Financial Institutions Flashcards

1
Q

What is a Hedge Fund?

A
  • Hedge funds are financial partnerships that pool funds and use these pooled funds and employ different strategies to provide active returns for its investors
  • Generally only accessible to accredited investors (large sums)
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2
Q

What is the purpose and strategy of hedge funds?

A
  • Use more aggressive and complex methods to bring returns such as making use of derivatives and leverage.
  • Hedge fund teams mostly mimic traders than investors – they make mponey regardless whether the market is trending upwards or downwards
  • Purpose is to maximise returns and minimise risks.
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3
Q

What is a Proprietary Trading Firm?

A
  • This is a financial firm or investment bank that invests directly for market gain as opposed to investing for clients to earn commission.
  • Also known as prop trading
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4
Q

What is involved in a proprietary trading firm?

A
  • May involve the trading of stocks, commodities, bonds, currencies, etc.
  • They believe they have a competitive advantage over index investing, bond yield, etc.
  • Uses the firm’s capital and balance sheet to perform self-promoting financial transactions.
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5
Q

What is an Asset Management Firm?

A
  • An Asset Management Company (AMC) is a firm that invests pooled funds from clients, investing in stocks, real estate, etc.
  • They’re distinguished by the amount of assets under management.
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6
Q

What is involved in an Asset Management Firm? Give examples of them

A
  • They manage High Net Worth Individuals (HNWI) as well as hedge funds, pension plans, etc.
  • For smaller investors they create pooled asset funds which they can manage in a single centralised portfolio.
  • Examples are Vanguard group, Fidelity investments.
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7
Q

What is a High Frequency Trading Firm?

A
  • These firms provide an automated trading platform that large investment funds, hedge funds and institutional investors employ.
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8
Q

How does a High frequency trading firm work?

A
  • Uses computers to automate, process and execute a huge number of transactions at high speeds
  • High speeds and analysis gives those who use the platform an advantage in the open market
  • Use complex algorithms to analyse the markets and spot emerging trends in fractions of seconds.
  • Essentially they anticipate and beat trends in the market and execute buy/bid orders to provide profitable market moves for platform users.
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