CFA Level I Vol 5

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  1. What are primary capital markets?
    Market where companies and governments raise capital by borrowing money or issuing equity
  2. Difference between money markets and capital markets
    Money Markets trade debt instruments maturing one year or less. Capital markets are longer instruments such as bonds and equities
  3. Difference between traditional investment markets and alternative investment markets?
    traditional investment markets- publicly traded debts and equities

    alternative investment markets- hedge funds, private equities, comodities, real estate securities and real estate properties, paintings, gems etc.
  4. What are warrants?
    Securities issued by a corporation that allow warrant holders to buy a security issued by that corporation (stock) at a specified price until the warrant expires.
  5. What are mutual funds and how can they be open ended or closed ended?
    Mutual Fund- investment vehicles that pool money from many investors for investment in a pool of securities

    Open Ended- issue new shares and redeem existing shares, usually on a daily basis. Price of shares is determined by NAV

    Close Ended- One shares are issued, they are traded in a secondary market. market prices may differ significantly from NAV
  6. Forward vs future contracts?
    Forward contract- agreement to trade an underlying asset in the future at a price agreed upon today

    Futures contract- a type fo forward contract that is standardized and for which the performance of all traders is guaranteed by a clearinghouse through margins
  7. What is an initial margin, a maintenance margin and a margin call?
    Initial margin- Amount of money originally posted with clearinghouse

    Maintenance margin- If margins drop below the maintenance margin level, they get a margin call and must replenish their account
  8. What is a swap contract?
    an agreement to exchange payments of periodic cash flows that depend on future asset prices or interest rates. This is to reduce risk and to manage future cash flows.

    ex. interest rate swap- one party make fixed cash payments in exchange for variable cash payments from the other party. The variable cash payments can be set to depends on a variable interest rate such as LIBOR.
  9. Option contract? Call vs. Put? European vs American?
    Option to buy an asset at a time int he future.

    • Call- someone is given the option to buy
    • Put- Someone is given the option to sell

    • European- can exercise contracts only when they mature
    • American- can exercise contracts before maturing
  10. What are Brokers and block brokers?
    Brokers are middle men for trades. Block brokers take orders for large trades which are harder to fill. Large buys trade at a premium and large sells at a discount to make them easier to fill.

    Dealers trade directly with clients.
  11. What are Securitizers? Special purpose vehicles (SPVs) and special purpose entities (SPEs)?
    • Securitizer- banks or investment companies that buy assets, pool them together and sell securities representing the pool
    • (often done with mortgages)
  12. What are depository institutions?
    Commercial banks, savings and loan banks, credit unions and similar institutions that raise money from depositors and lend it to others
  13. What is a margin loan and a call money rate?
    • Margin loan- money usually borrowed from brokers to buy additional securities
    • Call money rate- the interest rate for said loan
  14. Leverage Ratio?
    1 divided by percent of position that is equity. The higher the leverage ratio the riskier the investment. Leverage multiplies gains and losses
  15. Market order vs limit order
    Market order- instructs broker to obtain the best price immediately available

    • Limit order- set limit price ($20) and either buy ($20 or less) or sell ($20 or more) at best price
    • Marketable limit orders are limit orders placed at prices that include the current bid/ask and can be executed immediately
  16. All or nothing orders? Hidden orders? Iceberg orders?
    • All-or-nothing- trade only if entire sizes can be traded
    • Hidden orders- orers only exposed to brokers or exchanges that receive them
    • Iceberg orders- Traders can specify display size. they might display only a small portion of a large order
  17. Good on close orders?
    Orders taht can only be filled at the close of trading
  18. Stop (stop-loss) order
    Usually used to prevent large losses. A Stop order is an automatic sell when the price gets too low and when the price of w.e you're shorting gets too high.
  19. What are IPOs and seasoned offerings?
    • IPO- when a company goes public
    • Seasoned offering- They had an IPO and want to sell more stock. Price is already specified by market

    ^^Both sell to primary market
  20. How does an IPO work? Define book building, underwriter offering and best efforts offering
    Corportations contracg with an investment back to help them sell tehir securities

    Investment banks then line up people to buy the security. This is book building.

    Underwriter offering- investment bank guarantees sale at a certain price. Bank will buy whatever securities do not sell. 

    Best efforts offering- The IB only acts as a broker and sells as much as it can
  21. What is a private placement in regards to selling securities?
    Securities are sold to a small group of qualified investors rather than the public
  22. Shelf registration?
    X amount of shares are declared to be sold into the secondary market. The corporation sells percentages of X in multiple transactions when it needs additional capital
  23. Difference between a call market and a continuous trading market?
  24. What are the three main types of market structures?
    Quote-driven markets- customers can trade with dealers

    Order-driver markets- order matching is run by an exchange or broker

    Brokered markets- brokers arrange trades between customers. Different than order driven because they are usually for unique instruments such as real estate, IP or large blocks of security
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CFA Level I Vol 5
2013-09-11 18:51:52
CFA Level Vol

CFA Level I Vol 5
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