table bond...

scription.
Q
QIU See qualified independent under-
lating to whether the pricing of a struc-
writer.
tured product that is to be issued is fair
to the investor. This requirement relates
qualified independent underwriter Of-
ten denoted QIU. A written opinion
to potential conflicts of interest which
from a QIU is required under NASD
could arise if the issuer and the lead un-
(National Association of Securities
derwriter are affiliated entities. A QIU
Dealers) Schedule E requirements re-
assures investors that the instrument’s
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qualified investor–quasi-American option
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141
offered price is fair relative to other
gaging in financial swaps. This may,
publicly traded instruments and mar-
however, overstate the true extent of
ket conditions affecting the asset upon
the gains. The existence of a quality
which the structured product is based.
spread differential explains the com-
The fairness opinion is provided to the
parative advantage that can allow all
lead underwriter and cited in the pro-
parties to swaps to derive some finan-
spectus supplement.
cial benefit.
qualified investor See accredited investor.
quanto A term that applies anytime an
instrument pays off in one currency
quality basis The difference between
based on a rate earned in another cur-
two prices caused by the difference be-
rency, which has the effect of treating
tween the quality characteristics of the
the exchange rate as though it were
two goods. For example, the price of
fixed. As a consequence, instruments
one type of wheat (cash wheat) might
that are quantoed are often perceived to
differ from the price of wheat futures in
have built-in exchange rate risk protec-
Chicago in part because the cash wheat
tion.
might be of one specific variety while
the futures contract might require de-
quantoed option See quanto. Quantoed
livery of an altogether different variety
options can be calls or puts, standard
of wheat. Quality basis is one compo-
options or exotic options. The payoff
nent of the overall basis. See also basis.
function for a quantoed call option (per
unit of underlying) would be given by
quality option The option implicit in
the following:
some contracts (such as certain futures
contracts) that allows the seller of the
Payoff = FX
max[S – X, 0].
contract (the short) to deliver any one
fixed
of several alternative underlying assets.
Where FXfixed denotes a contractually
For example, on a Treasury bond fu-
agreed exchange rate for converting the
tures, the short has the option of deliv-
call’s payoff, S denotes the spot price at
ering any one of a great many Treasury
expiry, and X denotes the strike price.
bonds in lieu of the hypothetical bond
on which the contract is written. The
quantoed swap See quanto. A swap in
seller will, generally, choose to deliver
which at least one leg pays in a currency
whichever of the underlying bonds can
other than the functional currency of a
be delivered most cheaply. Also known
counterparty and that counterparty
as a substitution option.
wants exchange rate risk protection. Es-
sentially the swap has a built-in hedge
quality spread The difference between
on the exchange rate risk.
the borrowing cost of a poorer credit
firm and the borrowing cost of a better
quasi-American option An option that
credit firm for a given type of borrow-
allows investors to exercise the right that
ing, a given interest character, and a
the option conveys at several distinct
given term. Related to, but not quite the
times over the option’s life but not con-
same as, a credit spread.
tinuously. Thus, the exercise period is
not quite American (American-type op-
quality spread differential The differ-
tions allow for continuous exercise) but
ence between a quality spread in a
not quite European either (European-
fixed-rate market and a quality spread
type options allow for exercise only at
in a floating-rate market. The quality
the end of the option’s life). Also called
spread differential is considered a
a Burmudan option and a mid-Atlantic
measure of the potential gains from en-
option.
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raider–ratchet option
R
raider An individual or a company that
range forward A forward contract, usu-
seeks to acquire a target corporation via
ally on an exchange rate, that specifies
a hostile takeover. The raider generally
a contract range instead of a contract
makes a tender offer directly to the
rate. If, at maturity, the spot rate is
shareholders of the target firm. See also
within the contract range, the contract
acquirer.
pays the prevailing spot rate. If the spot
rate is outside the range, the contract
pays either the upper or the lower end
rainbow A blended index of equity re-
of the range, depending on whether the
turns for indexing the reference rate on
spot price exceeds the upper end or
an equity swap. The term is also some-
falls below the lower end. Such con-
times applied to a variety of exotic
tracts are, essentially, a forward ex-
options where the underlying repre-
change agreement coupled with a call
sents a weighted average of several dif-
and put option. Also known as a cylin-
ferent indexes, or a choice of some sort
der and as a collar.
among a number of underlyings. See
also blended index.
range note See range floater.
rainbow options Any of a variety of op-
RAP See Regulatory Accounting Princi-
tions that pay off based on several un-
ples.
derlying assets or indexes. Rainbow is
a general term that includes several
ratchet floater Also called a one-way
subtypes including better-of, worse-of,
collared floater and a sticky floater. A float-outperformance, and max-min options. See ing rate note with a resettable floor and
the specific types for details.
a periodic cap. The floor rate provides
some downside protection. In ex-
random walk See martingale.
change, the note buyer gives up most of
the upside (i.e., he retains the ability for
the rate to rise, but only by a small
range floater A type of structured note
amount such as 25 basis points for each
in which the instrument pays an en-
reset). If rates rise, the floor rate can re-
hanced floating rate (usually in the
set to a higher rate but the amount can-
form of a spread to the reference rate)
not exceed the cap. The floor rate will
provided that the reference rate stays