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Chapter 2
Global Financial Instruments
Financial Assets or
Securities
• Debt
• Money market instruments
• Bonds
• Common stock
• Preferred stock
• Derivative securities
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Markets and Instruments
• Money Market
• Debt Instruments
• Derivatives
• Capital Market
• Bonds
• Equity
• Derivatives
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© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Capital Market - Equity
• Common stock
• Residual claim
• Limited liability
• Preferred stock
• Fixed dividends - limited
• Priority over common
• Tax treatment
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Uses of Stock Indexes
• Track average returns
• Comparing performance of managers
• Base of derivatives
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Factors for Construction of
Stock Indexes
• Representative?
• Broad or narrow?
• How is it weighted?
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Examples of Indexes Domestic
• Dow Jones Industrial Average (30
Stocks)
• Standard & Poor’s 500 Composite
• NASDAQ Composite
• NYSE Composite
• Wilshire 5000
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Examples of Indexes Int’l
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•
•
•
Nikkei 225 & Nikkei 300
FTSE (Financial Times of London)
Dax
Region and Country Indexes
• EAFE
• Far East
• United Kingdom
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Construction of Indexes
• How are stocks weighted?
• Price weighted (DJIA)
• Market-value weighted (S&P500,
NASDAQ)
• Equally weighted (Value Line Index)
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Derivatives Securities
Options
• Basic Positions
• Call (Buy)
• Put (Sell)
• Terms
• Exercise Price
• Expiration Date
• Assets
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Futures
• Basic Positions
• Long (Buy)
• Short (Sell)
• Terms
• Delivery Date
• Assets
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.