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San Leandro Investment Policy Statement Page 14 of 18 <br /> <br /> <br /> <br />CALLABLE. A callable security gives the issuer the option to call it from the investor prior to its <br />maturity. The main cause of a call is a decline in interest rates. If interest rates decline since <br />an issuer issues securities, it will likely call its current securities and reissue them at a lower <br />rate of interest. Callable securities have reinvestment risk as the investor may receive its <br />principal back when interest rates are lower than when the investment was initially made. <br /> <br />CERTIFICATE OF DEPOSIT (CD). A time deposit with a specific maturity evidenced by a certificate. <br />Large denomination CDs may be marketable. <br /> <br />CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SYSTEM (CDARS). A private placement service that <br />allows local agencies to purchase more than $250,000 in CDs from a single financial <br />institution (must be a participating institution of CDARS) while still maintaining FDIC <br />insurance coverage. CDARS is currently the only entity providing this service. CDARS <br />facilitates the trading of deposits between the California institution and other participating <br />institutions in amounts that are less than $250,000 each, so that FDIC coverage is <br />maintained. <br /> <br />COLLATERAL. Securities or cash pledged by a borrower to secure repayment of a loan or repurchase <br />agreement. Also, securities pledged by a financial institution to secure deposits of public <br />monies. <br /> <br />COLLATERALIZED MORTGAGE OBLIGATIONS (CMO). Classes of bonds that redistribute the cash flows <br />of mortgage securities (and whole loans) to create securities that have different levels of <br />prepayment risk, as compared to the underlying mortgage securities. <br /> <br />COMMERCIAL PAPER. The short-term unsecured debt of corporations. <br /> <br />COST YIELD. The annual income from an investment divided by the purchase cost. Because it does <br />not give effect to premiums and discounts which may have been included in the purchase <br />cost, it is an incomplete measure of return. <br /> <br />COUPON. The rate of return at which interest is paid on a bond. <br /> <br />CREDIT RISK. The risk that principal and/or interest on an investment will not be paid in a timely <br />manner due to changes in the condition of the issuer. <br /> <br />CURRENT YIELD. The annual income from an investment divided by the current market value. Since <br />the mathematical calculation relies on the current market value rather than the investor’s <br />cost, current yield is unrelated to the actual return the investor will earn if the security is held <br />to maturity. <br /> <br />DEALER. A dealer acts as a principal in security transactions, selling securities from and buying <br />securities for his own position. <br /> <br />DEBENTURE. A bond secured only by the general credit of the issuer. <br /> <br />DELIVERY VS. PAYMENT (DVP). A securities industry procedure whereby payment for a security must <br />be made at the time the security is delivered to the purchaser’s agent. <br /> <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, or any <br />security which represents a component of another security which has been separated from <br />other components (“Stripped” coupons and principal). A derivative is also defined as a