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Key Financial Market Concepts, 2nd Edition

Book Description

Key Financial Market Concepts is the ultimate reference tool for anyone working in the finance industry, explaining the 100 essential financial market terms. It provides you with a definition of what each concept is, how it works, when it is likely to arise, how it’s calculated and how best to use it. You’ll also get access to many of the formulas used, already programmed into a Microsoft Excel spreadsheet.

From simple and compound interest, through to bonds and yields and the Black and Scholes model, this book has it covered.


Table of Contents

  1. Cover
  2. Title Page
  3. Contents
  4. Dedication
  5. About the author
  6. Using the book
  7. Time Value of Money
    1. Simple Interest and Compound Interest
    2. Equivalent Rate, Effective Rate and Continuously Compounded Rate
    3. Future Value (FV), Present Value (PV), Rate of Discount and Discount Factor
    4. Net Present Value (NPV), and Internal Rate of Return (IRR)
    5. Money-weighted and Time-weighted Rates of Return
    6. Annuity
  8. The Money Markets
    1. Certificate of Deposit (CD), Commercial Paper (CP), Treasury Bill, True Yield and Discount Rate
    2. Values Dates, Interpolation and Extrapolation
  9. Zero-coupon Yield and Yield Curve
    1. Zero-coupon Yield, the Spot Yield Curve and Bootstrapping
    2. The Par Yield Curve
    3. The Forward-forward Yield Curve
  10. Forward-forwards, FRAs and Futures
    1. Forward-forward Interest Rate
    2. Forward Rate Agreement (FRA)
    3. STIR Futures Contract and Margin
    4. Basis Risk
    5. Spread, Butterfly Spread and Condor
    6. Strip
  11. The Bond and Repo Markets
    1. Accrued Interest, Clean Price and Dirty Price
    2. Money Market Basis and Bond Basis
    3. Yield to Maturity (YTM)
    4. Current Yield and Simple Yield to Maturity
    5. Zero-coupon Security and Strip
    6. Asset-backed Securities (ABS), Mortgage-backed Securities (MBS), Collateralised Debt Obligations (CDO) and Covered Bonds
    7. Bond Futures, Conversion Factor and Cheapest-to-deliver (CTD)
    8. Cash-and-carry Arbitrage and Implied Repo Rate
    9. Duration, Modified Duration, Price Value of a Basis Point (PVB), DV01 and Convexity
    10. Hedge Ratio
    11. Repo and Reverse Repo
    12. Haircut and Margin
    13. Buy/sell-back and Sell/buy-back
    14. Securities Lending/Borrowing
  12. The Swaps Market
    1. Interest Rate Swap (IRS)
    2. Asset Swap and Liability Swap
    3. Overnight Index Swap (OIS)
    4. Currency Swap
  13. Foreign Exchange
    1. Forward Outright and Forward Swap
    2. Cross-rate
    3. Short Dates
    4. Forward-forward Exchange Rate
    5. Non-deliverable Forward (NDF)
  14. Options
    1. Calls and Puts
    2. The Black and Scholes Pricing Model
    3. Historic Volatility and Implied Volatility
    4. Binomial Pricing Model
    5. The Put/Call Parity
    6. Cap, Floor, Collar and Zero-cost Option
    7. Break Forward, Range Forward and Participation Forward
    8. Option Trading Strategies: Straddle, Strangle, Spread, Butterfly, Condor, Ratio Spread and Risk Reversal
    9. Barrier Options: Knock-out Option and Knock-in Option
    10. Credit Derivatives, CDS, Synthetic CDO and First-to-default Baskets
    11. The ‘Greeks’: Delta, Gamma, Vega, Theta and Rho
  15. Statistics
    1. Mean, Median and Mode
    2. Variance and Standard Deviation
    3. Correlation and Covariance
    4. Probability Density and the Normal Probability Function
  16. Risk Management and Investment Management
    1. Value at Risk (VaR)
    2. The Capital Adequacy Ratio
    3. Efficient Markets Hypothesis
  17. Appendices
    1. A Summary of Day/Year Conventions for Money Markets and Government Bond Markets
  18. Index
  19. Imprint