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Finance Glossary

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VRDO

Definition:

Variable Rate Demand Obligation

Example

You have a variable rate bond. It adjusts annually based on whatever LIBOR averaged and it pays 100 basis points above LIBOR. This particular bond, however, has a demand obligation which makes it automatically convertible into a flat 7% yield bond, payable in U.S. dollars, if the Dollar to Euro ratio ever drops below 1:1. The bond carries this VRDO feature as a kind of hedge against strange fluctuations in currencies, interest rates, and other bizarroland occurrences.

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