Glossary of Financial Terms
| Term | Description |
|---|---|
| 3 Month (or 90 Day) Treasury Bill | The monthly average return for the existing 3 month (or 90 Day) T-bill |
| 30 Day Effective Yield | Our monthly investments earnings expressed as an interest rate, less expenses |
| 30 Day Gross Yield | The dollar amount earned on our investments over one month, before expense |
| 6 Month Treasury Bill | The monthly average return for the existing 6-month T-bill |
| Access to Capital | Deposits at IL financial institutions that earn a discounted rate of interest on money being loaned for targeted economic initiatives |
| Accretion | An accounting procedure that gradually increases the discount on a fixed income security up to the par value over the life of the security through periodic changes to income |
| Ag-Invest 5yr | A linked deposit program that provides low-cost loans to farmers and agricultural professionals for equipment purchases and construction costs on a long-term basis |
| Agencies | See U. S. Government Agency Securities |
| Agricultural Programs | A linked deposit loan program for the purpose of providing lower cost of borrowing to an agriculture producer. |
| Amortization | An accounting procedure that gradually reduces the premium paid on a fixed income security down to the par value over the life of the security through periodic changes to income. |
| Annual Basis | A statistical technique where a figure covering a period of less than one year is extrapolated to cover a full year. |
| Asset | Anything owned by an individual that has value, including property, savings and investments. |
| Average Pooled Investment Earnings | The return on the state portfolio that complies with Government Accounting Standards Board requirements for recognizing market gains and losses. |
| Basis Point | The smallest measure used in quoting yields on fixed income securities. One basis point is equal to 0.01% of yield; 100 basis points equals 1% yield. A yield that changes from 5.00% and 5.25% increases by 25 basis points. |
| Benchmark | A standard used for comparison and to evaluate performance. |
| Blended Benchmark | Blended return of leading indexes |
| Bloomberg | An electronic network that has analytical tools and financial information, both real time and historical, for nearly all financial markets and investment types worldwide. |
| Bloomberg CD Index | The average rate paid by the highest rated dealers in the market |
| Bond | A debt instrument or IOU that is a “promise to pay” sold by corporations or governments to raise money or capital. The bond issuer promises to pay the holder of the bond the principal amount of the loan when the bond matures, plus a fixed rate of interest periodically during the term of the bond. |
| Bond Rating | A method of determining the likelihood that the issuer of a bond will fail to pay the IOU. Various NSROs analyze the financial strength of issuers and rate the bonds on a scale from AAA to D. On this scale, AAA means highly unlikely to default and D means in default; typically a rating from AAA to BBB is referred to as investment grade and those BB and below are referred to as junk bonds. |
| Callable Bond | A bond where the issuer has the right to “call” or redeem the bond at a specified price before the scheduled maturity. |
| Central Bank | The bank that that issues a county’s currency, administers monetary policy and holds deposits of other banks. In the United States, the central bank is the Federal Reserve System. |
| Certificate of Deposit | A debt instrument issued by a bank. |
| Certificate of Deposit Benchmarks | The Treasurer’s Office uses two benchmarks derived from the U.S. Treasury Department’s six-month Treasury Bill to evaluate certificates of deposit. The linked deposit benchmark is equal to 80 percent of the six-month Constant Maturity Treasury. The blended CD benchmark is equal to 50 percent of the six-month Constant Maturity Treasury and 50 percent of the discounted six-month CMT. The six-month maturity was chosen because the average reinvestment cycle of the state’s certificate of deposit portfolio is about six months. |
| Collateral | An asset pledged to assure repayment of debt. A lender can repossess and sell the collateral if a debt is not repaid. |
| Term | Description |
|---|---|
| Collateralized Mortgage Obligations (CMO) | A mortgage-backed loan in which the borrower pledges a trust that collects homeowners’ mortgage payments as collateral. The mortgage trust is divided into smaller parts with different characteristics called tranches. Each tranche can be sold as an individual security. |
| Commercial Paper | A short-term debt instrument usually issued by corporations or large banks with maturities of less than 270 days. These may be issued directly or through a broker. Credit ratings are issued by NSROs. |
| Commercial Paper Benchmark | The Treasurer’s Office uses Bloomberg DOCP (Direct Offer Commercial Paper), a widely used and respected online investment tool, to evaluate the state’s commercial paper investments. Bloomberg DOCP provides daily and historical rates for commercial paper and connects buyers and sellers of commercial paper. |
| Commercial Paper Ratings | A rating assigned by a NSRO that depicts an issuer’s probability of default. Ratings of A1+ and A1 from Standard and Poor’s and P1 from Moody’s are considered acceptable by the Treasurer’s Office. |
