IFM

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Flashcards for IFM exam
Joseph Normile
Flashcards by Joseph Normile, updated more than 1 year ago
Joseph Normile
Created by Joseph Normile over 6 years ago
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Resource summary

Question Answer
Real Asset Used to produce income, such as factory or machine
Financial Asset Claim on income produced by real asset, Bonds, stocks, derivative security
Derivative Security Financial Asset that has its value determined by something else, such as stock, bond, interest rate. A contract between 2 parties, bet, and sum from payoff for both sides equal to zero.
Fixed Income Security Provides a form of fixed, periodic pays and return of the principal at maturity
Purpose of Derivative Reduce risk, induce risk, one side sees risk reduced while other takes on risk.
Financial Markets Where financial assets are traded. Can be one-on-one private transactions, organized around a dealer, structured and organized exchanges (NYSE, CME).
Clearning houses Intermediary between buyer and seller of asset that ensures execution of trade, collection of monies, delivery of asset, collection of data.
Novation Substitution of one counterparty for another. Derivatives clearinghouses usually become buyers to all sellers and sellers to all buyers.
Market Measures of Activity trading volume (number of trades), market value, notional value (potential exposure in derivatives), open interest (total number of contracts outstanding)
Use of derivatives Risk management: reducing risk with derivatives (hedging) Speculation Reduced Transaction Costs: lower transaction cost than individual securities Regulatory Arbitrage: circumventing regulation
End User Party that buys derivatives
Market Makers Create derivatives
Economic Observers includes regulators
Market Order Purchase at current price
Limit order instruction to trade a security at a specified or better price
Stop Loss Order sell once price reaches a specified level
Lease Rate Payment made on a borrowed asset
Short Selling Reasons speculation, means of borrowing money, hedging
Haircut the extra amount of money the owner of the asset asks the short seller to provide.
Repo Rate Interest paid on the short sale proceeds and the haircut if it is a bond
Short Rebate Interest paid on the short sale proceeds and the haircut if it is a stock
Forward Contract Sale transaction consummated in the future of which all details are laid out today
Forward (Long Position) =Spot price @ expiration - Price Named in Forward Contract
Forward (short position) =Price named in forward contract - Spot price @ expiration
Value of Long Forward Price of Underlying - present value of forward contract price
Forward Price PV(Forward Price)=Price of Underlying The price named in the forward contract that does not require any cash payment up front
Forward Spot Parity Fe^-rt = S F=Se^rt
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