CAPITAL MARKET REVIEWER to raise finance.

IDENTIFICATION
DEFINITION OF TERMS ENUMERATION
•Name Recognition - is when the investor
relies on the good name and reputation of the Securitisation - is the practice of using the
issuer and accepts that the issuer is of such cash flows from a specified asset, such as
good financial standing, or sufficient financial residential mortgages, car loans or commercial
standing, that a default on interest and bank loans, as backing for an issue of bonds.
principal payments is highly unlikely.
Investment Bank - will deal with
•Eurobond (International Bond) - is issued governments, corporates and institutional
across national boundaries and can be in any investors.
currency.
Market Maker or Traders (Dealers) - are
•Default - A failure to pay back interests or wholesalers in the bond markets; they make
principal according to the terms of the two-way prices in selected bonds.
agreement constitutes.
Zero-Coupon Bond - Bonds that do not pay a
•Retail Bank - deals mainly with the personal coupon during their life.
financial sector and small businesses, and in
Credit Rating - A credit rating is a formal
addition to loans and deposits also provides
opinion given by a rating agency, of the credit
cash transmission services.
risk for investors in a particular issue of debt
•Forward Contract - is an OTC instrument securities.
with terms set for delivery of an under- lying
The cash instrument traded in the money:
asset at some point in the rate future.
• Treasury Bill
•Swap Points - banks quote a forward spread
over the spot rate, which can then be added or • Time Deposit
subtracted to the spot as it changes.
• Certificate of Deposit
•Spot FX - trade is an outright purchase or sale
of one currency against another currency, with • Commercial Paper
delivery two working days after the trade date.
• Bankers Acceptance
•Conduits - When entering into securitization,
an entity may issue term securities against • Bill of Exchange
assets into the public or private market, or it
Main type of institutional investor according
may issue commercial paper via a special
to time horizon:
vehicle.
• Short-term institutional investors.
•Time Deposit - These are fixed-interest term
deposits of up to one year with banks and • Long-term institutional investors.
securities houses.
• Mixed horizon institutional investors.
•Treasury Bill - is used by sovereign
governments to raise short-term funds, while Macualy duration- factors imply higher
certificates of deposit (CDs) are used by banks duration maturity:
• the lower the coupon
• the lower the yield
• broadly, the longer the maturity.
The issuer industry industry analysis:
•Economic cycle
• downward-sloping or inverted or negative: in
which yield levels are very high by historical
standards, but long-term yields are
significantly lower than short rates humped:
where yields are high with the curve rising to a
peak in the medium-term maturity area, and
then sloping downwards at longer maturities.

•Growth prospects

•Competition

•Supply sources

•Research and development

•Level of regulation

•Labour relations

•Political climate

ESSAY

Market Professionals

These players include the banks and specialist

financial intermediaries mentioned above,
firms that one would not automatically classify
as 'investors' although they will also have an
investment objective.

Analysing ang enterpreting the yield curve

From observing yield curves in different

markets at any time, we notice that a yield
curve can adopt one of four basic shapes,
which are:

• normal or conventional: in which yields are at

'average' levels and the curve slopes gently
upwards as maturity increases, all the way to
the longest maturity

• upward-sloping or positive or rising: in which

yields are at historically low levels, with long
rates substantially greater than short rates
PUBLIC FINANCE
IDENTIFICATION
Political Institution - constitute the rules and
generally accepted procedures that evolve in a
community for determining what government
does and how government outlays are
financed.
Government - are organizations formed to
exercise authority over the actions of people
who live together in a society and to provide
and finance essential services.
Public Finance - is the field of economics that
studies government activities and the
alternative means of financing government
expenditures.
Mixed Economy - is one in which government
supplies a considerable amount of goods and
services and regulates private economic
activity.
Government Purchases - are those that
require productive resources (land, labor, and
capital) to be diverted from private use by
individuals and corporations so that such
resources can be used by the government.
Consumer Surplus -The total benefit of a
given amount of a good less the value of
money given up to obtain that monthly
quantity.
Budget Constraints -Indicates the monthly
market baskets that the person can afford,
given a monthly income and the prices of good
X and all other goods.
Cost - The monetary value of inputs used to
goods and services.
Corrective Tax - is designed to adjust the
marginal private cost of a good or service in
such a way as to internalize the externality.
Positive Economics – Scientific approach to
analysis that establishes cause and effect
relationships among economic variables.
Pure Public Goods - is nonrival in
consumption for an entire population of
consumers, and its benefits have the
characteristic of nonexclusion.
Pollution Right - are transferable permits to
emit a certain amount of particular wastes into
the atmosphere or water per year.
Congestible Public Goods -are those for
which crowding or congestion reduces the
benefits to existing consumers when more
consumers are accommodated.
Free Rider – is a person who seeks to enjoy
the benefits of a public good without
contributing anything to the cost of financing
the amount made available.
Public Choice – is one made through political
interaction of many people according to
established rules.
Constitution – are the generally accepted set
of rules by which decisions are made in a
society.
Political Externalities – are losses in well-
being that occur when voters do not obtain
their most-preferred outcomes, given their tax
shares.
Implicit Logrolling – occurs when political
interests succeed in pairing two (or more)
issues of strong interest to divergent groups on
the same ballot or the same bill.
Special Interest Group – are organizations
that seek to increase government expenditures
that benefit their constituents.
Bureaucracy – Group of agencies in charge of
implementing collective choices made through
political institutions.
DEFINITION OF TERMS AND ENUMERATION Forma of market failure to archive efficient
outcome:
Private Goods – Goods that are rival in
consumption 1. Exercise of Monopoly Power in Markets.

Pure Market Economy – virtually all goods
and services would be supplied by private
firms for profit and all exchanges of goods and
services would take place through markets,
with prices determined by free interplay of
supply and demand.
2. Effects of Market Transactions on Third
Parties Other Than Buyers and Sellers.
3. Lack of a Market for a Good with a Marginal
Social Benefit That Exceeds Its Marginal Social
Cost.

4. Incomplete Information.
Total Cost – The value of all inputs used to
produce a given output. 5. Economic Stabilization.
Analogous the concept consumer surplus – Goods and service have been divided in four
producer surplus, which is the difference categories:
between the market price of an output or input 1. Pure private goods
and the mini- mum price necessary to induce
suppliers to make it available for sale on the 2. Price-excludable public goods
market.
3. Congestible public goods
The efficiency criterion is satisfied - when
resources are used over any given period of 4. Pure public goods
time in such a way as to make it impossible to
Factors influence whether a public choice
increase the well-being of any one person
will result in approval or dis approval in
without reducing the well-being of any other
level of production of public goods:
person.
1. The public choice rules itself, that is, the
Political Equilibrium - is an agreement on the
proportion of yes votes in relation to the
level of production of one or more public
number of votes required for approval of the
goods, given the specified rule for making the
issue.
collective choice and the distribution of tax
shares among individuals. 2. The average and marginal costs of the public
good.
Perfectly competitive market system exist:
3. The information available to voters on the
1. All productive resources are privately
cost and benefit associated with the issue.
owned.
4. The distribution of tax shares among voters
2. All transactions take place in markets, and in
and the way in which extra taxes vary with
each separate market many competing sellers
extra output of the good provided. In the
offer a standardized product to many
models developed here, the marginal tax per
competing buyers.
unit of output is assumed to be constant.
3. Economic power is dispersed in the sense
5. The distribution of benefits among voters.
that no buyers or sellers alone can influence
prices.