Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FINANCIAL MARKETS > Global Markets > Flashcards

Global Markets Flashcards

1
Q

What are global markets used for?

A

The purchase and sale of securities and other financial products with the intention of INVESTING and/or MANAGING RISK.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What actors are present on global markets?

A
  • hedgers
  • speculators
  • arbitrageurs

(most of these tend to be corporations)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What do hedgers do?

A

protect themselves against the risk of changing prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What do speculators do?

A

bet on prices changing in their favor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What do arbitrageurs do?

A

try to earn a riskless profit through the exploitation of security mispricing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are some hedging instruments?

A
  • options (conditional derivative)
  • futures/forwards (non-conditional derivative)
  • swaps
  • self-hedging (fuck it we ball)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the difference between term loans and RCF (revolving credit facilities)?

A

RCF do not have a term

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the name of shares in the market called?

A

Float

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the purpose of doing an IPO?

A
  • increase liquidity
  • increase equity
  • value the company (!!!)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the possible corporate actions over your own stock?

A
  • split
  • reverse split
  • buyback
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is a split?

A

issuing additional shares to shareholders (e.g. in a 2:1 split, investors receive double the shares they already have, and the shares will be worth half of their original value)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is a reverse split?

A

each outstanding share of the company is converted into a fraction of a share. (e.g. in a 1:10 reverse stock split, every ten shares that you own will be converted into a single share)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is a buyback?

A

when a company buys its own stocks on the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What does it mean to roll a contract?

A

refers to extending the expiration or maturity of an option, futures contract, or forward by closing the initial contract and opening a new longer-term contract for the same underlying asset at the then-current market price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What does it mean to straddle?

A

sell both put and call options

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Who sells options?

A

Speculators:
- banks
- funds (hedge, sovereign)

17
Q

How do sovereign funds speculate?

A

sell options and receive the premium, hope the option doesn’t get exercised

18
Q

What 3 divisions CIB usually divided into?

A
  • global markets
  • investment banking
  • coverage
19
Q

What departments are in the Global markets division?

A

-FIC
- EQC
- COMMO

20
Q

What departments are in the investment banking division?

A
  • mergers and acquisitions
  • initial public offerings (IPOs)
  • debt and equity issuances
    and other capital-raising activities.
21
Q

What does coverage do?

A

Relationship managers play a crucial role in the CIB department.

They act as the primary point of contact for key clients, understanding their financial needs, and coordinating various banking services and products to meet those requirements.

22
Q

What is the ECB’s primary objective?

A

maintain price stability

23
Q

What is the US FED’s primary objective?

A

support growth

24
Q

What are some central banks other than the FED/ECB?

A
  • Bank of england
  • Bank of japan
  • People’s bank of china (PBOC)
  • swiss national bank (SNB)
25
Q

What are the 4 main asset classes?

A
  • commodities
  • equity
  • foreign exchange
  • interest rate and credit
26
Q

What is the Bretton Woods agreement?

A

a set of international agreements that were established during a conference held in Bretton Woods in 1944

27
Q

What did the Bretton Woods agreement result in?

A

The creation of a system of fixed exchange rates called the Gold Exchange Standard. Under this system, major currencies were pegged to the US dollar, which in turn was convertible to gold at a fixed rate of $35 per ounce. This arrangement aimed to provide stability and predictability in international trade and finance.

28
Q

What were the consequences of Bretton Woods?

A

the US currency the dominant international reserve currency due to its direct convertibility to gold. This solidified the economic and financial dominance of the United States in the post-war era.

29
Q

Why did Bretton Woods fall apart?

A

increasing trade imbalances, particularly the US trade deficit, which put pressure on the convertibility of the US dollar to gold.

In 1971, Richard Nixon suspended the dollar’s gold convertibility, effectively ending the fixed exchange rate system and leading to the adoption of flexible exchange rates.

30
Q

What rights can someone hold in the equity market?

A

Dividend Rights : shareholders are entitled to receive periodically in the form of cash or additional shares a portion of the company’s profits in the form of dividends.

Voting Rights: owning shares of a company gives the right to vote at the company’s general meetings on matters such as approving major corporate decisions and making changes to the company’s guidelines.

Information Rights: the shares gives its owner the right to receive information about the company’s financial performance, operations, and strategic direction provided through annual reports and financial statements.

Capital increase Rights: to protect shareholders from dilution, they have the right to purchase additional shares of the company before they are offered to external investors.

Liquidation Rights: if the company goes bankrupt, shareholders usually have the right to receive a portion of the assets after the company’s debts and obligations are paid off. Unfortunately, they are usually last in line and may not receive anything if there are insufficient assets to cover all liabilities.

31
Q

What are the characteristics of a term loan?

A
  • OTC Contracts
  • Speed
  • Flexibility
  • Low issuance costs if any
32
Q

What are the characteristics of a bond?

A
  • Securities
  • Typically issued through auctions
  • Typically traded OTC
  • May be listed
33
Q

What are the main types of commodities?

A
  • Agricultural Commodities including Grains
  • Metals
  • Energy Commodities
  • Livestock and Meat
  • Soft Commodities
  • Precious and Industrial Minerals
  • Other Commodities
34
Q

What are the 4 differences between commodities futures price movements and other asset classes’?

A

There are significant storage costs associated with commodities, including costs for special care and insurance. In contrast, financial assets essentially have no storage costs.

Commodities prices often depend on their location, given the potential high cost to transport them. In contrast, financial assets essentially have no transport cost.

Shorting costs for commodities are expressed as a lease rate. Lease rates may be greater than the shorting fees for financial assets.

Financial assets usually provide price and/or income returns based on risk. In contrast, commodities only provide price returns and even at that, the price tends to be mean-reverting, so timing and holding period become relevant investment concerns.

FINANCIAL MARKETS (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions