What is swaps?

Swap refers to an exchange of one financial instrument for another between the parties concerned. This exchange takes place at a predetermined time.
Definition: Swap refers to an exchange of one financial instrument for another between the parties concerned. This exchange takes place at a predetermined time, as
specified in the contract.
Description: Swaps are not exchange oriented and are traded over the counter, usually the dealing are oriented through banks. Swaps can be used to hedge risk of various
kinds which includes interest rate risk and currency risk. Currency swaps and interest rates swaps are the two most common kinds of swaps traded in the market.
(1)
(2)

Currency swap: simultaneous buying and selling of a currency to convert debt principal from the lender's currency to the debtor's currency.
An interest rate swap is a contractual agreement between two parties to exchange interest payments

Suppose A company pays fixed rate at 10% and B company pays floating rate at 9%.

Options:
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.
For example, that you discover a house that you'd love to purchase. Unfortunately, you won't have the cash to buy it for another three months. You talk to the owner and
negotiate a deal that gives you an option to buy the house in three months for a price of 22 Lakes. . The owner agrees, but for this option, you pay a price of 3lakes.
Now, consider two theoretical situations that might arise:

1.

If the market value of the house rise to 30 lakes. Because the owner sold you the option, he is obligated to sell you the house for 22 lakes.. In the end, you
stand to make a profit of 5 lakes (30 lakes 22lakes 3lakes).

2.
3.

Though you originally thought you had found the house of your dreams, you now consider it worthless. On the upside, because you bought an option, you are
under no obligation to go through with the sale. Of course, you still lose the 3 lakes price of the option.

Futures:
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined
future date and price. Futures contracts detail the quality and quantity of the underlying asset.
In the money:

An option that wil produce a profit if it is exercised. Mr A buy call option of reliance with strike price of 330 and lot size is 300. (330*300=99000), reliance current market
price of option is 360, (360*300=108000) so option is said to be in the money. So there is profit of 9000(108000-99000) if it is exercised.
Opposite is put options, Mr A buy put option of reliance with strike price of 330 and lot size is 300. (300*330=99000), and reliance current market price of option is 300.
(300*300=90000). So option is said to be out of the money. So there is profit of 9000(99000-99000) if it is exercised.
An option that would lead to a large profit if it were exercised is referred to as being deep in the money.

Out of the money:

An option that will not produce a profit it it is exercised. Mr x buy call option of SBI with strike price of 5 and lot size is 200 (5*200=1000). SBI current market price of
that option trading at 3 (3*200=600). So option is said to be out of the money. So there is loss of rs 400/- (1000-600). if it is exercised.
Opposite is put options, Mr X, buy put option of SBI with strike price of 3 and lot size is 200 (3*200=600). SBI current market price of that option trading at 6
(6*200=1200). So option is said to be out of the money. So there is loss of rs. 600/-. If it is exercised.
What is bond?

For example, say you buy a bond with a face value of $1,000, a coupon of 8%, and a maturity of 10 years. This means you'll receive a total of $80 ($1,000*8%) of interest
per year for the next 10 years. Actually, because most bonds pay interest semi-annually, you'll receive two payments of $40 a year for 10 years. When the bond matures
after a decade, you'll get your $1,000 back.
Debt Versus Equity :

Bonds are debt, whereas stocks are equity. This is the important distinction between the two securities. By purchasing equity (stock) an investor becomes an owner in a
corporation. Ownership comes with voting rights and the right to share in any future profits. By purchasing debt (bonds) an investor becomes a creditor to the corporation
(or government). The primary advantage of being a creditor is that you have a higher claim on assets than shareholders do: that is, in the case of bankruptcy, a bondholder
will get paid before a shareholder. However, the bondholder does not share in the profits if a company does well - he or she is entitled only to the principal plus interest.
Face Value/Par Value :

The face value (also known as the par value or principal) is the amount of money a holder will get back once a bond matures. A newly issued bond usually sells at the par
value. Corporate bonds normally have a par value of $1,000, but this amount can be much greater for government bonds.

Coupon (The Interest Rate)

The coupon is the amount the bondholder will receive as interest payments. most bonds pay interest every six months, but it's possible for them to pay monthly, quarterly
or annually. The coupon is expressed as a percentage of the par value. If a bond pays a coupon of 10% and its par value is $1,000, then it'll pay $100 of interest a year.
Maturity

The maturity date is the date in the future on which the investor's principal will be repaid. Maturities can range from as little as one day to as long as 30 years (though
terms of 100 years have been issued). A bond that matures in one year is much more predictable and thus less risky than a bond that matures in 20 years. Therefore, in
general, the longer the time to maturity, the higher the interest rate.
In general, fixed-income securities are classified according to the length of time before maturity. These are the three main categories:
Bills - debt securities maturing in less than one year.
Notes - debt securities maturing in one to 10 years.
Bonds - debt securities maturing in more than 10 years.

Government bonds: gov issued bonds for development of infrastructure, road, airport, IT parks.
Municipal bonds:

Corporate bonds: a short-term corporate bond is less than five years; intermediate is five to 12 years, and long term is over 12 years.
DEFINITION of 'Zero-Coupon Bond'

A debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value. Also
known as an "accrual bond."

Zero-Coupon Bonds:
This is a type of bond that makes no coupon payments but instead is issued at a considerable discount to par value. For example, let's say a zero-coupon bond with a
$1,000 par value and 10 years to maturity is trading at $600; you'd be paying $600 today for a bond that will be worth $1,000 in 10 years.
Other variations on corporate bonds include convertible bonds, which the holder can convert into stock, and callable bonds, which allow the company to redeem an issue
prior to maturity.

