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Structured Financial Instruments 50:7
Terms in this set (13)
The combination of zero-coupon bonds and call options into a prepackaged structured financial instrument. Thus, it offers full capital protection.
refers to increasing risk exposure in the hope of realizing a higher expected return.
Credit-linked note (CLN)
this is a type of bond that pays regular coupons but whose redemption value depends on the occurrence of a well-defined credit event, such as a rating downgrade or the default of an underlying asset, called the reference asset. If the specified credit event doesn't occur, the investor receives the par value of the CLN.
Par value CLN - Nominal Value
Proceeds of CLN event.
Protection Buyer of a CLN
Protection seller of a CLN
Many times this type of product is a participation instrument linked to an equity index.
In contrast to capital protected instruments that offer equity exposure, these participation instruments usually do not offer ________________ _______________________.
C - (L x R)
Inverse floater coupon rate =
Deleveraged inverse floater
Inverse floaters with a coupon leverage greater than zero but lower than one are called this....
Leveraged Inverse Floaters
Inverse Floaters with a coupon leverage greater than one
All promised cash flows as scheduled
If an investor holds a credit-linked note and the credit event does not occur, the investor receives:
A deleveraged inverse floater
A structured financial instrument whose coupon rate is determined by the formula 5% - (0.5 x Libor) is most likely:
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