Eurocurrency, Forex, EMS, Derivatives, and Options
Eurocurrency and the Eurodollar
A Eurocurrency is a claim (e.g., time deposit) in that currency held by a nonresident of the currency’s country of origin. Since the Eurodollar is the major Eurocurrency, it is a U.S. dollar claim arising from a dollar‑denominated deposit, note, or bond held by a nonresident of the United States.
The LIBOR (London Interbank Offer Rate) fixing is the base rate in the Eurocurrency market. (Offer Rate = Ask Rate) It represents the average rate at which leading multinational
Read MoreUnderstanding Bonds, ETFs, and the 1929 Stock Market Crash
Understanding Bonds and ETFs
Bond Fundamentals
Bonds Above Par: A bond sold on the secondary market with a market value higher than its face value.
Bonds Below Par: A bond with a market value below its face value.
Bonds vs. Certificates of Deposit: Both bonds and certificates of deposit (CDs) pay investors interest over the contract’s life. However, bonds are debt instruments, whereas CDs are savings certificates.
Corporate Bonds: These bonds typically offer higher yields due to the higher risk involved.
Read MoreUnderstanding Different Types of Market Participants and Transactions
Akihiko’s Forecasting Model
Akihiko has designed a sophisticated forecasting model, which predicts the movements in the overall stock market, in the hope of earning a return in excess of a fair return for the risk involved. He uses the predictions of the model to decide whether to buy, hold, or sell the shares of an index fund that aims to replicate the movements of the stock market. Takabe would best be characterized as an information-motivated trader.
James Beach’s Investment Strategy
James Beach
Read MoreUnderstanding Bond Valuation and Yield to Maturity
Chapter 6 Homework
1. Default Risk Premium
The default risk premium is that portion of a nominal interest rate or bond yield that represents compensation for the possibility of nonpayment by the bond issuer.
2. Bond Pricing at Par
A bond with a 5 percent coupon that pays interest semiannually and is priced at par will have a market price of $1,000 and interest payments in the amount of $25 each.
3. Bond Selling at a Premium
All else constant, a coupon bond that is selling at a premium must have a yield
Read MoreUnderstanding Mutual Funds: Types and How They Work
What Are Mutual Funds?
Mutual funds pool funds from several investors and invest in a diversified portfolio of securities. These professionally managed funds offer a way for individuals to invest in a variety of assets, including stocks, bonds, and money market instruments.
Mutual fund investing offers instant diversification, and the fund’s holdings help mitigate risks. In India, mutual funds are regulated, which makes them transparent and highly popular with new and experienced investors.