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risk as the investor may receive its principal back when interest rates are lower <br /> than when the investment was initially made. <br /> CERTIFICATE OF DEPOSIT (CD). A time deposit with a specific maturity evidenced by a <br /> certificate. Large denomination CDs may be marketable. <br /> CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SYSTEM (CDARS). A private placement <br /> service that allows local agencies to purchase more than $250,000 in CDs from a <br /> single financial institution (must be a participating institution of CDARS) while still <br /> maintaining FDIC insurance coverage. CDARS is currently the only entity providing <br /> this service. CDARS facilitates the trading of deposits between the California <br /> institution and other participating institutions in amounts that are less than <br /> $250,000 each, so that FDIC coverage is maintained. <br /> COLLATERAL. Securities or cash pledged by a borrower to secure repayment of a loan or <br /> repurchase agreement. Also, securities pledged by a financial institution to secure <br /> deposits of public monies. <br /> COLLATERALIZED MORTGAGE OBLIGATIONS (CMO). Classes of bonds that redistribute the <br /> cash flows of mortgage securities (and whole loans) to create securities that have <br /> different levels of prepayment risk, as compared to the underlying mortgage <br /> securities. <br /> COMMERCIAL PAPER. The short-term unsecured debt of corporations. <br /> COST YIELD. The annual income from an investment divided by the purchase cost. <br /> Because it does not give effect to premiums and discounts which may have been <br /> included in the purchase cost, it is an incomplete measure of return. <br /> COUPON. The rate of return at which interest is paid on a bond. <br /> CREDIT RISK. The risk that principal and/or interest on an investment will not be paid in a <br /> timely manner due to changes in the condition of the issuer. <br /> CURRENT YIELD. The annual income from an investment divided by the current market <br /> value. Since the mathematical calculation relies on the current market value rather <br /> than the investor's cost, current yield is unrelated to the actual return the investor <br /> will earn if the security is held to maturity. <br /> DEALER. A dealer acts as a principal in security transactions, selling securities from and <br /> buying securities for his own position. <br /> DEBENTURE. A bond secured only by the general credit of the issuer. <br /> DELIVERY VS. PAYMENT (DVP). A securities industry procedure whereby payment for a <br /> security must be made at the time the security is delivered to the purchaser's <br /> agent. <br /> DERIVATIVE. Any security that has principal and/or interest payments which are subject to <br /> uncertainty (but not for reasons of default or credit risk) as to timing and/or amount, <br /> or any security which represents a component of another security which has been <br /> separated from other components ("Stripped" coupons and principal). A derivative <br /> is also defined as a financial instrument the value of which is totally or partially <br /> derived from the value of another instrument, interest rate, or index. <br /> DISCOUNT. The difference between the par value of a bond and the cost of the bond, when <br /> the cost is below par. Some short-term securities, such as T-bills and banker's <br /> acceptances, are known as discount securities. They sell at a discount from par <br /> and return the par value to the investor at maturity without additional interest. Other <br /> 16 <br />