Economics, Markets, and The Industry Flashcards
Interest Rates
The amount charged, expressed as a percentage of the principal, by a lender to a borrower for the use of assets.
Low-risk / good credit –> Low Rates
High-risk / bad credit –> High Rates
Present Value
PV = Future Value/(1+rate)n
Where n is number of times compounded (e.g. for semi-annually for 20 years, n would equal 40).
Future Value
FV = Principal*(1+r)n
Bond Pricing
The sum of the present values of all expected coupon payments plus the present value of the par value at maturity.
n refers to the number of payments, I is the interest rate or required yield, and M is value at maturity or par value.
Monetary Policy Tools
Federal Funds Rate: Rate at which banks lend to each other.
Discount rate: Rate at which banks borrow $ from the Fed.
Required Reserves
Open Market Operations
Investment Bank Services
- Underwriting activities: Helping companies raise capital in the process of an IPO or bond offering. They advise a deal when investors buy a security on the Primary Markets.
- Advising on Mergers and Acquisitions (M&A), Restructuring, and Leveraged Buy-Outs.
Investment Banking: Coverage vs. Product
If you are an analyst in a coverage group, you cover a particular industry and are responsible for tracking news developments and understanding companies in the industry.
If you are in a product group, you specialize in a particular product or transaction type.
Secondary Markets
Our stock markets; companies sold here once initial investors start selling stock. The issuer is unaffected because the shareholders (public) are not primary!
Ex: Buying shares of FB!
Sales Job Responsibilities
Meet clients, pitch trade ideas, win business.
Be a point of contact, relationship manager, liaison with trader.
Trading Job Responsibilities
Execute orders on behalf of clients, profit on Bid/Offer spread between seller and buyer of stock, “make markets” by holding securities for a long time.
Bid/Ask Spread
Helps gauge liquidity of a security.
Wider spread = less liquid & likely riskier.
Wider spread = More negotiating to be done between traders.
Dow Jones Industrial Average
Most famous and widely-followed stock index, contains 30 largest and widely-held blue-chips, not best barometer for stock market.
S&P 500
500 largest American companies by market capitalization, more diversity than the DJIA.
Analyst Tasks
Entry-level position, modeling, coffee, notes, emails, and excel.
LONG HOURS
Associate Info
2-3 years work experience or MBA, checking analysts’ work, communicating with clients to see what needs to be done.
Vice-President Tasks
3-4 Years after Associate, interpret Managing Director’s orders and make sure it gets done. More client interaction / shift to relationship develoment. Some firms have SVP / Director / Principal / Executive Director between VP and Managing Director (MD).
Managing Director Tasks
10+ years excelling as a VP, meets to win clients, meets companies, develops and manages relationships. Bring in new business to the firm while those below you execute.
Hedge Funds
Private investment vehicle, caried and sometimes exotic strategies, can be highly lucrative but highly volatile, 2/20 Rule
Private Equity
Investing in non-public companies, most similar to banking, LBO, growth capital, make money when a firm goes public or is acquired.
Corporate Finance
Branch of corporation designed to manage company finances and manage the company’s investments.
Ex: CFO of a major corporation, making the decision to build a new factory, making the decision of when to go public.
