Medium-Term Note (MTN)

Definition of Medium-Term Note (MTN)

A Medium-Term Note (MTN) is a type of financial instrument issued with a maturity period that generally spans from three to six years. MTNs can be issued in a variety of currencies, but when issued in a eurocurrency, they are generally known as Euro Medium-Term Notes (EMTNs). Traditionally, MTNs were unsecured, but there has been a significant increase in the issuance of Asset-Backed Medium-Term Notes (ABMTNs), where the notes are backed by assets housed within a Structured Investment Vehicle (SIV).

Examples of Medium-Term Note

Corporate Issuance: A large corporation might issue a 5-year MTN to raise capital for expansion projects. The note promises to pay interest semi-annually.
Government MTN: A government may issue euro MTNs to international investors as part of its debt management strategy, attracting foreign investment.
Asset-Backed MTN: A financial institution could issue ABMTNs, where the notes are secured by mortgage-backed securities held within an SIV.

Frequently Asked Questions (FAQ) About Medium-Term Note

What are the typical maturities for medium-term notes?

MTNs usually have maturities between three to six years, though they can extend up to 10 years based on issuer and market conditions.

How do medium-term notes differ from bonds?

MTNs offer more flexibility in terms of maturity and issuance compared to traditional bonds, and are often issued continuously over a long period.

Can MTNs be traded in secondary markets?

Yes, MTNs can be traded in secondary markets, providing liquidity for investors.

Are all medium-term notes asset-backed?

No, not all MTNs are asset-backed. Many are unsecured, though asset-backed variations (ABMTNs) have become more popular in recent years.

Who are the typical issuers of medium-term notes?

Corporations, financial institutions, and governments are common issuers of MTNs.

Structured Investment Vehicle (SIV): A pool of assets structured to produce high returns, often used as backing for asset-backed notes.
Eurocurrency: Currency deposited outside its home market, often used in international financing.
Asset-Backed Security (ABS): A financial security backed by a pool of assets, such as loans, leases, credit card debt, or receivables.

Online Resources

Suggested Books for Further Studies

“Fixed Income Analysis” by Frank J. Fabozzi
“The Handbook of Fixed Income Securities” by Frank J. Fabozzi
“Structured Finance and Collateralized Debt Obligations: New Developments in Cash and Synthetic Securitization” by Janet Tavakoli

Accounting Basics: “Medium-Term Note (MTN)” Fundamentals Quiz

### What is the typical maturity range for medium-term notes? - [x] 3 to 6 years - [ ] 1 to 2 years - [ ] 10 to 15 years - [ ] Over 20 years > **Explanation:** Medium-term notes are generally issued with maturities ranging between 3 to 6 years. ### Are all medium-term notes secured? - [ ] Yes, all MTNs are secured. - [x] No, MTNs can be either secured or unsecured. - [ ] Only corporate MTNs are secured. - [ ] Only government MTNs are secured. > **Explanation:** MTNs can be either secured or unsecured, with asset-backed medium-term notes (ABMTNs) being a secured form. ### In what currency are Euro Medium-Term Notes (EMTNs) issued? - [x] Eurocurrency - [ ] Only in euros - [ ] Only in US dollars - [ ] Any national currency > **Explanation:** Euro Medium-Term Notes (EMTNs) are issued in a eurocurrency, which means any currency used outside its home market. ### Who is the typical issuer of a medium-term note? - [ ] Only small businesses - [ ] Only individual investors - [x] Corporations, financial institutions, and governments - [ ] Only municipalities > **Explanation:** Corporations, financial institutions, and governments commonly issue medium-term notes. ### Are medium-term notes traded in secondary markets? - [x] Yes, they can be traded in secondary markets. - [ ] No, they are not tradable. - [ ] Only corporate MTNs can be traded. - [ ] Only government MTNs can be traded. > **Explanation:** Medium-term notes can be traded in secondary markets, providing liquidity to investors. ### What financial structure often backs an asset-backed medium-term note (ABMTN)? - [ ] Real estate properties - [ ] Stock portfolios - [x] Structured Investment Vehicle (SIV) - [ ] Gold reserves > **Explanation:** An asset-backed medium-term note (ABMTN) is often secured by a Structured Investment Vehicle (SIV). ### What year term range is typical for MTNs? - [x] 3 to 6 years - [ ] 1 to 3 years - [ ] 6 to 9 years - [ ] 10 to 15 years > **Explanation:** Medium-term notes generally have a maturity range of 3 to 6 years. ### What regulatory body oversees asset-backed securities in the U.S.? - [x] Securities and Exchange Commission (SEC) - [ ] Federal Deposit Insurance Corporation (FDIC) - [ ] Office of the Comptroller of the Currency (OCC) - [ ] Federal Reserve > **Explanation:** The SEC oversees asset-backed securities in the United States. ### Why might a corporation issue a medium-term note? - [ ] To decrease their tax liability - [x] To raise capital for projects or expansion - [ ] To consolidate ownership interests - [ ] To reorganize the company's management structure > **Explanation:** A corporation might issue a medium-term note to raise capital for projects or expansion. ### Which feature makes MTNs appealing to investors? - [x] Flexibility in terms of maturity and issuance - [ ] Guaranteed high returns - [ ] Government insurance - [ ] Absence of risk > **Explanation:** MTNs are appealing to investors due to their flexibility in terms of maturity and issuance.

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