Cash deposits and loans out to 12 months (Has a life of less than 12 months)

Inter-bank market:

• Development in short-term rates market
• UK = SONIA - Sterling overnight index average based on unsecured overnight borrowing published by the Bank of England
• US = SOFR - Secured overnight financing rate based on an overnight repo rate
• Eurozone = ESTR - Euro short-term rate based on the previous day's unsecured overnight borrowing settled through Target2

Money Market Instruments:

• Treasury Bills (UK T-bills)
• Issued by the Debt Management Office (DMO) on behalf of the UK Government
• Short-term unsecured debt
• One to twelve months
• Zero-coupon
• Issued at discount redeemed at par
• Minimum market denomination = £25,000
• Benchmark risk-free rate
• Government = Least risk investment compared to lending to a company
• Commerical Paper
• Issued by companies
• Short-term unsecured debt
• Two to nine months
• Zero-coupon
• Issued at discount redeemed at par
• Typically high denominations
• E.g. $500,000
• US is the biggest market

• Certificate of deposit (CDs)
• Promissory note (Issued by banks and other financial institutions
• Purchased at nominal value and redeemed with interest
• Fixed Term
• Three and Six Months are most common
• Early redemption incurs a penalty
• Certificate shows the money at the bank, for period and interest rate
• If money is required before end of period, CD can be sold on the money market

FX: Background:

• 100% OTC market
• Big players - Major international banks
• Spot market = Cash Market - T+2
• Forward market = Anything that is greater than T+2
• London largest centre (By some distance)
• Dollar is the major currency

Cross Rates:

• Two less known/used currency pairs
• Cross through the dollar to exchange

Two-Way Prices

• Which ever currency is quoted first is the 1 value
• GBP/USD
• GBP = £1
• All FX is quoted to 5 figures
• The last two digits are the pips
• 
  

Government bonds:

• Debt instruments
• UK Gov Bonds = Gilts
• T-Bills - Good for 3, 6, 9, 12 months
• 5, 10 years +, you would use Gilts
• Loan to the government

Nominal Value (Face value, Par Value, Redempton Value)

• Quoted per £100
• The capital payment the holder receives at redemption

Coupon:

• The interest
• Expressed as an annual percentage of the nominal value
• Paid semi annually

Name:

• The name given at issue
• E.g. 6 1/2 Per Cent Treasury Stock 2048

Redemption:

• The year when the gilt is repaid

Gilts:

• Index-Linked
• Coupon and redemption linked to RPI
• Inflation protection
• RPI = Retail Prices Index
• No default risk
• Small coupons, due to the low risk

• Non Index-Linked (Conventional Bonds)
• Has fixed coupon
• Fixed redemption value
• Fixed redemption date
• Shorts, Mediums, Long, or Undated bonds
• Undated bonds or Unredemables - Are redeemed at the discretion of the issuer

Strips Market: (Seperate Trading of Registered Interest + Principal)

• Turn conventional bond turn into a lot of zero coupon bonds

Overseas Government Bonds:

Yield Curves:

• Yield of a bond, plotted against Maturity of a bond
• Upward Tilting = Normal
• Due to Liquidity Preference Theory
• Markets prefer liquid assets
• Markets expect to be paid to wait

• Downward sloping or inverted
• Expect interest rates to fall
• Expectation of recession

Yield Spreads:

• The difference between the yield on one investment and the yield on another investment
• The other investment is typically a benchmark
• Interest rate benchmark (SONIA, LIBOR)
• Government Bond
• Position on the swap curve
• Measured in basis points (0.01%)

Example: A

Ordinary Shares:

• Common Stock
• Variable dividends based on profits
• Voting rights
• Pre-emption rights

Preference Shares:

• Fixed dividend paid before ordinary share dividends
• Generally no voting rights
• Can be activated if preference dividend is in arrears
• Forms:
• Cumulative
• The right to receive that dividend is rolled over into the next period
• Covertible
• The right to convert into ordinary shares
• Participating
• Opportunity for further dividend (Varible dividend)
• Redeemable
• The right for the issuer to buy back the shares

