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FRM Terminology

Terms to know for the FRM exam

Amortization The repayment of debt in regular installments over a period of time.
Asset Backed Security (ABS) Backed by pools of mortgage loans or other types of securitizable cash flow generating assets, are sold to investors who then receive payments based on the cash flows generated by the assets in the underlying pool.
Backwardation Occurs when the price of futures with longer maturities are less than prices of futures with shorter maturities; it is the opposite of contango.
Basel Accords The cornerstones of international risk-based banking regulation, the results of a collaborative attempt by banking regulators from major developed countries to create a globally valid & widely applicable framework for banks and bank risk management.
Beta Describes the return sensitivity of an individual stock or a portfolio of stocks to that of the market.
Black-Scholes Model A pricing approach, initially derived by Fisher Black and Myron Scholes, used to value various types of contingent and derivative securities, such as options.
Bond A legally binding contract through which the borrower (aka the issuer) borrows the principal, from an investor and in exchange pays a specified amount of interest, usually at regular intervals, and at maturity repays the principal.
Calendar Spread A trading strategy, involves the simultaneous purchase of futures or options expiring in a particular month and the sale of the same instrument expiring in another month.
Call Option A financial derivative, gives the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument from the seller of the option at a certain time for a certain price (strike price).
Callable Bond A bond that can be repaidat the discretion of the issuer and before the maturity of the bond using at a pre-determined formula.
Capital Asset Pricing Model (CAPM) Describes the relationship between risk and expected return and can be used in pricing risky securities.
Capital Requirement Determines how much minimum capital level regulators require each bank to hold against its risk levels.
Clearinghouse Guarantees the financial performance of a trade on an exchange by becoming the buyer to each seller and the seller to each buyer, and provide clearing and settlement services for financial transactions.
Commodity Generally a physical item such as food, oil, metal or other object with no differences in its makeup irrespective of the geographical or physical market where they are being sold.
Commodity Risk The potential loss from an adverse change in commodity prices.
Common Risk Factors Risk factors that may impact several obligors with similar exposures, financial instruments, or financial assets in a similar fashion at the same time.
Created by: nicoleimanleybt