Guide to Analysing Companies

Catastrophe bond
A bond issued in the capital markets by a reinsurance
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CATASTROPHE BOND
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company. Reinsurers, like the insurance companies they
insure, need to lay off part of the risk they take on. One way of
doing this is to issue bonds to investors which pay out if (and
only if) there is a catastrophe – for example, a hurricane or an
earthquake which causes millions of dollars-worth of damage
and therefore large claims against the insurance and reinsur-
ance companies. A big advantage of catastrophe bonds is that
the money is placed in trust and called upon as and when the
claims are triggered. Most catastrophe bond issues come in
tranches; for example, a total of $200m-worth of cover
divided into two tranches of $100m. Typically, the second
tranche can be called upon only when the first tranche is ex-
hausted by claims.
CATS
See certificate of accrual on treasury securities. It
also stands for Computer Assisted Trading System, a piece of
software developed by the Toronto Stock Exchange.
CBOE
See chicago board options exchange.
CBOT
See chicago board of trade.
CD
See certificate of deposit.
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CDO
See collateralised debt obligation.
Central asset account
US terminology for asset management account.
Central bank
The institution at the hub of a country’s monetary and financial
system. Each major developed country has one (see bank of
england, bundesbank and federal reserve) but they do
not all do the same things. Central banks carry out some combi-
nation of five different functions:
 they act as banker to a government;
 they act as banker to commercial banks;
 they supervise the banking system;
 they print and issue a country’s currency;
 they are the lender of last resort, a back-stop that
can print money in a severe financial crisis.
There have been three great inventions since the beginning of time:
fire, the wheel and central banking.
Will Rogers