** Securities : A fungible, negotiable instrument representing financial value 1. Debt : Banknote, Bond, Debenture 2.

Equity: Stock(Share), Derivatives (Options, Swaps, Futures, Forwards) 3. Hybrids: Pref Stock, Convertible Bonds, Equity warrants Classified on basis of: * Currency of denomination * Ownership right * Term to maturity * Degree of liquidity * Income payments * Tax treatment * Credit rating * Industrial sector or "industry". ("Sector" often refers to a higher level or broader category, such as Consumer Discretionary, whereas "industry" often refers to a lower level classification, such as Consumer Appliances.) * Region or country (such as country of incorporation, country of principal sales/market of its products or services, or country in which the principal securities exchange where it trades is located) * Market capitalization ** Financial Market : 1. Capital/Security 2. Money 3. Forex 4. Derivatives 5. Miscll like Insurance ** Sec Markets 1. Primary : For newly issued-secs, IPO based 2. Secondary : direct investor-to-investor net - Trade can happen : 1. Exchange (Floor : NYSE(DMM based) or Electronic : NASDAQ) 2. OTC (or Dealer markt) - Functions : 1. Fin/Investmnt 2. Hedge Risk 3. Speculation 4. Manage the economy

** Entities: - Market maker : A company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn. Not per se in Stock-Ex but do exist. Majorly in FOREX mkt. - Stock Exchange : Entity that provides "trading" facilities for stock brokers and traders, to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments Hold capital events including the payment of income and dividends. - Broker : Intermediary who has a license to buy and sell securities on a client's behalf. Stockbrokers coordinate contracts between buyers and sellers, usually for a commission.- Trader : Someone who buys and sells financial instruments such as stocks, bonds, commodities and derivatives (specialized). A broker who simply fills buy or sell orders is not a trader, as they are merely executing instructions given to them - Collateral/Pawn : A pledge to repay the loan. Could be money/commodity/security. ** Underwriting Refers to the process that a large financial service provider (bank, insurer, investment house) uses to assess the eligibility of a customer to receive their products (equity capital, insurance, mortgage, or credit). The name derives from the Lloyd's of London insurance market. Financial bankers, who would accept some of the risk on a given venture (historically a sea voyage with associated risks of shipwreck) in exchange for a premium, would literally write their names under the risk information that was written on a Lloyd's slip created for this purpose. Once the underwriting agreement is struck, the underwriter bears the risk of being able to sell the underlying securities, and the cost of holding them on its books until such time in the future that they may be favorably sold. Ex: Securities/IPO UR, Real Estate UR, Insurance UR Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (i.e., they are owners), whereas bondholders have a creditor stake in the company (i.e., they are lenders). A Firm raises fund initially by VC or later by loan, IPO (stock issue),bond issue. ** Securitization Financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said debt as bonds, pass-through securities, or Collateralized mortgage obligation (CMOs), to various investors. Win-Win for both parties obviously. Issuer is safe by creating an independent entity and investor is offered a pool which is hedged.

The principal and interest on the debt, underlying the security, is paid back to the various investors regularly. A suitably large portfolio of assets is "pooled" and transferred to a special purpose vehicle/entity or SPV/SPE (the issuer), a tax-exempt company or trust formed for the specific purpose of funding the assets. Once the assets are transferred to the issuer, there is normally no recourse to the originator. The issuer is "bankruptcy remote," meaning that if the originator goes into bankruptcy, the assets of the issuer will not be distributed to the creditors of the originator. In order to achieve this, the governing documents of the issuer restrict its activities to only those necessary to complete the issuance of securities. A SPE may be owned by one or more other entities and certain jurisdictions may require ownership by certain parties in specific percentages. Often it is important that the SPE not be owned by the entity on whose behalf the SPE is being set up (the sponsor) ** Position: The term "position" is also used in the context of finance for the amount of securities or commodities held by a person, firm, or institution, and for the ownership status of a person's or institution's investments. - Types: Long, Short ** Order Types : - Market Order (immediate exec) - Futures Order (Limit, Stop-Loss : fixed price, Stop-Limit : that or better price) - Kill/Fill, One-Cancels-Other, All-None

** Debt Market - Bonds : A debt security,quite like a loan, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest/coupon at fixed intervals. - Govt : to incur current expenditures,fin plans - Corp : to raise capital, long term - Inv Grade - High Yield: low ratings thus larger returns - Mortgage-backed - Features : issue price, maturity date, coupon, CALL (coupon pushed by issuer before maturity date)/ PUT(coupon asked by holder before maturity date) ability - CMO (Collateralized Mortgage Obligation) Legally, a CMO is a special purpose entity that is wholly separate from the institution(s) that create it. The entity is the legal owner of a set of mortgages, called a pool. Investors in a CMO buy bonds issued by the CMO, and they receive payments according to a defined set of rules. With regard to terminology, the mortgages themselves are termed collateral, the bonds are tranches (also called classes), while the structure is the set of rules that dictates how money received from the collateral will be distributed. The legal entity, collateral, and structure are collectively referred to as the deal. - Purpose: Minimize risks as prepayment, extension etc Provide flexibility while converting/splitting mortgage into bonds CMO Tranche : Such bonds (backed by mortgages) in such a SPE are called CMOT. Basically a MBS (Mortgage Backed Security).

