Mnemonics Flashcards
Futures contract specification
• The units of trading
• The delivery date
• How the settlement price will be determined
• Exact details of the underlying asset
(TTHE)
Uses of futures include HASSP
• Hedging
• Arbitrage
• Speculation
• Synthesizing an index
• Portfolio management
(HASSP)
Three basic ways for investors to access the money markets (HVD)
• Hire a professional investment management firm
• Via a money market fund
• Directly on their own account
(HVD)
Main features of commercial paper
• The terms of the issue can vary from a few days to a few months
• Rating agencies such as moody and standard and poor provide ratings
• It is a bearer document
• It is a single-name instrument
• Companies wishing to raise money using commercial paper need to meet minimum standards
• Effective rate of interest paid will be slightly higher than the risk free rate of return
(TRIICE)
Main features of CDs
• Domestic and international CDs exist in many currencies
• A secondary market exists but it is less liquid than the market for treasury bills
• Typical maturity ranges from 1 to 3 months
• They are bearer documents
(DATT)
Money market instruments – borrowing
• Bridging loans
• Evergreen credit
• Revolving credit
• Term loans
(BERT)
Issues that differentiate between different types of loan
• Security
• Interest rate
• Commitment
• Maturity
(SICM)
Oil and gas companies are usually
• Large companies
• Commodity price dependent
• Global
• Higher risk
(LCGM)
Distinctive features of industrials
• Company profits tend to move ahead of trade cycle
• Cyclical in nature
• High profit margins when conditions are good
• Investment spending is very important
• Low gearing because of volatile profits
• Dependency on government spending
• Possibility of exposure to overseas markets and competition
• Volatility of profits
(CCHILDPV)
Consumer goods features
• Moderate to high gearing
• Increasingly capital intensive
• Low profit margins
(MIL)
Consumer services features
• Labour intensive
• The more defensive companies in the group may have high gearing
• The domestic market is the most important
(LTT)
Utilities key features
• Generally have low growth prospects leading to a high gross dividend yield
• Usually require an extensive physical infrastructure making them capital intensive
• Utility companies are natural monopolies
• They are dependent on the domestic market
• They are subject to tight government regulation of prices and vulnerable to other forms of political risk
• Financial gearing is low
(GUUTTF)
Financials key features
• Life insurers have stable profits and low gearing
• General insurers have volatile profits and virtually no borrowings
• Banks are highly-geared and have volatile profits
• The domestic market is most important but there is increasing internationalism
• Labour costs are important for many companies in the group
(LGBTL)
10 industries
• Financials
• Industrials
• Telecommunications
• Consumer goods
• Consumer services
• Healthcare
• Energy
• Technology
• Utilities
• Basic materials
(Fitcchetub)
Uses of derivatives
• Reduce market risk
• Increase risk to enhance returns
• Switch asset allocations
• Control credit risk
(RISC)
Role of the clearing house
• Facilitator of marking to market process
• Guarantor of all deals
• Counterparty to all trades
• Holder of deposited margin
• Registrar of deals
(FGCHR)
Choices for an investor that wants to invest in private equity
• Directly by purchasing shares in private companies
• Invest in a private equity collective vehicle
• Invest in a fund-of-funds which invests in a range of private equity funds
• Pay a private equity firm to invest the funds for you
(DIIP)
