Download GLOSSARY OF KEY TERMS DISCUSSED IN

GLOSSARY OF KEY TERMS DISCUSSED IN REPORT
Asset Backed Commercial Paper
Issued by banks these instruments usually have a maximum life, or maturity, of half
a year. They are backed by assets such as debts receivable and are used for short
term financing.
Base Rate
The rate at which the Bank of England lends to financial institutions.
Call Account
A bank account which allows instant access to deposits. Interest is subject to change
and is not fixed unlike usual investments.
Capital Financing Requirement (CFR)
The underlying need to borrow for capital purposes derived from the Council’s
balance sheet. At its simplest level this is simply the value of fixed assets less
resources used to finance capital spend held on the balance sheet.
Certificate of Deposit (CD)
Investments the Council usually enters into are fixed term investments i.e. there is a start
and end date and the investment cannot be broken (and the investment returned). With a
certificate of deposit the investment can be sold (traded) at any point before the end date.
This gives added flexibility and usually the return on these instruments is slightly lower to
compensate for the added liquidity.
Counterparty
Usually banks although other financial institutions like building societies also fall into this
definition.
Credit Default Swap (CDS)
This is effectively insurance sold to investors to protect them from default by a bank
they invest in. The insurance is sold by charging a margin to the yield on an
investment.
Credit Rating
An evaluation made by a credit rating agency (Fitch, Moody’s or Standard and
Poors) of an organisation’s likelihood of default.
Debt Management Office (DMO)
DMO – an agency of the Treasury. They are responsible for issuing government
bonds (gilts) and treasury bills (short term gilts) and also accept investments from
local authorities but offer a very low rate of interest (given the high security offered).
Gilt
Bonds that are issued by the British government and generally considered low risk.
Gross Domestic Product (GDP)
The monetary value of all the finished goods and services produced within a
country's borders in a specific time period, though GDP is usually calculated on an
annual basis.
International Monetary Fund (IMF)
The IMF plays three major roles in the global monetary system. The Fund surveys and
monitors economic and financial developments, lends funds to countries with balance-ofpayment difficulties, and provides technical assistance and training for countries
requesting it.
Inflation
The rate at which the general level of prices for goods and services is rising, and,
subsequently, purchasing power is falling. Central banks attempt to stop severe
inflation, along with severe deflation, in an attempt to keep the excessive growth of
prices to a minimum.
LIBID
London Interbank Bid Rate - The average interest rate which major London
banks borrow Eurocurrency deposits from other banks. Unlike LIBOR (London
Interbank Offered Rate), which is determined by the average interest rate which
banks are willing to lend Eurocurrency deposits, LIBID refers to the rate which banks
bid to borrow.
LOBO
A long term borrowing instrument with periodic interest re-fixings, which incorporates
two linked options:
• An option for the lender to set revised (usually higher) interest rates at
predetermined interest reset dates - for example annually. This is the Lender's
option.
• A linked option for the borrower (exercisable only if the Lender’s option is
exercised) either to pay the revised interest rate, or else to redeem the bond.
This is the Borrower’s option.
Money Market Fund (MMF)
A well rated, highly diversified pooled investment vehicle whose assets mainly comprise
of short term (less than one year) securities representing high-quality, liquid debt and
monetary instruments.
Monetary Policy Committee (MPC)
Government body that sets the bank rate (commonly referred to as being base rate).
Its primary target is to keep inflation within plus or minus 1% of a central target of 2%
in two years’ time from the date of the monthly meeting of the Committee. Its
secondary target is to support the Government in maintaining high and stable levels
of growth and employment.
Private Finance Initiative (PFI)
A method of providing funds for major capital investments where private firms are
contracted to complete and manage the projects.
Public Works Loans Board (PWLB)
A statutory body operating within the DMO and is responsible for lending money to
local authorities and other prescribed bodies.
Term Deposit
A deposit held in a financial institution for a fixed term at a fixed rate
Treasury Bills (T Bills)
Short term debt instruments issued by the UK or other governments. They operate
like gilts (government bonds) but are shorter than one year in length.
Yield
The income return on an investment. This refers to the interest or dividends received from a security and
is usually expressed annually as a percentage based on the investment's cost, its current market value or its
face value.