BUSI 600 Midterm

Money Markets except for Commercial paper and t bills are on XXX day basis

360 day basis

The Capital Markets Include:

Equities long position

In equities, a long position is the purchase of a stock with the expectation that its value will rise over time, allowing you to profit by selling it at a higher price. This strategy reflects a bullish outlook, where the investor owns the asset to benefit from capital gains and potential dividends.

Equities Short position

In equities, a short position involves borrowing a stock and selling it at the current price with the expectation that its value will decline. You profit by buying the shares back later at a lower price to return them to the lender, reflecting a bearish outlook.

Equities - stock loan

A stock loan is a transaction where a security owner transfers shares to a borrower in exchange for collateral and a daily borrowing fee. This process is essential for short selling, as it provides the shares the borrower needs to sell on the open market with the obligation to return them later.

Futures - Initial Margin

Initial margin is the upfront collateral or equity an investor must deposit in their account to open a leveraged position, such as a futures contract. It acts as a "performance bond" to ensure the investor can cover potential losses and is typically a small percentage of the total contract value.

futures - Variation Margin

Variation margin is the daily payment made between a broker and an investor to reflect the profits or losses of a trade as the market price changes. It acts as a "top-up" to ensure your account balance stays at the required level by settling gains and losses every single day.

futures - Haircuts

A haircut is the percentage reduction applied to the market value of an asset when it is used as collateral. This "buffer" protects the lender or broker by accounting for the risk that the asset's price might drop before they can sell it to cover a loss.

Capital Markets - Prime Brokerage

A prime brokerage is a suite of specialized services offered by large investment banks to institutional clients, such as hedge funds, to handle their complex trading and financing needs. It acts as a centralized hub that provides everything from trade clearing and custody to securities lending and large-scale margin loans.