Definition:

Federal Agency Securities are debt instruments issued by government-sponsored enterprises (GSEs) or federal agencies. These securities are not directly backed by the full faith and credit of the U.S. government, but they are considered to have low credit risk due to their association with government entities.

Examples

Examples of Federal Agency Securities include bonds issued by entities such as Fannie Mae (Federal National Mortgage Association), Freddie Mac (Federal Home Loan Mortgage Corporation), and the Federal Home Loan Banks.

Formula:

There is no specific formula for Federal Agency Securities, as they are financial instruments rather than a calculable metric.

How to use the metric:

Investors use Federal Agency Securities as a way to diversify their portfolios with relatively low-risk investments. They are often used as a benchmark for other fixed-income securities and can provide a steady stream of income through interest payments.

Limitations:

The main limitation of Federal Agency Securities is that they are not explicitly guaranteed by the U.S. government, which means they carry some credit risk. Additionally, their yields may be lower compared to other higher-risk investments.

Applies to:

Federal Agency Securities are applicable to industries such as banking, insurance, and investment management, where stable and low-risk investments are desirable.

Doesn't apply to:

These securities do not apply directly to industries focused on high-risk, high-reward investments, such as venture capital or speculative trading, because they prioritize stability over high returns.

Summary:

Federal Agency Securities are low-risk debt instruments issued by government-sponsored enterprises or federal agencies. They offer a stable investment option with relatively low yields and are commonly used in industries that prioritize financial stability. However, they are not suitable for high-risk investment strategies due to their lower return potential.