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Financial things | |||||||||||||||||||||||
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Note!!!! This is a page where I write things about financial things that I came across once or so. They are most probably not accurate. So please...
Financial InstrumentsSpot
German: Kassageschäft.
Securities
Either
Fixed income
Bond
A bond has:
Characteristics
Issuer:
In the UK, government bonds are also called gilts.
Priority:
Coupon rate:
Redemption features:
Medium Term Bonds (or Intermediate Term Bonds): 2-10 years
See also eurobonds.
Swaps
Forward vs FutureForward
Traded OTC.
Future
standardized, and therfore on exchange tradable «forward« contract.
OTC vs Exchange tading
OTC = Over the counter. Financial instruments are traded directly between two parties as opposed to exchange trading where instruments are sold and bought on the exchange.
Reference interest rates
Accrual Methods "Zinsmethoden"
(See also APR (Annual Percentage Rate)
Secondary Market
Investor purchases an asset from another investor, rather than from an issuing corporation (For example on the stock exchange)
REPO - Repurchase Agreement
A holder of a security sells the security (always T-bills?) to a lender and buys them back at an agreed future date (usually < 30 days) at an agreed price.
The reverse repurchase agreement is the same thing but for the other party.
Term Repo
The term of the loan is greater than 30 days.
Eurodollars
Dollar-denominated deposites at banks outside of the USA.
They have less regulation than in the USA, so they circumvent regulatory costs.
Eurobond
A bond that is denominated in a currency other than that of the country in which it was issued.
A eurobond denominated in Swiss Francs but issued in Germany is a Euroswissfranc bond (to be verified).
GreeksDelta
Measures an option's sensitivity to changes in the price of the underlying asset. (Hedge ratio)
Gamma
Measures the sensitivity of delta to changes in the underlying stock price.
Vega
A measure of an option's sensitivity to changes in the volatility of the underlying asset, that is:
the amount that the price of an option changes compared to a 1% change in volatility.
Theta
A measure of an option's sensitivity to time decay.
Rho
A measure of an option's sensitivity to changes in the risk free interest rate.
gammavegathetaOptions
Long put: bearish strategy. Long call: bullish strategy.
See also delta.
Exchanges
T-Bills (Treasury Bill)
A T-Bill is bought at a price less than ther par value. When they mature, the government pays the par value. The price is determined in a auction (competitive vs non-competitive???)
Issued with maturities
Issued in these denominations:
There are no state and local taxes on T-Bills
APY vs APR
APY (annual percentage yield) is the amount of interest earned in one year taking into account compound interest.
APR (annual percentage rage) doesn't take into account compounding.
Ratings
Important rating agencies: Moody's and Standard & Poor's
Investment grade: AAA through BBB
Speculative or junk dept: less than BBB D: Company has already defaulted Interest Rate Derivatives
IOU = I own you ("Schuldschein")
Blue Sky Laws: US-State security laws and rules.
Market capitalization: "amount outstanding" * "dirty price"
Mutual Fund: collection of stocks and bonds. This collection is shared by multiple investors.
Fill or kill
Execution type (on stocks?): The order must be executed immediately or not at all.
Commercial vs investment banks
Commercial:
Investement: A type of bank that acts as an underwriter or agent for corporations and municipalities issuing securities. It assists them in raising funds (both equity and debts)
in the markets and provides strategic advisory services for mergers, acquisitions, private equity placements and corporate restructuring.
Issue Price
Price at which securities are offered to the market for the first time.
Lombard loan
Loan granted against the pledging of securities as collaterals (broker's loan) or against the pledging of goods (advnce against goods as security).
Par value
The value of the security as printed on its face. Aslo called face value or nominal value(???). It is usually not identical with the market value. Swiss law prescribes a minimum par value of CHF 0.01 per share, whereas in the United States and Canada shares
may be issued without any par value.
RisksMarket risk
The risk of loss arising from unexpected changes in market prices (for example security prices) or market rates (f.e. interest or exchange rates).
Credit risk
The risk of loss arising from the failure of the counterparty to make a promised payment.
Operational risk
The risk of loss arising from the failures of internal systems or the people who operate on them.
Regulatory authoritiesSwiterland
Some of the most important tefulative authorities for the Swiss banking sector are:
SIC
SIC seems to be a system to communicate money transfers.
Swap rate
Difference between the spot exchange rate and the forward exchange rate in a foreign exchange swap.
Questions
Par value = Face Value?
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