Definition
A Workable Indication is a pricing technique employed specifically in the municipal bond market that presents a range of prices for buying or selling bonds. It serves as a nominal quote that reflects an estimate or initial bid. Importantly, a workable indication is not binding for the dealer, allowing flexibility and discussions in negotiations.
| Workable Indication |
Firm Quote |
| Non-binding estimate range |
Binding quote provided |
| Serves as a starting point for negotiations |
Commits the dealer to the price if accepted |
| Commonly used in slower, more relaxed markets |
Seen in quicker, more fast-paced markets |
| Used when specific bonds or values are uncertain |
Secured with confidence and clarity |
Examples
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Example of Workable Indication: A dealer might say, “I can give you a workable indication for that bond around 98-100,” indicating a pricing range without the obligation to honor an accepted price.
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Example of Firm Quote: Conversely, a firm quote would be expressed as, “I’ll sell you that bond for 99,” which the dealer is obliged to honor upon acceptance.
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Nominal Quote: A preliminary, non-binding quote to gauge market interest or start negotiations.
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Firm Quote: A definitive price quote that guarantees a transaction if accepted by the buyer.
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Municipal Bonds: Bonds issued by local governments or their agencies, which are typically used to fund public projects.
To illustrate how a workable indication functions, consider the simple diagram below demonstrating the communication flow between buyers and dealers:
graph TB
A[Investors] -->|Seek info| B[Dealers]
B -->|Provides range| C{"Workable Indication"}
C -->|Leads to negotiations| D[Buy or Sell Decision]
Humorous Insights & Quotes
“A workable indication is to market pricing what a warm-up is to a marathon—just the dealer’s way of saying they might be able to run the distance, but only if you’re willing to play along!” 😄
Fun Facts
- The term “workable indication” emphasizes the chill vibes of the municipal bond market, often akin to a lazy Sunday brunch compared to the hustle of stock market trading.
Historical Fact
- Workable indications became particularly relevant as the municipal bond market evolved, offering an innovative system accommodating transmitter-to-dealer communications in a slower-paced environment.
Frequently Asked Questions
Q1: How is a workable indication different from a market order?
A1: A workable indication presents a price range without binding commitments, while a market order is an actual request to buy or sell at the prevailing market price.
Q2: Are workable indications common?
A2: Yes, especially in the municipal bond market, where finding specific bonds might require negotiation and flexibility.
Q3: What happens if a workable indication gains interest?
A3: Dealers may use the indication to gauge demand and either firm up a quote or adjust their pricing based on investor feedback.
Suggested Online Resources
Further Reading
- “Municipal Bonds for Dummies” by Brad King
- “The Handbook of Municipal Bonds” by Robert E. Doty
Test Your Knowledge: Workable Indication Quiz
## What's a workable indication?
- [x] A range of prices offered by dealers that is not binding
- [ ] A guaranteed price for immediate purchase
- [ ] A type of investment vehicle
- [ ] Price indicator used only in stock markets
> **Explanation:** A workable indication is effectively a non-binding price range given by dealers, which allows negotiation rather than immediate commitment.
## How does a workable indication typically function in the market?
- [x] To gauge investor interest before providing a firm price
- [ ] To finalize a transaction instantly
- [x] To survey what bonds are available in the market
- [ ] To sell stocks at any price
> **Explanation:** Workable indications serve primarily to gauge interest and initiate discussions rather than finalize binding agreements.
## Do investors need to accept prices stated in a workable indication?
- [ ] Yes, they are mandatory
- [x] No, they for negotiation purposes
- [ ] Only for firm quotes
- [ ] Only when it involves bonds with ratings
> **Explanation:** Investors are not obligated to accept workable indications since they serve as estimates for negotiation.
## What type of market usually utilizes workable indications?
- [ ] High-frequency trading markets
- [ ] Stock markets
- [x] The municipal bond market
- [ ] Commodity markets
> **Explanation:** Workable indications are predominantly used in the municipal bond market, where transactions tend to be slower and less formal.
## Can a dealer change a workable indication after it’s provided?
- [x] Yes, it's flexible and subject to change
- [ ] No, it's a fixed price
- [ ] Only if the investor requests changes
- [ ] Only at the market close
> **Explanation:** Dealers can adjust a workable indication, reinforcing its flexible nature and suitability for negotiation.
## Why is a workable indication advantageous to dealers?
- [ ] It locks in profits immediately
- [x] It helps gauge interest without binding commitments
- [ ] It allows for impulsive price setting
- [ ] It ensures instant sales
> **Explanation:** Workable indications give dealers a way to test the waters of market interest before making binding commitments.
## What should an investor verify before relying on a workable indication?
- [x] Dealer reliability and credibility
- [ ] The next office party date
- [ ] The dealer's personal background history
- [ ] The weather forecast for selling bonds
> **Explanation:** Investors should check the dealer's credibility before acting on a workable indication to ensure they make informed decisions.
## How does the secondary market resemble a household negotiation?
- [ ] Everyone just yells their offers!
- [x] It often involves discussions and back-and-forth
- [ ] Only the cat decides the price
- [ ] The parents set fixed prices
> **Explanation:** Much like family discussions, workable indications in the secondary market involve negotiations and flexibility rather than bind.
## What does NOT characterize a workable indication?
- [ ] Flexibility
- [ ] An open price range
- [x] A strict requirement to follow through
- [ ] A means to start negotiations
> **Explanation:** Unlike firm quotes, workable indications are not strict and can change based on market feedback.
## When is a workable indication traditionally used?
- [x] When specific bonds cannot be identified
- [ ] Only during stock market crashes
- [ ] When the moon is full
- [ ] When everyone is buying bonds
> **Explanation:** Dealers might issue a workable indication when specific bonds are hard to locate, providing a range for discussion.
