MAJOR INSTRUMENTS:
complete loss of principal.  In exchange for this risk, and buy/sell stocks
Fixed instruments – aka fixed income securities;
BONDS - issued by a company to borrow money;
why purchase them?
1. good diversifier
2. stable and predictable income (coupons
are pretty much steady)
TYPES OF BONDS:
1. CONSOL – no maturity, pays interest forever
2. COUPON SECURITIES – makes interest payment
and principal; most common
3. ZERO-COUPON – makes no interest payments;
The difference between the issue price and
redemption price represents the return to the
holder
4. TAX EXEMPT – interest earned is not taxed
DEBENTURES - all debentures are bonds, but not all
bonds are debentures. Whenever a bond is
unsecured, it can be referred to as a debenture.
While both are used to raise capital, debentures
typically are issued to raise capital to meet the
expenses of an upcoming project or to pay for a
planned expansion in business.
PREFERENCE SHARES - Preference shares are one of
the special types of share capital having fixed rate BROKERAGE AND ADVISORY SERVICES – brokers,
of dividend and they carry preferential rights over broker account
ordinary equity shares in sharing of profits and also
claims over assets of the firm.
Variable instruments - also known as variable-rate DEEP-DISCOUNT – manages account and buy/sell
securities, The classic example of a variable-income stocks only
security is common stock, which can offer investors
virtually unlimited up-side growth as well as the DISCOUNT – falls between the two; minimal advice
investors in these securities demand higher returns
FINANCIAL INTERMEDIARIES - A financial
than their fixed-income counterparts.
intermediary is an entity that acts as the middleman
EQUITY SHARES – a main source of finance for any between two parties in a financial transaction
company giving investors rights to vote, share
1. Banks – COMMERCIAL (savings, credit);
profits and claim on assets.
EXPANDED COMMERCIAL (underwriting, equity-
DERIVATIVES - instruments to manage financial investment)
risks; Derivatives are designed as contracts
2. Non-bank - does not accept deposits from the
signifying an agreement between two different
general public.
parties, where both are expected to do something
Investment House – underwriting equity
for each other; based on the value of the underlying
stocks (bearing risks)
asset (which changes over time)
Financing Companies – provides loans to
Hybrid Instruments – Designed as debt-type
companies to pay for other loans
instruments with exposure to the equities market
CONVERTIBLE DEBENTURES - Convertible
debentures can be term as debt security or loan RETAIL INVESTORS – also known as an individual
that can be converted into equity shares after a investor, is a non-professional investor who buys
stipulated period. The conversion of debentures and sells securities, mutual funds or exchange
into equity shares is at the option of the holder. traded funds (ETFs) through traditional or online
However, in special circumstances, the issuer holds brokerage firms or savings accounts.
such conversion rights.
1. fully convertible debentures
2. partly convertible debentures
MAJOR PLAYERS:
FULL TIME/FULL SERVICE – gives time and advice
plus buy/sell stocks for you