Mathematical finance Flashcards
Define Financial Markets
A market where people trade financial instruments such as bonds stocks etc
Types of financial markets
Exchange traded markets
Over the trade markets
Define exchange traded markets
Trading is done under the supervision of a exchange.
Where individual trade standardised contracts that have been defined by exchange
Define over the counter market
- Where trade is done over phone or computer networks without supervision of exchange
- Small and mid cap companies
Define exchange
Exchange or a trading exchange or trading venue is a organised market where tradable securities, commodities, foreign exchange, future and options are bought and sold.
Define security
A traceable financial asset
Debt securities
Banknotes, bonds, debentures
Types of securities
- Debt security
- Equity
- Derivatives
What are Derivatives in finance
Forwards, Futures, Swaps, Options
What is the company issuing the security called
Issuer
Define Bonds
An agreement where an investor lends money to a company or government for a period of time in exchange for regular interest payment.
Define debenture
A market security issued by a company to raise money for a long term activity and growth
Define commodities
A substance or good that can be traded, bought or sold and has full substantial fungibility
Define fungibility
The ability of an asset to be interchanged with other individual good or asset of the same type
Types of commodities
- Soft –> Goods that are grown
- Hard —> Goods that are mined
Define forgein exchange
International market for exchange of national currencies also known as forex
Factors affecting value of a currency
Trade, Tourism, Investment and Geo-Political risk
Currency trade transactions fall under?
Bank of International Settlements
Define derivative
A contract that derives its value from the performance of underlying commodity.
Define liquidity
The ability of a commodity to be converted into cash without affecting the market price
Types of derivatives
Future, forward, swap, option
Types of positions in traditional
Short and long
Define position in trading
Position determines whether a stock value will rise or drop
Define long position
Buying the stock expecting the prises will rise