Bachelor's thesis (Turku University of Applied Sciences) Degree Program in Business Management

APPENDIX 1. Related concepts and terminology 
Arbitrage 
– is a commercial activity intended to realize a profit from 
advantageous exploitation of a price difference on various securities in separate 
markets.  
Often seen as “traffic in securities”, this complex speculative transaction could 
be represented by trade between several domestic markets or as a commercial 
exchange of securities among domestic and foreign markets (Hiriyappa, 2008, 
p.118).
Banker’s Acceptance – is one of short-term credit instruments available in 
financial markets
. A banker’s acceptance is essentially a commercial bank’s 
guarantee to pay a specified amount of money on behalf of a client.
Basically, financial intermediary undertakes the responsibility to provide the 
payment to the beneficiary of the acceptance (current holder) under agreed 
conditions (Casu, Girardone and Molyneux, 2006, p.470).
Bond 
– “A bond, also called a fixed-income security, is a security issued by a 
corporation or government that promises to pay the buyer predetermined 
amounts of money at certain times in the future” (Ball, 2011, p. 2). 
Capital buffer 
– consists of liquid funds that exceed the point of minimum 
required capital in order to cover possible financial losses and risks (Casu, 
Girardone and Molyneux, 2006, p. 228). 
Capital adequacy 
– according to capital adequacy standard, Tier I capital of any 
commercial bank should be equal to or greater than at least 8% of the bank’s 
assets. To put it in other words, this measure serves as an important indication 
of stability of a certain financial intermediary (Casu, Girardone and Molyneux, 
2006, p.181). 
Certificates of deposit (CD) 
– generally serve as a confirmation of deposit 
transaction issued by a bank. CDs allow holders to receive interest payments 

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Appendix 1 
TURKU UNIVERSITY OF APPLIED SCIENCES THESIS | Artem Vorobyev 
throughout maturity period in accordance with agreed terms (Casu, Girardone 
and Molyneux, 2011, p. 473; Ball, 2011, p. 44-45). 
Collateralized debt obligation (CDO) 
– is a financial instrument that comprises 
such assets, like corporate issued bonds, CDS and is usually considered a part 
of asset portfolios of commercial banks, offering various yield rates, risk 
exposures and maturity dates (Casu, Girardone and Molyneux, 2006, p. 474). 
Commercial Papers 
– are short-term financial securities (for instance, bonds 
with a maturity period of less than one year) that oblige the issuer to repay a 
borrowed principle, as well as interest accumulated over the maturity period 
(Ball, 2011, p. 3; Casu, Girardone and Molyneux, 2006, p. 474).
Comprehensive risk measure (CRM) 
– is a way to measure all possible 
variations of credit risk exposures that are subject to a certain investment 
portfolio (Nordea
’s Annual Risk Management Report, 2011, p. 44).
Core fund 
– is a type of a mutual fund primarily focused on portfolio 
diversification and stability (Danske Bank
’s Annual Financial Report 2012, p. 
78). 
Correlation 
– introduced as an important strategical aspect of every investment 
portfolio, the correlation coefficient is an integral part of every risk management 
strategy (Casu, Girardone and Molyneux, 2006, p. 462-463). 
In finance the concept of correlation explores the way various securities relate 
to each other in accordance to their maturity periods, geographic regions of 
issuance and yield terms. 
Covered bond 
– is a type of a “compromise” financial instrument in terms of rate 
of returns and risk exposure. Covered bonds are usually represented by bonds 
that are backed by collateral, such as a loan of any kind (
investopedia.com
). 
Credit default SWAPS (CDS) 
– are often seen as a perfect example of credit 
derivative instruments held for hedging against credit risk.

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Appendix 1 
TURKU UNIVERSITY OF APPLIED SCIENCES THESIS | Artem Vorobyev 
In principle, CDS introduce a third party into the standard creditor-debtor 
relations. While the third party receives interest payments from the lender, it 
secures the loan payment by promising to reimburse the lender in case of 
debtor’s default. Interestingly enough, the market for CDS is considered to be 
much more liquid than that of the debt itself (Casu, Girardone and Molyneux, 
2006, p. 256; 
investopedia.com
).
Credit derivatives 
– are derivative instruments that could be traded or held in 
order to hedge against possible credit risks. The mechanism of a credit 
derivative is often concerned with a transfer of credit risk exposure to a third