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.
