Studied by 40 people
option contract
allows the holder an option to buy or sell an underlying instrument at a specified price at or before the specified date in the future
call option
gives the buyer the option to buy shares at the strike price
put option
gives the buyer the option to sell shares at the strike price
contract for difference
allow people to speculate on price changes for an underlying asset, such as a common stock or an index
commodities
include products such as precious metals, energy products, industrial metals, agricultural products, carbon credits
real assets
include tangible products such as real estate, airplanes, machinery, lumber stands
financial intermediaries
services and products that allow their clients to solve financial problems more efficiently that they would by themselves
investment banks
provide advice to their mostly corporate clients and help them arrange transactions such as initial and seasoned securities offerings
note
a legal document that serves as an IOU from a borrower to a creditor or to an investor
treasury note
a debt security backed by the full faith and credit of the United States government with a maturity between one and 10 years
municipal note
a short-term debt security issued by a local or state government, has a maturity from three months to three years
mortgage-backed note
a derivative whose value is derived from unpaid mortgages
structured note
a debt security issued by financial institutions, which return is based on equity indexes, a single equity, a basket of equities, interest rates, commodities or foreign currencies
brokers
agents who fill orders for their clients
exchanges
provide places where traders can meet to arrange their trades
alternative trading systems
also known as electronic communications networks or multilateral trading facilities are trading venues that function like exchanges but that do not excercise regulatory authority over their subscribers
dealers
fill their clients’ orders by trading with them
securitization
the process of buying assets, placing them in a pool, and then selling securities that represent ownership
depository institutions
include commercial banks, savings and loan banks, credit unions and similar institutions that raise funds from depositors and other investors and lend it to borrowers
insurance companies
companies that help people and companies offset risks that concern them
insurance contract
transfers risk from those who buy the contract to those who sell them
credit deafult swap
is also an insurance contract, but historically they have not been subject to the same reserve requirements that most governments apply to more traditional insurance contracts
arbitrageurs
trade when they can identify opportunities to buy and sell identical or essentially similar instruments at different prices in different markets
clearinghouses
arrange or final settelment for trades, guarantee futures contract performance and in other markets may act only as escrow agents
long position
people have that position when they own assets or contracts
short position
people have that position when they have sold assets that they do not own or when they write and sell contracts
levraged position
in many markets traders can buy securities by borrowing some of the purchase price
the leverage ratio
the ratio of the value of the position to the value of the equity investment in it
order
consists of instructions to a broker or brokerage firm to purchase or sell a security on an investor's behalf
well-functioning financial system
a system in which investors can easily move money from the prestent to the future at a fair rate of return, borrowers can obtain funds that they need, hedgers can trade away or offset the risk that concerns them and traders can easily trade currencies for other currencies or commodities that they need
index
represents a given security market, market segment or asset class, often constructed as portfolios of marketable securities
price return index
reflects only the prices of the constituent securities within the index
total return index
reflects not only the prices of the constituent securities but also the reinvestment of all income received since inception
index weighting
the weighting decision determines how much of each security to include in the index and has a substantial impact on an index’s value
price weighting
the simplest method to weight an index, the weight on each constituent security is determined by dividing its price by the sum of all the prices of the constituent securities
equal weighting
assigns an equal weight to each constituent security at inception
market-capitalization weighting
the weight on each constituent security is determined by dividing its market capitalization by the total market capitalization of all the securities in the index
fundemental weighting
weighting attempts to address the disadvantages of market-capitalization weighting by using measures of a company’s size that are independent of its security price to determine the weight on each constituent security
rebalancing
refers to adjusting the weights of the constituent securities in the index
reconstitution
is the process of changing the constituent securities in an index, it is similar to a portfolio manager deciding to change the securities in his or her portfolio
Note 
Flashcard (41)