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Meaning / Definition of

BOP

Categories: Economics, International Trade,

balance of payments: a list of a country's credit and debit transactions with international financial institutions and foreign countries over a specific period.

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Definition / Meaning of

Collateralized Mortgage Obligation (CMO)

Categories: Finance,

CMOs are fixed-income investments backed by mortgages or pools of mortgages. A conventional mortgage-backed security has a single interest rate and maturity date. In contrast, the pool of mortgages in a CMO is divided into four tranches, each with a different interest rate and term. Owners of the first three tranches receive regular interest payments and principal is repaid to reflect the order in which the tranches mature. The fourth tranche is usually a deep-discount zero coupon bond on which interest accrues until maturity, when the full face value is repaid. CMOs usually involve high-quality mortgages or those guaranteed by the government. Their yield may be lower than those of other mortgage-backed investments.However, the way in which they are repaid makes them especially attractive to institutional investors including insurance companies and pension funds. The risk, as with all mortgage-backed securities, is that a change in interest rates can affect the rate of repayment and the market value of the CMO.

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