Cyber*School

(ICAAP) The English name for the internal procedure with which banking institutions have to internally ensure that sufficient capital to cover all material risks is available.

abbr.: IRRthe calculated interest rate, at which the sum of the discounted cash-flows of an investment corresponds to the capital expenditure (dirty price)The method of the Internal Rate of Return assumes the re-investment of interim cash-flows at the Internal Rate of Return.

(Internal rate of return, IRR) That financialmathematically determined interest rate at which the sum of the discounted cash flows of an investment matches the capital outlay (dirty price). In the internal rate of return method, the reinvestment or refinancing of cash flows in the meantime for internal rate of return is assumed.

Under Basel II banks may use their own internal estimates of risk components to determine the capital requirement for an asset. This risk components include measures of the probability of default (PD), loss given default (LDG), the exposures at default (EAD) and the effective maturity (M). To be approved for the IRB approach, banks must meet certain minimum requirements and disclosure requirements.

This approach relies heavily upon the internal assessment of a bank of its counterparties and exposures. Risk weights are not standardised anymore but will be calculated via risk weight functions.Risk parameters are probability of default, exposure-at-default, loss-given default and effective maturity. Banks must meet a set of minimum requirements in order to be eligible for IRB treatment of their exposures.

(IAS) International Accounting Standards, compliance enables a better international comparability of enterprise data.

A self-regulatory organization and trade association originally located in Zürich, Switzerland, that encourages systematic and compliant trading in the international securities market. It also promotes the development of the Euromarkets and is acknowledged as a designated investment exchange by the Financial Services Authority, which regulates the financial services industry in the U.K. In July 2005, the ISMA and International Primary Market Association merged to become the International Capital Market Association.

A set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the International Accounting Standards Board. IFRS are sometimes confused with International Accounting Standards (IAS), which are the older standards that IFRS replaced. The goal with IFRS is to make international comparisons as easy as possible.

The IMF was created in 1945 at the Bretton Woods conference and has currently 185 member countries (2007). The IMF plays three major roles in the global monetary system. The Fund surveys and monitors economic and financial developments, lends funds to countries with balance-of-payment difficulties, and provides technical assistance and training for countries requesting it. www.imf.org

(IMM) The International Monetary Market is the marketplace of the Chicago Mercantile Exchange on which interest rate and currency contracts are traded.

(IMM FRA) A forward rate agreement whose settlement date corresponds to the standard data of the International Monetary Market of the Chicago Mercantile Exchange traded contracts. This is the third Wednesday of the last month of each quarter (March, June, September, December).

(IMM swap) swap whose term beginning matches a default expiration date on the IMM. (International Monetary Market) This is the third Wednesday of each last month of the quarter.

(ISIN) 12-digit letter-number combination to identify securities on an international level.

(ISMA) umbrella organization of institutions and traders operating on the euro bond market, with the main task of creating practices for the regulation of the Euro market transactions (eg. the ISMA method).

(ISDA) International economic organizations of operators for OTC trading of swaps and derivatives. The ISDA has developed a standardized contract that is signed by market participants prior to the trading of swaps and derivatives (= ISDA Master Agreement). www.isda.org

a mathematical method to derive a value, which lies between two known values, the most simple method is called linear interpolatione.g. following rates are given:1 mo 3.50 % (31 days)3 mo 3.75 % (92 days)What is the interpolated rate for 1.5 months (46 days)?r = 0.035 + [(0.0375 - 0.035) / (92 - 31)] * (46 - 31) = 3.56148 %more sophisticated methods are logarithmic interpolation and cubic spline

A call is in-the-money if the spot price of the underlying is above the strike price. A put is in-the-money if the spot price of the underlying is below the strike price.

the simultaneous purchase and sale of futures on the same underlying but with different delivery months (therefore also called time-spread)

maximum extent of a risk position which a trader is permitted to hold during the day, also called: daylight limit opposite: overnight limit

Purchase and sale of securities or foreign exchange position within one trading day. Thus, the day trader tries to take advantage of the daily fluctuations of the prices and to buy positions and sell it again within a day.