Warrants:

• Right to subscribe for new shares from a company at a fixed price on a future data
• Not part of ordinary share capital of company
• E.g. Right to buy 100 new shares in "Company" for £1.20 in 2030
• This has been issued by the company, unlike options, in years not months
• Warrents don't increase share capital until exercised

Issuance:

• Typically issued as a sweetener with other investments (e.g. corporate debt)
• Detachable or non-detachable form

Valuation Techniques:

• Dividend Discount Model - E.g. Gordon's Growth Model
• Calculates the share's value based on discounting future dividends
• Similar to calculating the present value of a bond
• Look at dividends and discount them to present value

• Earnings per share
• An indicator of the company's profitability from the point of view of a shareholder
• Earnings growth is a key metric in equity valuation
• How much profit did each share actually generate
• Sustainable growth = good

• Price/earnings Ratio
• Considers the earnings per share in relation to the share price
• The result is multiple that can be used to compare with companies in similar sectors or with the company's historic multiples
• Divide the earnings per share by price, gives a comparable number against other similar companies

• Net Asset Value per Share
• Typically used for investment vechles
• Considers the value of the company after liabilities have been met i.e. net assets
• Useful for companies with tangible assets such as plant property and equipment

Corporate Actions:

• Rights Issue
• Company wishes to raise further capital by issuing more shares
• Has to offer it to existing shareholders first
• Usually at a discount on a pro-rata basis
• Share price likely to fall afterwards due to the discount given

• Bonus Issue
• Issues new shares free of charge to existing shareholders
• The objective is to lower the share price to increase liquidity / marketability

• Stock Split
• An alternative to a bonus issue if a company is not able to issue new shares
• Existing share are split to increase into a greater number
• Results in lowering of nominal value and also share price

• Mergers
• Two companies combgine to create a new and joint organisation

• Acquisitions
• One company has taken the action to buy another company's shares to gain legal control
• Could be friendly or hostile
• Not set rules as to the effect on company's valuation

• Share buyback
• A company uses spare cash or additional borrowing to buy back its own shares#
• Methods
• Tender process - price is typically set above market price
• Open market purchase
• Effect
• Returns cash to shareholders
• Reduces outstanding stock
• Increases share price

Supply:

• Land
• Natural Factors: Weather, Disease
• Production Costs: Technology, Location
• Government Intervention: Subsidies, Tariffs
• Transport and Storage

Demand:

• Wealth
• Growth
• Tastes

Supply:

• Availability
• Cost of extraction/production
• Government Intervention: Subsidies, tariffs
• Transport & Storage
• Scrap and Secondary Markets

Demand:

• Economic Growth/Decline
• Substitutes

Supply:

• Availability
• Natural Disasters
• Costs of Discovery and Extraction
• Government Intervention: Political Unrest
• Organisation of Petroleum Exporting Counties (OPEC)
• Transport and Storage

Demand:

• Consumption
• Economic Expansion
• Economic Forecasts

Crude Oil (Potential Questions):

• Field
• E.g Brent, Dubai, West Texas (Name of the Oil Field)
• Light or Heavy
• Light pours like water
• Heavy pours like ketchup
• Light Good
• Heavy Bad
• Measure = A.P.I.
• Sweat or Sour
• Sweat is good
• Sour is bad
• Sulphur content (Less than 1% is Sweat, Above 1% is Sour)

Freight:

• E.g. Baltic Dry Index

Weather:

• Heating Degree Days (HDD)
• Cooling Degree Days (CDD)

Emissions:

• Caps
• Credits

Cryptocurrencies:

• Bitcoin
• Question: What is a Cryptocurrency
• Non-Central Bank type Entity

Hybrids:

• Combine two different derivatives in one contract
• E.g. Swaption = Interest Rate Swap + Option