Global Securities Markets

Transcription

1 Glbal Securities Markets Target Audience: This curse is fcused primarily at nn Finance majrs wh are seeking t acquire an verview f Finance, and mre specifically a fundatin in capital markets, prducts, and institutins. The curse cvers the entire gamut f financial prducts, namely, equities, debt, mney markets, mrtgages, freign exchange, futures, and ptins. It als cvers the imprtant tpics f mutual funds, and brkerage peratins. The issues f market structures and the intricacies f rder-driven markets are als cvered in this curse. The curse des nt pre suppse any knwledge f the subject and all that is expected is that the student be cmfrtable with the fundamental principles f Finance which are cvered in the first year Finance curses. Objectives: The curse, as the name suggests, gives students an verview f the securities markets and the varius prducts that are available in the markets. It is a curse that will cver almst all aspect f the financial markets but will nt g t much in t the details f each f the functins. This may wrk ut t be an infrmative curse fr thse wh want t have an idea abut financial markets and prducts but may nt want t pursue a career in finance. In particular, the brad bjectives f this curse are: 1. T describe the intricacies f financial prducts such as stcks, bnds, freign exchange, and derivatives. 2. T understand the peratins f mutual funds, exchange traded funds, and pensin funds. 3. T understand the structure and peratins f a brkerage huse. 4. T apply the knwledge f financial prducts and markets t study real-life issues faced by traders and financial institutins. Learning Outcmes: At the end f this curse students shuld be able t: 1. Understand the similarities and differences between varius securities prducts such as stcks, bnds, and derivatives. 2. Understand the mechanics and wrking f financial markets fr varius prducts. 3. Understand the peratinal aspects f mutual funds, pensin funds, and brkerage huses. 4. Appreciate the mechanics f rder placement and executin. 5. Appreciate the uses, risks, and limitatins f such prducts in an actual business cntext. Primary Text: Fundamentals f Financial Instruments ; Sunil Parameswaran, Wiley India Additinal Readings: 1

2 Futures Markets: Thery and Practice ; Sunil Parameswaran; Tata McGraw Hill Publishing Cmpany Limited Optins and Other Derivatives ; Jhn C. Hull and Sankarshan Basu; 7 th Editin; Pearsn Educatin Bnd Markets, Analysis and Strategies ; Frank Fabzzi Fixed Incme Securities and Their Derivatives ; Suresh Sundaresan Handuts: Relevant handuts fr every part f the curse will be handed ut in due curse and students are expected t refer t the material cvered in the handuts during the curse Evaluatin: The evaluatin pattern will be as fllws: Mid Term: The midterm shall have 40% weightage and shall be an in class multiple chice questins based exam End Term: The end term shall have 40% weightage and shall be an in class multiple chice questins based exam Grup Based Hmewrks: Grup based hmewrks shall cntribute t 20% f the curse evaluatin. The first assignment will be an essay n a tpic in Financial Ecnmics. The secnd will cnsist f numerical prblems. Cntent t be cvered in the curse The detailed cntent with the time alltted t each tpic is as fllws: Financial Institutins, Instruments and Markets: 4 Hurs - Why financial markets? - Categries f ecnmic units - Financial Claims Assets & Liabilities - The cncept f a balance sheet - Types f securities Debt Equity Preferred Shares Derivatives Freign Exchange Mrtgages - Cncept f return r yield - Cncept f risk - Cncept f liquidity - Classificatin f markets Primary vs. secndary markets Direct vs. indirect markets Mney vs. capital markets - Market Intermediaries 2

3 Brkers Dealers Investment Bankers - Cncept f bid and ask prices - Cncept f underwriting f public issues - The Glass Steagall and Gramm Leach Bliley Acts - Stck Exchanges - Listing f securities Listing vs. registratin - The third market - The furth market - Bnd markets - Derivative markets - The cncept f lng and shrt psitins - Sell-side traders vs. Buy-side traders - The cncept f a specialist - Clearing and settlement - Depsitries and custdians - The principle f arbitrage - The Eurcurrency market - Flating rate lans - Eurbnds and Freign bnds - Glbalizatin f equity markets Dual listing f shares - ADRs and GDRs The Cncept f fungibility - Internatinal Banking Facilities Types f Orders and Market Structures: 2 Hurs - Intrductin t rders - Why rders? - Order related terminlgy - Cntinuus markets with electrnic rule based rder matching Price and Time pririty rules and rder matching Market vs. Limit rders Size as a pririty rule Stp-lss rders and Stp-limit rders - Blck trades - Time cnditins - Spread Orders - Markets structures - Trading sessins Call markets vs. Cntinuus markets - Trading hurs - Executin systems Qute driven Order driven 3

