An obligation is a debt security with a fixed maturity, which yields a fixed rate of interest and is generally issued by a public sector entity or private enterprise to cover larger and long-term capital needs.

The Eurosystem term for monetary policy operations conducted on the initiative of the central bank. They enable the Eurosystem to provide banks with central bank money (liquidity) or withdraw liquidity from the banking system. There are four categories of open market operations, which differ in terms of objective, maturity, cycle and execution: main refinancing operations, long-term refinancing operations, fine-tuning operations and structural operations.

Operational risk means the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, and includes legal risk. It is one of what are referred to as “banking risks”.

Right to purchase (call option) or sell (put option) the underlying asset (e.g. securities or foreign exchange) from / to a counterparty on a specified date in the future (European option) or during a specified period in the future (American option) at a previously agreed fixed price. Options may be traded prior to maturity.

An option contract is an exchange-traded derivative financial instrument whereby the details such as the term of the contract and the price of the underlying are standardised. Option contracts are traded for a range of underlyings, such as shares, equity index futures, bond futures and commodities. A distinction is made between options to buy (call options) and options to sell (put options).

An option transaction is a conditional forward transaction in which the buyer acquires an optional right (option) with respect to an underlying. Underlyings might be, for example, shares, bond futures or commodities. A distinction is made between an option to buy (a call option) and an option to sell (a put option). The buyer of a call option acquires the right to purchase the underlying at a future point in time at a predetermined price; the buyer of a put option acquires the contrary right to sell the underlying. However, the buyers can decide not to exercise this right if this seems more favourable. By contrast, the seller of a call or put option does not have the right to choose; as the option "writer", the seller must carry out the transaction if the buyer exercises his option. The buyer pays the writer a premium for the option when the contract is entered into. Buyers may use options to hedge against undesired movements in the price of the underlying (hedging) or to speculate on price movements (trading). The seller is primarily interested in collecting the premium. A distinction is made between exchange-traded options using standardised option contracts, and over-the-counter option transactions. With a "European option", buyers can exercise their optional right only at the end of the agreed term of the option transaction; with an "American option" this right can be exercised at any time during the term.

The Organisation for Economic Co-operation and Development (OECD) is an international institution, one of the aims of which is to promote sustainable economic growth and better living standards in the member countries and the rest of the world. Headquartered in Paris, the OECD was established in 1961, emerging from the Marshall Plan aid and following the Treaty of Rome. The member countries are committed to democracy and the market economy; the membership of additional countries is being looked into.

Under the originate-to-distribute business model a bank bundles its own claims that were specifically earmarked for this purpose and passes them on to a special-purpose vehicle. There, the claims are securitised in different mixed portfolios and the resulting securities are sold on the financial market. This model combines classic bank lending business with modern forms of asset and risk transfer.

Market on which derivatives are traded directly between two parties, i.e. without the involvement of an exchange. Many derivative contracts are concluded almost exclusively in this way, for example swaps and exotic options.

Outright monetary transactions is the term used for a Eurosystem programme to purchase sovereign bonds. As part of the OMT programme, the Eurosystem can purchase the sovereign bonds of specific euro area countries on secondary markets with no set ex ante quantitative limits. The ECB Governing Council’s aim in implementing this programme is to safeguard an appropriate monetary transmission process and the singleness of monetary policy. The prerequisite for purchasing sovereign bonds under the OMT programme is that the state in question complies with conditions specified in the EFSF/ESM programme. The OMT programme envisages that central bank money created from the purchase of securities is “sterilised”, in other words that this money is removed from the money market. The OMT programme is to be phased out once the aims have been achieved or once it has been determined that the requirements have not been met. Outright monetary transactions replaced the securities markets programme (SMP) in September 2012.

The average yield of all longer-dated fixed-interest securities that are outstanding within one country is known as the outstanding yield. The Bundesbank calculates the outstanding yields for various groups of issuers (public sector, banks, corporates) as well as for the entire market. The Bundesbank’s calculations include only those bonds where the original term is longer than four years and the remaining term is longer than three years. The outstanding yield is considered a strong indicator for interest rate developments.

The term over-the-counter (OTC) describes all financial market transactions that are not traded on an exchange.

In an overdraft facility, the bank grants the customers the right to overdraw their account at any time up to a certain amount – i.e. to draw down credit. The customers can repay the overdraft at any time in whole or in part, at their own discretion. The customers typically have to pay relatively high interest rates to the bank for the use of overdraft facilities.

Overnight money in the general sense of the term denotes customer deposits held in a current account with a bank and which can be withdrawn on demand. In banking parlance, the term refers to three different types of interbank loans each having a term of one day.

1. O/N money: This is normally an unsecured loan where the loan is arranged and the principal is made available on the same day. A large part of money market transactions are O/N loans
2. The principal is made available to the borrower one day after the loan is arranged (tomorrow/next day, tom/next).
3. The principal is made available to the borrower on the second business day after the loan is arranged (spot/next).

Banks use overnight money for liquidity management purposes. It used to be customary for overnight money to be unsecured but ever since the onset of the banking crisis in 2007, many overnight loans have been collateralised. A host of Eurosystem monetary policy instruments are designed to influence overnight money rates.

Own funds are part of the equity capital that banks retain in order to comply with prudential capital requirements. They are intended to cover banks’ losses and to protect creditors in the event of insolvency. For own funds, a distinction is made between Common Equity Tier 1 (CET1) capital, additional Tier 1 capital and Tier 2 capital. These elements differ in their capacity to cover losses. CET1 capital is the highest quality of capital. This includes, for example, retained earnings or paid-up capital. Additional Tier 1 capital may include, for example, silent contributions, which are less available to cover losses in the event of insolvency. A bank’s Tier 2 capital may include, for example, funds which were entrusted to a bank for the long term and which only have to be repaid at a later date in the event of insolvency. Capital items must fulfil the criteria of the Capital Requirements Regulation in order for them to be eligible as own funds. Banking supervisors focus particularly on CET1 capital.