1. Financial Services Industry Flashcards
Differences between equities and bonds
Bonds:
-IOU - issuing entity borrows money in exchange for debt security
- paid before shareholders in case of insolvency
- may have legal recourse if institution defaults/interest not payed
- agreed term, rate of interest, and agreed set date to repay principal
Equities:
- shares in a company that represent ownership stake
- no guaranty on value of dividends/return
- can suffer total loss of investment in case of insolvency
- no guarantee that company will increase in value
- have voting rights
what is a bearer certificate
person who bears certificate has title to it (eg. banknotes)
- physical possession of certificate = proof of ownership
- easier to transfer as there is no register so can simply be handed over
where are bearer securities typically held and immobilised (give 2 examples)
- held in central security depositories (CSDs) eg. Euroclear, Clearstream
what is a CSD
- central security depositories- institution that holds financial instruments eg. equities, bonds, mutual funds, money market instruments
- allows ownership of instruments to be transferred in electronic form (through updating electronic records - book-entry records)
examples of securities held in bearer form
- eurobonds = an international bond issued in Europe or elsewhere outside the country in whose currency its value is stated (usually the US or Japan)
- american depositary receipts (ADRs) = U.S. bank-issued certificate representing shares in a foreign company for trade on American stock exchanges
what is the professional sector
- B2B
- aka wholesale/institutional sector
- equity markets
- bond markets
- forex
- derivatives
- insurance markets (major corporate insurance)
- fund management
- investment banking
- custodial banking
what is the retail sector
- B2C
- retail banking
- insurance
- pensions
- investment services
- financial planning and advice
