Jargon

Question 1

Yield

Answer 1

The gain received from holding an asset through payments given to the holder over its life.
For a bond, the yield of a bond moves in an opposite direction from its price.

Question 2

Face value

Answer 2

The amount that a bond issuer pays at maturity (not including the last coupon payment)
Not to be confused with bond price.

Bond price = 101
My money = 1MM
My cashout = 1,000,000 / 1.01 = 990,099.01

Question 3

Carry

Answer 3

The cost of holding (carrying) a position on an asset

What is my carry if I long USDPHP?
Positive. I long USD (borrow small) while i short PHP (lend big)

Carry is negative when long commodities

Question 4

Interest rate differential

Answer 4

The difference between the interest rates of two different currencies
The interest rate differential is generally the basis for the calculation of FX swap points.

Question 5

Arbitrage

Answer 5

A riskless profit
A profit opportunity that arises because of a mismatch in the pricing of an asset. For example, the bid is higher than the offer
Arbitrage opportunities are rare and can easily be lost because the market quickly corrects to prevent arbitrage

Question 6

Yield curve

Answer 6

A graphical plot of yields of benchmark securities of a certain issuer
Shows the relationship between the tenor of bonds and their corresponding yields
At the basic level, shows supply and demand
Going granular: affected by policy, market view, liquidity, inflation expectations

Question 7

Swap points

Answer 7

A reflection of the implied interest rate differential between two currencies.
If the commodity currency has a higher interest rate, then swap points are positive. These are said to be at a premium.
Swap points are positive or negative to compensate the party who holds the lower earning currency in the swap transaction.