Thursday, February 3, 2011

Municipal Securities Terminology

The key to ace-ing the questions on municipal securities is to know the vocabulary terms inside out and use what you know to do process-of-elimination with the answer choices. Luckily, the terms used in connection with municipal securities always mean exactly what they seem to mean. Except when they mean something different.
Seriously, the terms are usually pretty much what they sound like. For example, what would a "debt service coverage ratio" be? If you know that debt service is the interest and the part of the principal to be paid this year on the revenue bonds, you're half-way home. What would an "agreement among underwriters" be? If you know what underwriters are (syndicate members) and understand what they would care about--and not care about--you can figure out the answer. They don't care about the bond counsel, right? They care about the terms of syndicate operation, the participation of the members, the order priority, the spread, and the deadline for taking orders, etc. If you know that "primary" market = new issues and "secondary" market = trading, you can get a lot of questions right just from that.
Use the bold-letter terms in your textbook and the glossary--if it has one. But to really take it up a notch, use the MSRB's excellent glossary at

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