Hello YouTube, Todd Ault here, and Welcome to Wall Street Words! Today's Wall Street term is "Structured Note"

Now, these are incredibly complicated financial instruments used by institutions, public and private companies, an important part of the economy, again, because they offer so much financial flexibility. Let's talk about an example of a Structured Note. Let's say you're a company that wants to borrow money and you borrow money from, say, an institution, a financial institution, but you want to link that to an equity-linked return for them to not get too complicated, you borrow one hundred million, and you use a portion of those proceeds to buy coal options on the S&P 500. They may choose to convert into the S&P 500 index and convert out and sell that call option to pay off your debt. That's the way of structuring something that's linked to an equity market. Those are complicated, I know that sounds a little unusual, but imagine that you're a company like a farmer, a very simple example, you're a farmer, and you borrow against your farm, but you also put the corn crop up as collateral and the corn prices go crazy. And you allow that person who owns that note to convert into those corn prices and your notes paid off because they sell out that corn at a higher price. Today's word is "Structured Notes," and I could not give you enough examples of how complicated these can be. But effectively, the notes you borrow money and they're linked to some sort of index, commodity, interest rate, or something other than the places they lent that money to. Today's word of "Structured Note."

A structured note is a debt security issued by financial institutions. Its return is based on equity indexes, a single equity, a basket of equities, interest rates, commodities, or foreign currencies. The performance ofa structured note is linked to the return on an underlying asset, group of assets, or index. The flexibility of structured notes allows them to provide a wide variety of potential payoffs that are difficult to find elsewhere. Structured notes may offer increased or decreased upside potential, downside risk, and overall volatility.

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