Ramp

Refers to predetermined increase in interest rates over a set period of time.  For example, increase the yield curve by 100 bps every six months.  Generally used in Asset Liability Management to determine “what if” scenarios on the institutions’ income.

Rate-capped swap

A fixed-for-floating interest-rate swap in which the floating rate side is capped.  Can be created as a unit or by combining an interest-rate swap with a separate interest-rate cap.

Real Estate Mortgage Investment Conduit (REMIC)

A structure which allows issuers to carve the cash flows of the underlying pass-through securities into various classes or tranches having different investment characteristics.  REMIC is the legal term but market practitioners simply refer to them as CMO’s or Collateralized Mortgage Obligations.

Redemption

The repayment of a debt obligation.

Reference rate

A rate (such as LIBOR, EurIbor or three-month T-bill)  designated as such on any cash settled interest-rate contract including swaps, forward rate agreements, and interest-rate options.  The reference rate is the rate that is observed on the calculation or settlement date for purposes of determining the amount of any cash settlement.

Regulatory Capital

The amount of capital a bank is required to maintain as dictated by regulators.

Reinvestment Risk

1) Risk that arises when the cash flows from assets precedes the cash requirements for meeting the liabilities of a portfolio. These early cash inflows need to be reinvested at the future dates, at rates largely unknown today. 2)  The risk of reinvesting the incomes or other cash flows at rates other than those envisaged today.

Relative Value

The measurement of the comparative attractiveness of a security with respect to the associated risks, the liquidity and the return on the security relative to another security.

Replacement swap

A swap that is entered to replace a swap that is terminated prematurely.  This most often becomes necessary when a one of a pair of matched swaps is terminated early.

Repurchase agreement

Also known as a repo and an RP.  A method of borrowing that involves the sale of a security with the simultaneous agreement to buy it back at a specific later date and at a specific price.  These agreements are widely used in the securities industry as a means of obtaining relatively inexpensive short term financing.

Required rate of return

Return required by investors to invest in a security that has a specific amount of risk.  Also refers to the return required to meet a specific set of liabilities.

Reset

An adjustment in a floating rate of interest that marks the rate to that prevailing in the market.

Reset dates

The scheduled dates for the resets of the floating rate of interest on rate swaps.

Reverse Dual Currency Note

A dual currency note (DC) pays coupons in the investors' domestic currency with the notional in the issuers’ domestic currency. A reverse dual currency note (RDC) is the reverse.

Reverse repurchase agreement

Also known as a reverse and a reverse repo. The opposite of a repurchase agreement.  The purchase of a security with the simultaneous agreement to sell it back at a specific later date and at a specific price.

Risk

A measure of uncertainty. Risk measures the extent of uncertainty attached to the realization of the expected return on any asset.  It is generally measured through the standard deviation of returns.

Risk Adjusted Return on Capital (RAROC)

The return on an investment after taking into account the revenue and cost, both external and internal, divided by the amount of capital that is first adjusted for the riskiness of the investment.  Technically speaking, it is the risk-adjusted return divided by the risk-adjusted capital.

Risk Based Capital (RBC)

The amount of capital required to be held to absorb unexpected losses when taking into account the riskiness of the assets/businesses in order to protect customers, depositors and investors.

Risk Based Capital Ratio

See Capial Ratio.

Risk free rate

The return on a risk free asset. This is the guaranteed rate of return earned, when the money is invested in a security with no risk of losing capital and facing no uncertainty in realizing the returns.

Risk premium

Investors or lenders undertake risk while making an investment or lending money to borrowers. A risk premium is the additional rate expected or charged over and above the risk free rate in order to compensate them for accepting or undertaking the risk. The risk premium is expected or charged for various risks such as market risk, credit risk or liquidity risk.

Roller coaster swap

Any swap in which the notional principal increases for a time and then amortizes to zero over the remainder of its tenor.