Letter of guarantee - an agreement issued by a bank on behalf of a customer who has entered into an agreement for the purchase of goods from a supplier.
Letters of guarantee tell the supplier that they will be paid even if the bank’s customer defaults.
The bank may issue a letter of guarantee on behalf of the seller of the call guaranteeing that the seller owns the underlying asset and that the bank will deliver the underlying securities if the call is exercised.
Letters of guarantee are often used when one party to a transaction is unsure that the other party involved will be able to meet its financial obligations, especially when purchasing expensive equipment or other property.
Letters of guarantee are used in a variety of business situations, including contracts and construction; funding from a financial institution; or declarations during the export and import processes.
An asset swap is used to convert cash flow characteristics in order to hedge risks from one financial instrument with undesirable cash flow characteristics to another with favorable cash flow characteristics.
The condition of covered parity of interest rates suggests that the relationship between interest rates and the spot and forward values of the currencies of the two countries are in balance.
Equity derivatives are financial instruments whose value is determined by the change in the price of the underlying asset, if that asset is a stock or stock index.
The forward price is the price at which the seller delivers the underlying asset, derivative or currency to the buyer of a forward contract on a predetermined date.
A hedged tender is a way to counteract the risk that the offering company will refuse some or all of the investor’s shares presented as part of the tender offer.
The Hollywood Stock Exchange (HSX) is an entertainment “stock market” where people can buy and sell virtual shares of celebrities and movies for a currency called the Hollywood Dollar®.
The International Swaps and Derivatives Association is a professional association that has been working since 1985 to promote and improve the trading of swaps and derivatives.
External arbitrage is a type of arbitrage involving multinational US banks to take advantage of interest rate differentials between the US and other countries.
Swap rate refers to the fixed rate that a party to a swap contract asks for in exchange for a commitment to pay a short-term rate, such as the labor or federal fund rate.
In a full yield swap, one party makes payments in accordance with a set rate, and the other party makes payments in accordance with the rate of the underlying or benchmark asset.
An inflationary zero-coupon swap (ZCIS) is a type of inflationary derivative in which an income stream linked to inflation is exchanged for an income stream with a fixed interest rate.
A holding bag is a slang term for an investor who holds on to a badly performing investment, hoping it will bounce back when there is a chance it won’t.