WHAT IS THE SECURITIES MARKET?

- It’s where trades of securities such as stocks and bonds take place based on
demand and supply.

Securities Markets are divided into two levels.

● Primary Markets
= where securities are created
= initial public offering (IPO)
● Secondary Markets = basically the stock market; New York Stock
Exchange, the Nasdaq, and other exchanges worlwide

The securities market encompasses organized exchanges, as well as over-the-counter

markets where trading is done directly between brokers and dealers.

Securities fall into four main categories:

● Equity securities
● Debt securities
● Derivative securities
● Hybrid securities

BOND MARKET

- The bond market, often called the debt market, fixed-income market, or credit
market, is the collective name given to all trades and issues of debt securities.

Bond Market has three Components:

● Maturity Date
● Coupon Rate
● Principle of the Bond

Maturity Date
 - Is the date on which the principal must be paid back to the bondholder.

Coupon Rate

- Is the percentage of the principal paid back to the investor as interest. Whatever
the principal is, the coupon rate is a percentage of that value.

Principle of the Bond

- Also called its face value or par value, refers to the amount of money the issuer
agrees to pay the lender at the bond's expiration.

CREDIT RATING

- A credit rating is an opinion of a particular credit agency regarding the

ability and willingness of an entity (government, business, or individual)
to fulfill its financial obligations in completeness and within the
established due dates.
- A credit rating also signifies the likelihood a debtor will default.

Types of Credit Ratings

Ratings are bracketed into two groups: Investment Grade and Speculative
Grade.

● Investment grade - ratings mean the investment is considered solid by

the rating agency, and the issuer is likely to honor the terms of
repayment.
● Speculative grade investments are high risk and, therefore, offer higher
interest rates to reflect the quality of the investments.

Users of Credit Ratings

Credit ratings are used by investors, intermediaries such as investment banks,
issuers of debt, and businesses and corporations.
 ● Both institutional and individual investors use credit ratings to assess
the risk related to investing in a specific issuance, ideally in the context
of their entire portfolio.
● Intermediaries such as investment bankers utilize credit ratings to
evaluate credit risk and further derive pricing of debt issues.
● Debt issuers such as corporations, governments, municipalities, etc.,
use credit ratings as an independent evaluation of their creditworthiness
and credit risk associated with their debt issuance.
● Businesses and corporations that are looking to evaluate the risk
involved with a certain counterparty transaction also use credit ratings.

STOCK EXCHANGES

- A stock exchange is a centralized location that brings corporations and

governments so that investors can buy and sell equities
- Stock exchanges function as a part of the broader global stock market.
They typically work like a marketplace, allowing investors to buy and sell
shares of publicly-traded companies.

DERIVATIVES

- Is a security whose value depends on the value of the underlying

(assets).
- Derivatives can be used for hedging and for speculation.

There are three groups of derivatives:

● Forward
● Options
● Swaps

Forward Contract
 - Is a mutual commitment of two parties to buy/sell the underlying at a
specified price on some future date.

Future Contract

- Are special types of forward contracts traded on organized exchanges

known as future markets.