief definition or description
Savings and loans [r]: Add brief definition or description
Securitisation [r]: Add brief definition or description
Selling short [r]: Add brief definition or description
Structured investment vehicle [r]: Add brief definition or description
Subprime mortgage [r]: Add brief definition or description
Swap: see CDS
Value at risk [r]: Add brief definition or description
Wholesale banking [r]: Add brief definition or description