| Coupon Rate | The interest rate on a debt instrument that the issuer has promised to pay the holder until the maturity. |
| Debt Instrument | A generic term for a written promise or IOU to repay a loan, also referred to as a security. Examples include bonds, commercial paper and certificates of deposit. |
| Discount | When a debt instrument’s current market price yields a value that is below its redemption value. |
| Discount Security | A debt instrument that is issued below the face value and redeemed at the full face value. |
| Effective Yield | The return on investment after adjusting for factors such as inflation, fees, the purchase price and interest payments, thus garnering a yield that is more encompassing and meaningful than the coupon rate. |
| Face Value | The stated value of a debt instrument also referred to as par value. |
| Farm Credit Bonds | These are bonds issued by the Banks of the Federal Farm Credit System. The proceeds from the purchase of these bonds are used to fund loans to Illinois borrowers using the same rules as those of the agricultural program. |
| Federal Deposit Insurance Corporation (FDIC) | A federal agency that insures the deposits of funds in its member banks. |
| Federal Funds | Funds deposited by commercial banks at Federal Reserve Banks. Banks may loan these excess funds on an overnight basis and the rate charged on them is referred to as the Federal Funds Rate. |
| Federal Open Market Committee (FOMC) | A committee comprised of seven Federal Reserve Board members and a six regional Federal Reserve Bank presidents which sets the short-term monetary policy for the Federal Reserve System. |
| Federal Reserve Bank | One of 12 regional banks established by the 1933 Federal Reserve Act that make up the Federal Reserve System, the central bank of the United States. |
| Federal Reserve Board | The governing body of the Federal Reserve System. The board has seven members appointed to 14-year terms by the President of the United States. |
| Fiscal Policy | The taxation and spending policies of a government designed to level out the business cycles of an economy. |
| Fitch Ratings | A Nationally-Recognized Statistical Ratings Organization (NRSRO) that assesses the quality and creditworthiness of issuers and securities, including The Illinois Funds. |
| Fixed Income Security | A debt instrument that pays a predetermined rate of return. |
| Full Faith and Credit | Guarantee by the U.S. government to repay the principal and interest on certain government-issued debt obligations. |
| Government Accounting Standards Board (GASB) | An independent board responsible for establishing and interpreting accounting standards and principles for governmental entities. |
| Illinois Funds | An investment that pools funds from multiple entities and then invests that money in a variety of bonds |
| Illinois Technology Development | These are investments in private equity investment funds to encourage technology development in the state. |
| Illinois Technology Development Account | Investments in private equity funds that encourage technology development in Illinois |
| iMoney | The leading money market mutual fund index |
| iMoneyNetT | The leading money market mutual fund index |
| Index | A benchmark of activity or performance, as in a price index or stock market index. |
| Interest | The cost of using or borrowing money, usually expressed at an annual rate. |
| Investment Grade | Securities assigned a bond rating below BBB from an NSRO. |
| Junk Bonds | A private organization that determines the creditworthiness of the issuer of debt and assigns a rating based on the likelihood of default. Standard and Poor’s, Moody Investor Services and Fitch’s Investor Services are the most commonly used NSROs in the United States. |
| Linked Deposit | These are public fund deposits in approved financial institutions which offer low interest loans to borrowers at the direction of the State Treasurer. |
| Liquidity | Having enough cash on hand to pay bills or other obligations without having to sell assets. The Treasurer’s Office portfolio must be highly liquid to meet the state’s financial obligations. |
| Local Government Investment Pools (LGIP) | A local government investment pool (LGIP) is a special asset class created when local government monies are invested together to obtain better management and greater returns than if the governments invested individually. LGIPs are defined by state statutes. The State Treasurer manages Illinois’ only publicly-managed LGIP, The Illinois Funds. |
| Mark to Market | To adjust the value of a security or portfolio to reflect the current market values. |
| Market Value | The highest price a buyer is willing to pay and the lowest price a seller will accept. |
| Maturity Date | The date on which the principal amount of a debt instrument becomes due and payable. |
| Monetary Policy | Federal Reserve Board decisions on the nation’s money supply. |
| Money Market | A sector of the capital market where short-term debt instruments such as commercial paper and certificates of deposit are bought and sold. |
| Money Market Fund | A fund that invests in various short-term debt instruments (commercial paper, certificates of deposit, Treasury bills, etc.). Shares seek to maintain a net asset value of $1 but the interest rate changes daily. |