** Equity Market Stock : The capital stock (or just stock) of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is distinct from the property and the assets of a business which may fluctuate in quantity and value. 1. Common - Dividend (increases on value gain) - Voting right - Liquidation Rights 2. Preferred Stock - higher priority than common in Liquidation Rights (Residual Ownership) - doesnt increase on value gain - hybrid like convertibles too

** Derivatives Market : It is a financial instrument - or more simply, an agreement between two people or two parties - that has a value determined by the price of something else (called the Underlying). It is a financial contract with a value linked to the expected future price movements of the asset it is linked to - such as a share or a currency. - To manage risks/hedging and speculation and not to raise funds - Obtain exposure to the underlying where it is not possible to trade in the underlying (e.g., weather derivatives) - Create option ability where the value of the derivative is linked to a specific condition or event (e.g., the underlying reaching a specific price level). Derivatives are usually broadly categorized by the: 1. Relationship between the underlying and the derivative (e.g., forward, option, swap) 2. Type of underlying (e.g., equity derivatives, foreign exchange derivatives, interest rate derivatives, commodity derivatives or credit derivatives) 3. Market in which they trade (e.g., exchange-traded or over-the-counter) 3.1 X-traded ** Futures : Are contracts to buy or sell an asset on or before a future date at a price specified today (delivery price). - fixed/obligated, locked-in for future date exercise (B/S) - Standardized contract written by a clearing house that operates an exchange where the contract can be bought and sold - The future date is called the delivery/final settlement date - The party agreeing to buy the underlying asset in the future assumes a long position, and the party agreeing to sell the asset in the future assumes a short position. - Are margined thus have lesser credit risk as opposed to Forwards. ** Options: usually X-traded, premium based, obligation is optional That establishes a contract between two parties concerning the buying or selling of an asset at a reference price during a specified time frame. During this time frame, the buyer of the option gains the right, but not the obligation, to engage in some specific transaction on the asset, while the seller incurs the obligation to fulfill the transaction if so requested by the buyer. The price of an option derives from the value of an underlying asset (commonly a stock, a bond, a currency or a futures contract) plus a premium based on the time remaining until the expiration of the option. Other types of options exist, and options can in principle be created for any type of valuable asset. An option which conveys the right to buy something is called a call; an option which conveys the right to sell is called a put. The price specified at which the underlying may be traded is called the strike/exercise price or exercise price In return for granting the option, called writing the option, the originator of the option collects a payment, the premium, from the buyer. The writer of an option must make

good on delivering (or receiving) the underlying asset or its cash equivalent, if the option is exercised. - Features : call/put, strike price, expiry date, settlement terms 3.2 OTC traded - Forwards : Future OTC variant, Non-standardised This is in contrast to a spot contract, which is an agreement to buy or sell an asset today - Swaps : complex, multiple settlmnt dates A derivative in which counterparties exchange certain benefits of one party's financial instrument for those of the other party's financial instrument. The benefits in question depend on the type of financial instruments involved. For example, in the case of a swap involving two bonds, the benefits in question can be the periodic interest (or coupon) payments associated with the bonds. Specifically, the two counterparties agree to exchange one stream of cash flows against another stream. These streams are called the legs of the swap. The swap agreement defines the dates when the cash flows are to be paid and the way they are calculated. Like: Interest Rate Swap : It is the exchange of a fixed rate loan to a floating rate loan. Motivated by comparative advantage. Currency Swap : Exchanging principal and fixed rate interest payments on a loan in one currency for principal and fixed rate interest payments on an equal loan in another currency. Equity Swap : A special type of total return swap, where the underlying asset is a stock, a basket of stocks, or a stock index. Compared to actually owning the stock, in this case you do not have to pay anything up front, but you do not have any voting or other rights that stock holders do.

** Investment Bank 1. Underwriting debt and equity securities : IPO 1.1 Firm Comm 1.2 Best Effort ** Syndicate Structure : UG (Underwrt Grp) : Lead Mangr/Co-Mangr Rest under , not obligated to maintain the share price post-IPO SG (Selling Grp) : not part of fin commitmnt 2. Offering advisory services on mergers, acquisitions, divestitures, and corporate restructuring 3. Merchant Banking Investing the banks own funds in business or real estate ventures. These are typically long-term investments, which may be held for years, as opposed to proprietary trading positions, which are short-term in nature. Additional funds may be raised by investment banks from institutional investors and wealthy individuals. 4. Not a commercial bank. No Loans/Deposits. - paid in cash for their service ** M&A 1. Buy side 2. Sell side Targets : 1. Strategic 1.1 Horizontal : Expanding Width (like geography) 1.2 Vertical : In-Line (like Oil company buying petro-product manufctr) 2. Financial ** Financial Statements (of a firm) 1. Balance Sheet : current positions, balance b/w A,L and Cap (C = A-L) 2. Income (P/L Acc) : financial perfrmce, income/expense flow 3. Cash-Flow : net cash I/O

** Trade Cycle 1. FO : Trade Exec, Trade Analytics, Sales/CRM Tools: Trading tools, Portfolio Monitors 2. MO : Risk Management, Customer Analytics, Portfolio Valuation Tools: RMS, DataWarehouse 3. BO : C&S, Position Keeping, Audits /Compliance Tools: TradeSupport, C&S tools, Audit tools - Trade Flow: FO (Execution,Capture) -> BO (Capture,Enrichment,Validation,Settlement,Reporting)