Week 1 - Introduction

Real assets are assets used to produces goods & services

• e.g equipment, buildings ..

Financial assets are claims on real assets or the income generated on them.

• e.g stocks, bonds ..

Derivative securities are securities that provide payoffs what depend on the values of other assets.

Financial institutions are institutions that connect borrowers & lenders by accepting funds from lenders & loaning funds to borrowers.

Investment companies are firms managing funds for investors (may manage several mutual funds).

A common measure of credit risk in the banking sector. (Spread between the LIBOR rate & the Treasury-bill rate)

Securitization describes the pooling of loans into standardized securities backed by those loans, which can then be traded like any other security.

A credit default swap (CDS) is in essence an insurance contract against the default of one or more borrowers.

Treasury bills are short-term government securities issued at a discount from face value & returning the face amount at maturity.

The money market is a sub sector of the debt market.

• very-short term & highly marketable debt securities.

Federal funds are funds in the accounts of commercial banks at the Federal Reseve Bank.

A corporate bond is a long-term debt issued by private corporations typically paying semiannual coupons & returning the face value at maturity.

Preferred stock describes nonvoting shares in a corporation, usually paying a fixed stream of dividends.

Future contracts oblige traders to purchase or sell an asset at an agreed-upon price at a specified future date.

A bankers' acceptance is an order to a bank by a customer to pay a sum of money at a future date.

A Eurodollar is a dollar-denominated deposit at foreign banks or foreign branches of American banks.

A repurchase agreement describes the short-term sales of government securities with an agreement to repurchase the securities at a higher price.

LIBOR (London Interbank Offer Rate) is the lending rate among banks in the London market.

1. Residual claim.
2. Limited liability.

Preferred stock describes nonvoting shares in a corporation, usually paying a fixed stream of dividends.

ADRs are certificates traded in the US market that represent ownership in shares of a foreign company.

A measurement of performance of various categories of bonds.

Three most well-known group indexes:

• Merrill Lynch
• Barclays
• Citigroup

An underwriter purchases securities from the issuing company and resells them to the public.