Equity Investments Flashcards
(52 cards)
Financial Assets
Securities (stocks and bonds), derivative contracts, currencies
Real assets
Real estate, equipment, commodities and other physical assets
Derivative contracts
Values derived from other assets
If pysical derviative contracts, dervides from oil, gold, wheat
Financial derviative contracts
Based on equities, equity indexes, debt, debt indexes, or other financial contracts
Spot markets
markets for immidiate delivery
Primary/secondary markets
Newly issued securities/sebsequent sales of securities
Money markets/Capital markets
Debt securities with maturity of < 1 year/ Longer-term debt security markets
Warrants
similar to options in that they give the holder the right to buy a firm’s equity shares at a fixed exercise price prior to the warrant’s expiration.
Financial contracts
based on securities, currencies, commodities, or security indexes (portfolios). They include futures, forwards, options, swaps, and insurance contracts.
Forward contracts
agreements to buy or sell an asset in the future at a price specified in the contract at its inception and are not typically traded on exchanges or in dealer markets.
Futures contracts
similar to forward contracts except that they are standardized as to amount, asset characteristics, and delivery time, and are traded on an exchange.
Insurance contract
Pays cash amount if a future event occurs
Brokers
Connect buyers and sellers of same security at same location and time
Dealers
Match buyers and sellers of same security at different points in time. Dealer will hold an inventory
Arbitageurs
Transact with buyers and sellers of same security at same time, but in different markets
Securitizers, depositary institutions
Sell interest in a diversified pool of assets - pool assets together and sell the interest to investors
Short position
Gains when asset value decreases - selling short means borrowing asset and selling it in the market, buy back at lower price and pocket difference
Maintanance margin (margin call)
If margin percentage falls below minimum, more cash or securities must be deposited in order to maintain the position
Rate of return on margin transaction
Gain or loss on security position / margin deposit
Trigger price (for margin call)
Po x {(1- initial margin) / (1 - maintanance margin)}
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bid price
Best price at which a dealer will buy a security
Ask/offer price is the price at which a dealer will sell a security
Ask/offer price is the price at which a dealer will sell a security
Market order
Instructs broker to execute the trade immidiately at the best available price
Limit order
Places a minimum execution price on sell orders and a max execution price at buy orders
