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CITY OF REDWOOD CITY <br />INVESTMENT POLICY <br /> Last update: 6/22/2016 13 <br />CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a Certificate. Large- <br />denomination CD’s are typically negotiable. <br />COLLATERAL: Securities, evidence of deposit or other property, which a borrower pledges to secure <br />repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. <br />COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report of the City. It includes <br />five combined statements for each individual fund and account group prepared in conformity with <br />GAAP. It also includes supporting schedules necessary to demonstrate compliance with finance-related <br />legal and contractual provisions, extensive introductory material, and a detailed Statistical Section. <br />COUPON: (a) The annual rate of interest that a bond’s issuer promises to pay the bondholder on the <br />bond’s face value. (b) A certificate attached to a bond evidencing interest due on a payment date. <br />DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for <br />his own account. <br />DEBENTURE: A bond secured only by the general credit of the issuer. <br />DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment <br />and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money <br />for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt <br />for the securities. <br />DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived from, the <br />movement of one or more underlying index or security, and may include a leveraging factor, or (2) <br />financial contracts based upon notional amounts whose value is derived from an underlying index or <br />security (interest rates, foreign exchange rates, equities or commodities). <br />DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower <br />than face value. A security selling below original offering price shortly after sale also is considered to be <br />at a discount. DISCOUNT SECURITIES: Non-interest bearing money market instruments that are issued <br />a discount and redeemed at maturity for full face value (e.g., U.S. Treasury Bills.) <br />DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent <br />returns. <br />DURATION: A measure of the sensitivity of the price (the value of principal) of a fixed-income <br />investment to a change in interest rates. Duration is expressed as a number of years. Rising interest <br />rates mean falling bond prices, while declining interest rates mean rising bond prices. <br />FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various <br />classes of institutions and individuals, e.g., S&L’s, small business firms, students, farmers, farm <br />cooperatives, and exporters. <br />FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, <br />currently up to $250,000 per entity. <br />FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged <br />by the Federal Reserve through open-market operations. <br />FEDERAL HOME LOAN BANKS (FHLB): Government sponsored wholesale banks (currently 12 regional <br />banks), which lend funds and provide correspondent banking services to member commercial banks, <br />thrift institutions, credit unions and insurance companies. The mission of the FHLBs is to liquefy the <br />housing related assets of its members who must purchase stock in their district Bank. <br />6.1.I. - Page 26