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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.