What is equity:

Equity is the value of an asset less the value of all liabilities on that asset.
what is NAV:

Net asset value (NAV) is the value of an entity's assets minus the value of its liabilities, often in relation to open-end or mutual funds, since shares of such funds registered
with the U.S. Securities and Exchange Commission are redeemed at their net asset value.

What are unrealized gains and losses?

An unrealized loss occurs when a stock decreases after an investor buys it, but he or she has yet to sell it. If a large loss remains unrealized, the investor is probably hoping
the stock's fortunes will turn around and the stock's worth will increase past the price at which it was purchased. If the stock rose back above the original price, then the
investor would have an unrealized gain for the time he or she still holds onto the stock.

For example, say you buy shares in TSJ Sports Conglomerate at $10 per share, and then shortly afterwards the stock's price plummets to $3 per share, but you do not sell.
At this point, you have an unrealized loss on this stock of $7 per share, because the value of your position is $7 dollars less than when you first entered into the position.
Let's say the company's fortunes then shift and the share price soars to $18. Since you have still not sold the stock, you'd now have an unrealized gain of $8 per share ($8
above where you first bought in).

Gains or losses are said to be "realized" when a stock is sold. This is especially important from a tax perspective as, in general, capital gains are taxed only when they are
realized. Unrealized gains and losses are also commonly known as "paper" profits or a loss, which implies that the gain/loss is only real "on paper." This may be true from
a tax perspective, but remember that a loss is a loss, whether it's been realized or not.

What is the difference between the cash basis and the accrual basis of accounting?
Under the cash basis of accounting...

1.
2.

Revenues are reported on the income statement in the period in which the cash is received from customers.
Expenses are reported on the income statement when the cash is paid out.

3.
Under the accrual basis of accounting...

4.
5.

Revenues are reported on the income statement when they are earnedwhich often occurs before the cash is received from the customers.
Expenses are reported on the income statement in the period when they occur or when they expirewhich is often in a period different from when the
payment is made.
Income statement:

Keep in mind that the income statement shows revenues, expenses, gains, and losses; it does not show cash receipts (money you receive) nor cash disbursements (money
you pay out). The income statement is one of the major financial statements used by accountants and business owners. (The other major financial statements are
the balance sheet, statement of cash flows.

Personal account:

Personal account relates to persons with whom a business keeps dealings. A person called be a natural person or a legal person. If a person receives anything from the
business, he is called receiver and his account is to debited in the books of the business. If person gives anything to business, he is called as a giver and his account is to be
credited in the books of the business.

The Golden Rule for Personal Account is,

Debit the Receiver and Credit the Giver

Example: Goods worth 1000 bucks sold to Mr. Smith from Mr. John. In this transaction, Mr. Smith is the receiver of goods, he is called receiver and his account is to be
debited in the books of business. Mr. John is the giver of goods, he is called giver and his account is to be credited in the books of business.

Real account:

Real account relates to property which may either come into the business or go from business. If any property or goods comes into the business, account of that property
or goods is to be debited in the books of the business. If any property or goods goes out from the business account of that property or goods is to be credited in the books of
business.

The Golden Rule for Real Account is,

Debit what comes in and Credit What Goes out

3. NOMINAL ACCOUNT
Nominal account is an account that relates to business expenses, loss, income and gains. If business incurs expense to manage and run business, account of that expense is
to be debited in the books of business. When a business earns income by rendering services or hiring business assets, an account of that income is to credited in the books
of business.
On other hand, if in the case the transaction of sale or purchase of goods or assets, if any loss is incurred by the business, account of that loss is to debited in the books or
assets. if in the transaction of sale or purchase of goods or assets any profit is earned by the business, then account of that profit is to be credited in the books of business.
The Golden Rule for Nominal Account is,
Debit all Expenses or Loss and Credit all Income Gains or Profit
DEFINITION of 'Interest Rate Swap'

An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal
amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (most often the LIBOR). A company will typically use
interest rate swaps to limit or manage exposure to fluctuations in interest rates, or to obtain a marginally lower interest rate than it would have been able to get without
the swap.
The most popular types of swaps are plain vanilla interest rate swaps. They allow two parties to exchange fixed and floating cash flows on an interest-bearing investment
or loan.
Currency swaps:
The transactional value of capital that changes hands in currency markets surpasses that of all other markets. Currency swaps offer efficient ways to hedge forex risk.
By getting into a swap, both firms were not only able to secure low-cost loans, but they also managed to hedge against interest rate fluctuations.
Credit default swaps:
Another popular type of swap, the credit default swap, offers insurance in case of default on part of a third-party borrower. Assume Peter bought a 15-year long bond
issued by ABC, Inc. The bond is worth $1,000 and pays annual interest of $50 (i.e., 5% coupon rate). Peter worries that ABC, Inc. may default, so he gets into a credit
default swap contract with Paul. Under the swap agreement, Peter (CDS buyer) agrees to pay $15 per year to Paul (CDS seller). Paul trusts ABC, Inc. and is ready to take
the default risk on its behalf. For the $15 receipt per year, Paul will offer insurance to Peter for his investment and returns. In case ABC, Inc. defaults, Paul will pay Peter
$1,000 plus any remaining interest payments. In case ABC, Inc. does not default throughout the 15-year long bond duration, Paul benefits by keeping the $15 per year
without any payables to Peter.