An institution created by the Federal Reserve Bank of New York on October 27, 2008, as a result of the credit crunch faced by financial intermediaries in the commercial paper market. The Commercial Paper Funding Facility (CPFF) provides liquidity to U.S. issuers of commercial paper registered with the CPFF through a special purpose vehicle (SPV) that is funded by the Federal Reserve Bank of New York. |||The CPFF allows financial intermediaries to approve loans for individual clients and businesses. The SPV used by the CPFF purchases and holds three-month unsecured commercial paper and asset-backed commercial paper (ABCP) at a discounted rate until maturity. The Federal Reserve Bank of New York is repaid as the maturing commercial paper assets mature.U.S. issuers of commercial paper are required to register for a fee two business days prior to using the CPFF's SPV. At time of registration, the New York Fed determines the maximum value of commercial paper the issuer can sell to the SPV.
A ratio used by lenders to determine the risk of default by prospective homebuyers when more than one loan is used. In general, lenders are willing to lend at CLTV ratios of 80% and above to borrowers with a high credit rating. |||For example, let's assume that an individual is purchasing property valued at $200,000. This individual takes out two loans for the property, one for $100,000 and another for $50,000. The combined loan to value ratio would be 75%, (($100,000 + $50,000) / $200,000).
A statistical measure of the dispersion of data points in a data series around the mean. It is calculated as follows: The coefficient of variation represents the ratio of the standard deviation to the mean, and it is a useful statistic for comparing the degree of variation from one data series to another, even if the means are drastically different from each other. |||In the investing world, the coefficient of variation allows you to determine how much volatility (risk) you are assuming in comparison to the amount of return you can expect from your investment. In simple language, the lower the ratio of standard deviation to mean return, the better your risk-return tradeoff.Note that if the expected return in the denominator of the calculation is negative or zero, the ratio will not make sense.
In currencies, this is the abbreviation for the China Yuan Renminbi. |||The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion.
A group of indexes made up of 25 tranches of commercial mortgage-backed securities (CMBS), each with different credit ratings. The CMBX indexes are the first attempt at letting participants trade risks that closely resemble the current credit health of the commercial mortgage market by investing in credit default swaps, which put specific interest rate spreads on each risk class. The pricing is based on the spreads themselves rather than on a pricing mechanism. Daily trading involves cash settlements between the two parties to any transaction, and the CMBX indexes are rolled over every six months to bring in new securities and continuously reflect the current health of the commercial mortgage markets. This "pay as you go" settlement process considers three events in the underlying securities as "credit events": principal writedowns, principal shortfalls (failures to pay on an underlying mortgage) and interest shortfalls (when current cash flows pay less than the CMBX coupon). |||The introduction of indexes like the CMBX has led to massive growth in the structured finance market, which includes credit default swaps, commercial mortgage-backed securities, collateralized debt obligations and other collateralized securities. Trading in the CMBX tranches is done over the counter, and liquidity is provided by a syndicate of large investment banks. While the average investor cannot participate in the CMBX indexes directly, they can view current spreads for a given risk class to assess how the market is digesting current market conditions, making it a potentially valuable research tool.
A U.S. federal agency established by the Commodity Futures Trading Commission Act of 1974. It ensures the open and efficient operation of the futures markets. There are five futures markets commissioners who are appointed by the president (subject to Senate approval). |||The CFTC guards investors from manipulation, abusive trade practices, and fraud.
A survey by the Conference Board that measures how optimistic or pessimistic consumers are with respect to the economy in the near future. |||The idea is that if the consumers are optimistic, they will tend to purchase more goods and services. This increase in spending will inevitably stimulate the whole economy.
A method of portfolio insurance in which the investor sets a floor on the dollar value of his or her portfolio, then structures asset allocation around that decision. The two asset classes used in CPPI are a risky asset (usually equities or mutual funds), and a riskless asset of either cash, equivalents or Treasury bonds. The percentage allocated to each depends on the "cushion" value, defined as (current portfolio value – floor value), and a multiplier coefficient, where a higher number denotes a more aggressive strategy. |||The investor will make a beginning investment in the risky asset equal to the value of:(Multiplier) x (cushion value in dollars)and will invest the remainder in the riskless asset. As the portfolio value changes over time, the investor will rebalance according to the same strategy. Consider a hypothetical portfolio of $100,000, of which the investor decides $90,000 is the absolute floor. If the portfolio falls to $90,000 in value, the investor would move all assets to cash to preserve capital.The value of the multiplier is based on the investor's risk profile, and is typically derived by first asking what the maximum one-day loss could be on the risky investment. The multiplier will be the inverse of that percentage. So, if one decides that 20% is the maximum "crash" possibility, the multiplier value will be (1/.20), or 5. Multiplier values between 3 and 6 are very common.based on the information provided, the investor would allocate 5 x ($100,000 - $90,000) or $50,000 to the risky asset, with the remainder going into cash or a riskless asset.The timetable for rebalancing is up to the investor, with monthly or quarterly being oft-cited examples. Ideally, the cushion value will grow over time, allowing for more money to flow into the risky asset. If, however, the cushion drops, the investor may need to sell a portion of the risky asset in order to keep the asset allocation targets intact.