Adjustable-Rate Mortgages (ARMS): Also known as variable-rate mortgages. The initial interest
rate is usually below that of conventional fixed-rate loans. The interest rate
may change over the life of the loan as market conditions change. There
is typically a maximum (or ceiling) and a minimum (or floor) defined in the
loan agreement. If interest rates rise, so does the loan payment. If interest
rates fall, the loan payment may as well.
Arbitrage: Buying a financial instrument in one market in order to
sell the same instrument at a higher price in another market.
Adverse Action: Under the Equal Credit Opportunity Act, a creditor's
refusal to grant credit on the terms requested, termination of an existing
account, or an unfavorable change in an existing account.
Affidavit: A sworn statement in writing before a proper official, such
as a notary public.
Alteration: Any change involving an erasure or rewriting in the date,
amount, or payee of a check or other negotiable instrument.
Amortization: The process of reducing debt through regular installment
payments of principal and interest that will result in the payoff of a loan at
its maturity.
Asset-Backed Securities (ABS): A type of security that is backed by a pool of bank loans,
leases, and other assets. Most ABS are backed by auto loans and credit cards –
these issues are very similar to mortgage-backed securities.
At-the-money: The exercise price of a derivative that is closest to the
market price of the underlying instrument.
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