ECN 134 Terms MT1

ECN 134 Terms MT1 - Mortgage Backed Securities- an...

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Terms Option - contractual agreement enabling the holder to buy or sell a security at a designated price for a specified period of time, unaffected by movements in its market price during the period (put – sell, call – buy). Future – a contract that promises two parties will deliver a pre-specified price / interest rate at a future date. Credit Default Swap – insurance on a bond or a loan. Get paid out if the bond/loan defaults. Often makes bonds/loans seem more attractive. Securitization – process that distributes risk by aggregating debt instruments in a pool, then issues new securities backed by the pool. Allows intermediaries to be bypassed
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Unformatted text preview: Mortgage Backed Securities- an asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property. Financial Engineering – the creation/use of intermediaries and financial tools to achieve desired end results. Rearranging of wealth/bundling and unbundling of financial assets. It allows investors to avoid sources of risk more efficiently. Financial Derivative – a financial instrument - or more simply, an agreement between two people or two parties - that has a value determined by the price of something else...
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This note was uploaded on 11/08/2010 for the course ECN 134 taught by Professor Unknown during the Spring '09 term at UC Davis.

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