Key Market Concepts

by Steiner, Bob

• ISBN13: 9780273650409
• ISBN10: 0273650408
• Format: Hardcover
• Copyright: 2001-05-01
• Publisher: Prentice Hall

Summary

This is an age of innovation. A time when industries are evolving quicker than most of us can comprehend. A time of technological change when deals and communications take place at the speed of light, when the strategies and systems of tomorrow are needed today, and when survival is not just down to the knowledge you possess, but to knowing how to apply it.   In the finance industry these developments and changes are occurring quicker than in any other commercial sector. Market professionals are not only being faced with a blizzard of new financial instruments and concepts, they are also being expected to understand them and know how to use them to full effect.   Key Market Concepts is a practical reference tool for anyone studying on finance courses. It provides full explanations of 100 essential financial terms, providing you with detail of what each concept is, how it works, when it is likely to arise, and how best to use it.   For each term it establishes a definition, describes situations and conditions in which it may be encountered, outlines the nuts and bolts of its operation and explains related terminology. Entries are supported by necessary formulas, and illustrated with worked examples.

Table of Contents

About the Author	x
Time Value of Money	1	(18)
Simple Interest and Compound Interest	2	(3)
Equivalent Rate, Effective Rate and Continuously Compounded Rate	5	(3)
Future Value (FV), Present Value (PV), Rate of Discount and Discount Factor	8	(4)
Net Present Value (NPV) and Internal Rate of Return (IRR)	12	(3)
Annuity	15	(4)
Zero-Coupon Yield and Yield Curve	19	(14)
Zero-coupon Yield, the Spot Yield Curve and Bootstrapping	20	(6)
The Par Yield Curve	26	(3)
The Forward-forward Yield Curve	29	(4)
The Money Markets	33	(10)
Discount Rate and True Yield	34	(5)
Value Dates, Interpolation and Extrapolation	39	(4)
Forward-Forwards, Fras and Futures	43	(24)
Forward-forward Interest Rate	44	(3)
Forward Rate Agreement (FRA)	47	(5)
STIR Futures Contract and Margin	52	(7)
Basis Risk	59	(2)
Spread	61	(3)
Strip	64	(3)
The Bond and Repo Markets	67	(56)
Accrued Interest, Clean Price and Dirty Price	68	(5)
Money Market Basis and Bond Basis	73	(4)
Yield to Maturity	77	(3)
Current Yield and Simple Yield to Maturity	80	(3)
Bond Futures, Conversion Factor and Cheapest-to-deliver (CTD)	83	(6)
Cash-and-carry Arbitrage and Implied Repo Rate	89	(5)
Zero-coupon Security and Strip	94	(3)
Duration, Modified Duration, Price Value of a Basis Point (PVB) and Convexity	97	(6)
Hedge Ratio	103	(3)
Repo and Reverse Repo	106	(6)
Haircut and Margin	112	(4)
Sell/Buy-back and Buy/Sell-back	116	(3)
Securities Lending/Borrowing	119	(4)
The Swaps Market	123	(16)
Interest Rate Swap (IRS)	124	(4)
Asset Swap and Liability Swap	128	(8)
Currency Swap	136	(3)
Foreign Exchange	139	(20)
Cross-rate	140	(4)
Forward Outright and Forward Swap	144	(8)
Short Dates	152	(2)
Forward-forward Exchange Rate	154	(2)
Non-deliverable Forward (NDF)	156	(3)
Options	159	(50)
Calls and Puts	160	(5)
The Black and Scholes Pricing Model	165	(4)
Historic Volatility and Implied Volatility	169	(3)
Binomial Pricing Model	172	(4)
The Put/Call Parity	176	(3)
Cap, Floor, Collar and Zero-cost Option	179	(4)
Break Forward, Range Forward and Participation Forward	183	(6)
Option Trading Strategies: Straddle, Strangle, Spread, Butterfly, Condor, Ratio Spread and Risk Reversal	189	(9)
Barrier Options: Knock-out Option and Knock-in Option	198	(3)
The `Greeks': Delta, Gamma, Vega, Theta and Rho	201	(8)
Risk Management	209	(16)
Variance and Standard Deviation	210	(3)
Correlation and Covariance	213	(3)
Value at Risk (VAR)	216	(4)
The Capital Adequacy Ratio	220	(5)
Appendices	225	(1)
Glossary	225	(20)
Day/Year Conventions	245