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Advances Key Terms
Asset/Liability Management: The management of assets and liabilities
that allows a balance to be reached between earnings and interest rate
risk exposure.
Balloon: Feature that will cause an advance to amortize on longer term than actual term of advance. At maturity, a lump sum will be due since advance did not amortize completely.
Bullet: Advance for which principal is due at maturity and interest paid monthly.
Callable Advance: Advance that gives the member an option to prepay advance before maturity on call dates with no prepayment fee.
CMT (Constant Maturity Treasury): Index is average yield on US Treasury maturities adjusted to a constant maturity of 1 year. This index is used to price CMT Adjustable Advances.
CPR (Constant Prepayment Rate): Mortgage Advance principal will pay down by selected prepayment rate every year based on projected prepayments of underlying asset that advance is used to match fund.
Fed Funds Rate: Interest rate charged by banks with excess reserves at a Federal Reserve District Bank to banks needing overnight loans to meet reserve requirements. Often used as an index on a short-term floating rate advance.
Interest Rate Cap: If the option is embedded into an adjustable rate advance, the advance rate is effectively "capped" at a predetermined level.
Interest Rate Collar: Combination of floor and cap to “collar” floating
rate advance.
Interest Rate Floor: If the option is embedded into an adjustable rate advance, the advance is effectively "floored" at a predetermined level.
Interest Rate Swap: Arrangement under which two parties enter into an agreement to exchange periodic interest payments.
Knockout: Feature that causes the option to immediately terminate if the underlying index reaches a specified barrier level.
Letter of Credit: Letter from FHLBI guaranteeing payment to trustee or beneficiary on behalf of a member.
LIBOR (London Interbank Offered Rate): Rate that the most creditworthy international banks dealing in Eurodollars charge each other for large loans. Often used as an index on a floating rate advance.
Lockout: Time period during which option cannot be exercised.
Mortgage or Amortizing Advance: An advance that has periodic principal payments (annual or monthly) built into advance structure.
Prepayment Fee: Fee that may be charged on advance making unscheduled principal payments (excluding certain floating rate advances).
Prime Rate: Rate charged by banks to their most creditworthy customers. This rate is the basis for the Prime-based Adjustable Advances.
Putable Advance: Advance for which member sells put option(s) to FHLBI in exchange for a lower initial rate compared to a bullet advance with the same maturity. If the FHLBI exercises its option to put the advance to the member at the lockout date or any put date thereafter, the member may request to convert the advance to an adjustable rate.
Bermuda Putable Advance: After lockout, a Bermuda Putable can be exercised every 3 months.
European Putable Advance: European Putable can be exercised one time only on the exercise date (i.e., Lockout expiration date).
WAM (Weighted Average Maturity): Weighted average time to the return of a dollar of principal. It is arrived at by multiplying each portion of principal received by the time at which it is received, and then summing and dividing by the total amount of principal.
Updated:February 25, 2008
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