| Money Supply | The total stock of money in the economy to include currency in circulation and certain types of deposits. |
| Monthly Interest Earnings | Total value of our investments |
| Mortgage-Backed Security | A debt obligation backed by homeowners’ mortgage payments. These can be in the form of pass-through securities or collateralized mortgage obligations. |
| Mutual Fund | An investment company that pools money from investors to buy stocks, bonds, or other investments. |
| National Statistical Rating Organization (NSRO) | The market value of a mutual fund’s total assets, minus its liabilities, divided by the number of shares outstanding. Net asset value is often used in newspaper mutual fund tables to designate the price per share for the fund. |
| Net Asset Value (NAV) | The amount by which a debt instrument sells in excess of its par value. |
| Net Portfolio Assets | The total value of a collection of investments. |
| Original Cost | All costs associated with the purchase of a debt instrument. |
| Par Value | This is the face value or principal of a debt instrument. |
| Pass-Through Security | A mortgage-backed loan, where homeowners’ payments pass from the bank through a government agency or investment bank to investors. |
| Premium | The amount by which a debt instruments sells in excess of its par value. |
| Principal | The amount of a debt instrument on which interest is either owed or earned. |
| Prudent Man Rule | A standard that states a person responsible for making investments must act as a prudent man or woman would be expected to act. |
| Repurchase Agreement | A financial transaction in which an entity borrows money by selling securities and simultaneously agrees to buy them back at a higher price at a later time. The entity invests the money paid for the securities, hoping to get a higher return than he owes on his obligation to repurchase the securities |
| Repurchase Agreement Benchmark | A subsidiary of McGraw-Hill Inc. that offers a wide range of investment services, including ratings. |
| Return | The profit earned on an investment transaction. This is usually shown in terms of an annualized rate of yield. |
| S & P LGIP Index | Standard & Poor’s local government investment pool index |
| Security | A generic term for a financial asset such as a bond or stock. |
| Standard & Poor’s | This graph compares the yield on the state’s money market funds to the money fund report averages from iMoney.net |
| State Linked TD Benchmark | This is 80% of the 6-month constant maturity Treasury index as reported by the Federal Reserve |
| State Linked TD Return | The return on the state’s linked time deposit portfolio |
| State Return | Overall interest earned on the state portfolio |
| State Return Port | This number represents the theoretical time, in days, before all investments would mature and thus be reinvested. |
| State Return Subtotal | Our portfolio yield based on traditional ammonization methods |
| State TD Benchmark | This is 90% of the 6-month constant maturity Treasury index as reported by the Federal Reserve |
| States Repo Return | States yield on repurchase agreement |
| Subtotal for Blended Graph | Overall interest rate earned on our portfolio |
| The Illinois Funds | The ‘AAAm’ rated government’s investment pools administered by the Illinois State Treasurer. |
| Time Deposit | A deposit made in a financial institution that must be kept for a specific period of time. The deposit may be withdrawn sooner with due notice. See Certificate of Deposit. |
| Treasuries | See U.S. Treasury Securities. |
| Trust | A legal agreement calling for a trustee to hold the title to assets for the benefit of a beneficiary. The person creating the trust, who may or may not also be the beneficiary, is called the grantor. The Treasurer’s Office acts like a trustee for Illinois Funds as it takes control of local government monies and invests them for the benefit of the local governments. |
| Trustee | The person with the ultimate investment responsibility of a trust. |
| U.S. Government Agency Securities (Agencies) | A debt instrument issued by an agency of the federal government. These instruments are generally perceived to have a full faith and credit guarantee of the federal government although there is no written or explicit guarantee. |
| U.S. Treasury Securities (Treasuries) | General term for securities of the federal government backed by a full faith and credit guarantee. Treasury bills are short-term obligations (three-month and six-month maturities) that do not pay interest but are sold at a discount from their face value. Treasury bonds are issued in $1,000 units with maturities of 10 years or longer and are traded on the market like other bonds. Treasury notes are medium-term obligations (one to 10 years) sold by subscription. |
| Weighted Average Maturity (WAM) | This number represents the theoretical time in days before all of the investments would mature and thus be re-invested. |
| Weighted Monthly Maturity | The theoretical time in days it takes to earn back one dollar of principal |
| Yield | The return or profit on an investment, typically presented as a percentage of the investment on an annual basis. |