4 Brkered Hybrid - Types f rder driven systems Oral auctins Cntinuus electrnic auctins Crssing netwrks Single price vs. multiple price auctins - Market Infrmatin Systems Cllectin Distributin - Ticker symbls - The cncept f transparency - Order ruting systems - Order presentatin systems Equity Markets An Intrductin: 4 Hurs - Nature f cmmn stck - Vting rights - Preferred shares - Dividends Ex-dates and recrd dates - Margin trading & Shrt selling Federal regulatins Cncept f wner s equity Cncept f maintenance margin Shrt selling and the uptick rule - Valuatin Mdels Cnstant grwth Mdel Tw-stage Mdel Three-stage Mdel H-Mdel - Crprate Actins Stck splits and reverse splits Stck dividends Rights issues - Stck indices - Types f indices Price weighted Value weighted Equally weighted - Frming mimicking prtflis - Prtfli rebalancing The Brkerage Industry: 4 Hurs - Functins f a brker 4

5 - Why d we need a brker? - Structure f a brkerage firm - The frnt ffice - Research - Custmer Service - The back ffice - Street name securities - Market data - FIX prtcl - OFX prtcl - Credit management - Cmpliance - Stck lending and brrwing - Opening an accunt - Types f accunts - Cash accunts - Margin accunts - The Truth-in-lending Act - Advisry accunts - Discretinary accunts - DRIPs - Brkerage cmmissins - The impact f deregulatin - Discunt brkers - Sft cmmissins - Directed brkerage - Interest incme - Shrt interest rebate - Transactin Types - Securities Transactin Types - Cash Transactin Types - Overview f Transactin Types - Autmatin - Trade Cash Value Calculatins - Grss cash value calculatins - Additinal trade amunts - Net settlement value - Static Data - Trading cmpanies - Cunterparties - Trading bks - Currencies - Securities - Timing f data set-up - Surces f static data - Management f static data 5

6 Mutual Funds and Pensin Funds: 2 Hurs - Definitin f a mutual fund - Why invest in such funds? - Advantages and disadvantages f investing in such funds - Open-end vs. clsed-end funds - The cncept f NAV - Unit Trusts - Lads Frnt-end lads Back-end lads Level lads N-lads - Multiple share classes - Expense rati Management fees 12b-1 fees Other expenses - Categrizatin f funds Mney market funds Debt funds Equity funds Hybrid funds - Taxatin issues - Exchange Traded Funds The Macrecnmics f Fixed Incme Markets: 2 Hurs Aggregate Demand Cnsumptin Residential Investment Capital Expenditure Gvernment Spending Inventries Freign Trade Inflatin Unemplyment Interest Rates Fundamentals f Mney Markets: 2 Hurs - The rle f the central bank - Keys dates fr cash market instruments - The Inter-bank market - ICE LIBOR - Interest Cmputatin Methds - Term Mney Market Depsits 6

7 - T-bills Re-penings Discunt Yields Bnd Equivalent Yields Mney Market Yields Cncept f Carry Cncept f a Tail - Reps - Negtiable CDs - Cmmercial Paper - LCs and Bank Guarantees - Yankee Paper - Credit Rating f Paper - Bills f Exchange - Bankers Acceptances - Eurcurrency Depsits Fundamentals f Mrtgage Lans: 2 Hurs - Mrtgage riginatin - Mrtgage servicing and insurance - The traditinal mrtgage - Variable-rate mrtgages Rate caps Payment Caps Negative Amrtizatin - Graduated Payment Mrtgages Freign Exchange Markets: 2 Hurs - Purchase and Sale Transactins - Direct and Indirect Qutatins - The Spt Market - Merchant Rates & Exchange Margins - The Frward Market - The N-Arbitrage Frward Price - Optin Frwards Futures Markets: 2 Hurs - The Ecnmic Rle f Derivatives - Reasns fr the Rapid Grwth f Derivative Markets - Derivative prducts a primer - Cash / Spt versus Frward / Futures Cntracts - Frward Cntracts versus Futures Cntracts - Types f Underlying Assets - Types f market participants - Standardizatin and the Rle f the Exchange 7

8 - The Clearinghuse - Margins and Marking-t-Market - Delivery - Trading Vlume versus Open Interest - Prfit Prfiles - Arbitrage - Spt Futures Cnvergence at Expiratin - Leverage - Grwth f derivatives in the glbal cntext Optins Markets: 2 Hurs - Optin definitin, types and uses - Eurpean and American ptins - Put-Call Parity - Lng calls & puts - Writing calls & puts - Writing cvered calls - Bull Spreads - Bear Spreads - Butterfly Spreads - Straddles - Strangles Hedging & Speculatin: 2 Hurs - Selling and Buying Hedges - Optins and Hedging - Futures versus Optins - Ex-pst Regret - Cash Versus Delivery Settlement - A Perfect Hedge - Basis Risk - Selecting a Futures Cntract - A Rlling Hedge - The Minimum Variance Hedge Rati - Estimating the Hedge Rati - Tailing a Hedge - Speculatin with Futures - Speculatin with Optins EXCEL Exercises: 6 Hurs 1. Equity Markets 2. Mney Markets 3. Mutual Funds 4. Mrtgage Lans 8

9 5. Freign Exchange 6. Hedging & Speculatin Mvies: 4 Hurs 1. Hw Wall Street Wrks Years f the US Ecnmy seen thrugh the Dw Jnes Index 3. Life Histry f JP Mrgan 4. Hw The Bnd Market Wrks 9