FutureContracts

FutureContracts
Future Contracts: Future contracts are standardized contracts guaranteed by organized exchanges such as the New York Futures Exchange (NYFE), a part of the New York Board. Future Contracts like forward contracts, make commitments to deliver foreign exchange(or some other asset) at some future date. If a counterparty defaults on a future contract, however, the exchange assumes the defaulting party’s position and the payment obligations. Thus, unless a systematic financial market collapse threatens the exchange itself, future are essentially default risk free. In addition, default risk is reduced by the daily marking to market of contracts. This prevent the accumulation of losses and gains that occurs with forward contract.
Bank Insurance Fund: A unit of the Federal Deposit Insurance Corporation (FDIC) which provides deposit insurance to non-thrift banks. The focus of the BIF is to separate the administration of banks and thrift insurance companies, though it also increased the deposit insurance of commercial and savings banks to $100,000. Both the Bank Insurance Fund and the Savings Association Insurance Fund were formed in 1989 in response to the savings and loan bailout. The two funds were merged into the Deposit Insurance Fund in 2005.
Market Segmentation Theory：Market segmentation theory argues that individual investors have specific maturity preferences. Accordingly, securities with different maturities are not seen as the perfect substitutes under the market segmentation theory. Instead, individual investors have preferred investment horizons dictated by the nature of the assets and the liabilities they hold. And neither investors nor borrowers are
willing to shift from one maturity sector to another to take advantage of opportunities arising from changes in yield.
Securitized Mortgage Assets : Securitized mortgage assets refer to those assets that have been placed in a pool and sold directly into the capital markets. In the case of mortgages, the resulting capital market asset is a mortgage-backed security which (1) reflects a small portion of the total pool value; (2) can be traded in the secondary market; and (3) carries considerably less default or credit risk than the original mortgage or equity line because of the effects of diversification.
Marginal Mortality Rate: In the mortality rate model, p1 is the probability of a grade B bond or loan surviving the first year of its issue. Thus 1-p,is the marginal mortality rate, A marginal mortality can show the historical default rate experience of bonds in any specific quality class in each year after issue on the bond or loan.
The Repricing Gap: The repricing gap is a measure of the difference between the dollar value of assets that will reprice and the dollar value of liabilities that will reprice within a specific time period, where reprice means the potential to receive a new interest rate.
The Revoling Loan : Revolving loans usually involve credit card debt, or similar lines of credit, and as a result the balance will rise and fall as borrowers make payments and utilize the accounts
Net Long in Currency : A positive net exposure position implies a U.S FI is overall net long in a currency, (the FI han bought more foreign currency than it has sold) and faces the risk that the foreign currency will fall value against the U.S dollar, the domestic currency.
Diseconomies of Scale: An economic concept referring to a situation in which economies of scale no longer function for a firm. Rather than experiencing continued decreasing costs per increase in output, firms see an increase in marginal cost when output is increased.
Call Option: A call option gives the purchaser the right(but not the obligation) to buy the underlying security —a bond —at a prespecified exercise or strike price (X). In return, the buyer of the call option must pay the writer or seller an upfront fee known as a premium. This premium is an immediate negative cash flow for the buyer of the call, who potentially stands to make a profit if the underlying bong’s price rises above the exercise price by an amount exceeding the premium. If the price of the bond never rises above strike price, the buyer of the call never exercise the option. In this case, the option matures unexercised. The call buyer incurs a cost, premium, for the option, and no other cash flows results.。