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Debt
Bonds
Common stock
Preferred stock
Derivative securities
3
Financial Markets
Financial
Markets
Foreign Exchange
Market
Derivatives
Traditional
Financial
Markets
(Long-term)
Capital
Market
(Short-term)
Money
Market
T-ills
CD
C!
"
#epos$#everses
Federal %&nds
L'(# market
onds
Stocks
T-)otes$onds
M&nicipal *onds
Corporate onds
"S$MS
+hole sales market
#etail market
For,ard
F&t&res
(ption
S,ap
4
Money Market Instruments 1
3urodollars
Dollar"denominated time de+osits at forei)n banks# $it! a
maturity less t!an 4 mont!s
3urodollar CD is a variation t!at is ne)otiable before maturity
Federal Funds
Banks* de+osits at t!e Federal 5eserve Bank to maintain a
re%uired minimum balance
Banks $it! e,cess funds lend to t!ose $it! a s!orta)e at a rate
of t!e Federal fund rate 'Fed fund rate(
:IB;5 Market
:IB;5- lendin) rate amon) lar)e banks in :ondon
erve as a reference rate for a $ide ran)e of transactions
<
Discount Rate vs.
on! "#uivalent $iel!
Cor+orate bonds
:on)"term debt issued by +rivate cor+orations# +ayin) ty+ically
semiannual interests and +rinci+al at maturity
ecured 'mort)a)e or collateral( vs. unsecured 'Debenture(
Guaranteed vs. strai)!t bond
;+tion"embedded bonds- Callable# +uttable# convertible# etc.
Current yield ? 7nnual cou+on 9 Current +rice
=ield"to"maturity ? current yield H ca+ital )ain yield
International Bonds
3urobond- denominated in a currency ot!er t!an t!e issuin)
country# e.).# dollar"denominated bond issued in :ondon
=ankee bond# amurai bond
03
Ca)ital Market ' "#uity
Common stock
;$ners!i+ s!ares of a +ublicly !eld cor+oration
3ntitled to )et votin) ri)!t and dividend +ayments
5esidual claim
:imited liability
Dividend yield ? 7nnual dividend 9 Current +rice
P3 ratio ? Price 9 3P
Preferred stock
Convotin) s!ares# usually +ayin) fi,ed dividends 'usually
cumulative(# like an infinite"maturity bond or a +er+etuity
Priority over common stock !olders
ometimes# callable and convertible
04
International "#uity
Far 3ast
3M '3mer)in) markets(
Basic Positions
Call '5i)!t to Buy(
Put '5i)!t to ell(
&erms
3,ercise 'trike( Price
3,+iration Date
Bnderlyin) 7ssets
Futures
Basic Positions
:on) 'Commitment to Buy(
!ort 'Commitment to ell(
&erms
Futures +rice
Delivery 'Maturity( Date
Bnderlyin) 7ssets