Economics Abbreviations Dictionary

CMA (Cash Management Account)

CMA is a comprehensive financial account that combines cash management and asset investment features, offered mainly by banks and brokerage firms. Beyond simply holding cash, it integrates services like deposits, interest earnings, and investment management, enhancing liquidity and facilitating efficient short-term asset management for individuals and businesses. CMAs allow easy cash deposits and withdrawals, aiding in effective fund management. Like a bank account, they may pay interest on deposited funds, and some CMAs offer higher rates through investment-linked options. Additionally, CMAs are often linked with brokerage accounts, enabling convenient access to investments in assets like stocks and bonds.

CMO (Collateralized Mortgage Obligation)

CMO is a derivative financial product backed by a pool of mortgage loans, specifically residential mortgages. These loans are bundled and securitized, then divided into multiple tranches, each offering distinct levels of risk and return, allowing investors to choose based on their risk tolerance. CMOs distribute the principal and interest payments from the underlying mortgages among investors according to tranche priority. Higher tranches provide more stable cash flows, while lower tranches carry higher risk but offer the potential for higher returns. By securitizing mortgages, CMOs help financial institutions recover funds for reinvestment, while offering investors options for risk management and portfolio diversification. However, CMO values are sensitive to factors like interest rate changes, housing market instability, and borrower defaults. During the 2008 financial crisis, CMOs linked to subprime mortgages suffered significant losses.