Professional Documents
Culture Documents
We are very Lhankful Lo all Lhose who have helped and encouraged us Lowards Lhe
successful compleLlon of Lhe pro[ecL of I|nanc|a| Management L have been a greaL
experlence worklng on Lhese Lerms
we would llke Lo Lhank resource person S|r Ift|khar Ahmad for hls lmmense
guldance A valuable help and provlded us Lhe opporLunlLy Lo compleLe Lhe pro[ecL
under hls guldance
Cur greaLesL graLlLude Lo Lhe almlghLy and our parenLs wlLhouL Lhelr supporL Lhls
dream would have remalned dream
]Arbitrage,
@rue arblLrage lnvolves buylng and selllng a securlLy and Laklng advanLage of prlces
dlfferences LhaL may exlsLs on dlfferenL markeLs Whlle rare Lhls does happen from Llme
Lo Llme
amp|e
suppose you flnd on e8ay LhaL someone ls selllng a brand new lod for $130 whlle
Lhe local sLore ls buylng Lhe same lods for $170 n Lheory you can buy all Lhe lods
avallable on e8ay and sell Lhem all Lo Lhe local sLore pockeLlng $20 per muslc
player @aklng advanLage of Lhls prlce lnequallLy ls Lhe essence of Lrue arblLrage
]Ask price
Ask prlce also called offer prlce offer asklng prlce or slmply ask ls a prlce a seller of a
good ls wllllng Lo accepL for LhaL parLlcular good
n bld and ask Lhe Lerm osk ptlce ls used ln conLrasL Lo Lhe Lerm blJ ptlce @he dlfference
beLween Lhe ask prlce and Lhe bld prlce ls called Lhe spread
,250
An example of a prlce mechanlsm uses announced bld and ask prlces Cenerally
speaklng when Lwo parLles wlsh Lo engage ln a Lrade Lhe purchaser wlll announce a
prlce he ls wllllng Lo pay (Lhe bld prlce) and seller wlll announce a prlce he ls wllllng
Lo accepL (Lhe ask prlce)
Anotber definition
s Lhe lowesL prlce you can pay for Lhe sLock @hls ls because lLs Lhe lowesL prlce
any seller ls offerlng Lhelr shares of sLock for AlLhough Lhe ask prlce mlghL be
$14 you mlghL pay sllghLly hlgher lf you puL ln a large order
]id price
A bld prlce ls Lhe hlghesL prlce LhaL a buyer (le bldder) ls wllllng Lo pay for a good L
ls usually referred Lo slmply as Lhe bld
ample
An example of a prlce mechanlsm uses announced bld and ask prlces Cenerally
speaklng when Lwo parLles wlsh Lo engage ln a Lrade Lhe purchaser wlll announce a
prlce he ls wllllng Lo pay (Lhe bld prlce) and seller wlll announce a prlce he ls wllllng
Lo accepL (Lhe ask prlce)
Another Jeflnltlon
@he prlce a buyer ls wllllng Lo pay for a securlLy @hls ls one parL of Lhe bld wlLh
Lhe oLher belng Lhe bld slze whlch deLalls Lhe amounL of shares Lhe lnvesLor ls
wllllng Lo purchase aL Lhe bld prlce @he opposlLe of Lhe bld ls Lhe ask prlce whlch
ls Lhe prlce a seller ls looklng Lo geL for hls or her shares
% Axxet Allocutlon
An lnvesLmenL sLraLegy LhaL alms Lo balance rlsk and reward by apporLlonlng a
porLfollos asseLs accordlng Lo an lndlvlduals goals rlsk Lolerance and lnvesLmenL
horlzon
@he Lhree maln asseL classes equlLles flxedlncome and cash and equlvalenLs
have dlfferenL levels of rlsk and reLurn so each wlll behave dlfferenLly over Llme
Another Jeflnltlon
AsseL allocaLlon ls Lhe producL of an examlnaLlon of an lnvesLors needs and
ob[ecLlves AsseL allocaLlon done well ls a plan Lo lnvesL ln asseLs or asseL classes
whlch wlll besL meeL Lhe needs and ob[ecLlves of Lhe lnvesLor nvesLors seeklng
hlgh reLurns and wllllng Lo expose Lhelr lnvesLmenLs Lo an elevaLed amounL of
rlsk wlll allocaLe Lo equlLy (ownershlp) lnvesLmenLs
S% Axxetx UnJer Munugement
@he money or oLher asseLs for whlch an lnvesLmenL advlsory flrm makes lnvesLmenL
declslons for a cllenL AsseLs under managemenL may refer Lo Lhe asseLs for a
parLlcular cllenL or Lo Lhe LoLal amounL managed for all cllenLs
amp|e
A company may say LhaL lL has more Lhan $2 bllllon under managemenL AsseL
managemenL ofLen opens more poLenLlal lnvesLmenL vehlcles Lo Lhe cllenL
6% Amortlzutlon
1 @he paylng off of debL ln regular lnsLallmenLs over a perlod of Llme
2 @he deducLlon of caplLal expenses over a speclflc perlod of Llme (usually over
Lhe asseLs llfe) More speclflcally Lhls meLhod measures Lhe consumpLlon of Lhe
value of lnLanglble asseLs such as a paLenL or a copyrlghL
Amort|zat|on schedu|e a Lable deLalllng each perlodlc paymenL on a loan
(Lyplcally a morLgage) as generaLed by an amorLlzaLlon calculaLor
le klbor +4
14+4
ample:
Amort|zat|on schedu|e
v1000 18 n3years C@ M@43992
?ear nLeresL rlnclple 8alance
1 180 27992 72008
2 1291 33031 38977
3 701 3897 001
]eurlxh Murket
A bear markeL ls Lhe opposlLe Lo a bull f Lhe markeLs fall by more Lhan 20 Lhen
we have enLered a bear markeL A bear markeL ls a markeL showlng a lack of
confldence rlces hover aL Lhe same prlce Lhen go down lndlces fall Loo and
volumes are sLagnanL n a bear markeL people are walLlng for Lhe bulls Lo sLarL
drlvlng Lhe prlces up agaln Powever a bear ls a very LenLaLlve bull or a bull LhaL
ls a sleep
ample:
The price oI gold is rapidly decreased in Pakistan Irom1986 to1999 and it creates a
bearish market in Pakistan.
%] alllxh Murket
A bu|| market occurs when Lhe markeL ls expecLed Lo conLlnue hlgher over an
exLended perlod of Llme 8ull markeLs are prlmarlly descrlbed when dlscusslng
sLocks buL lL can be relaLed Lo bonds commodlLles fuLures or forex markeLs 8ull
markeLs occur when Lhe demand for a securlLy or group of securlLles ouLwelghs Lhe
normal laws of supply and demand @hls sorL of demand pushes prlces hlgher
ample
The price oI gold is rapidly increased in Pakistan Irom 2000 to 2010 and it creates a
bullish market in Pakistan.
%]lue Cbip
A company LhaL ls well known for lLs wldely accepLed producLs quallLy managemenL
dlvldend growLh and conslsLenLly hlgh earnlngs @hese are baslcally Lhe mosL rellable
sLocks on Lhe markeL @he Lerm orlglnaLes from Lhe blue poker chlp whlch has Lhe
hlghesL value L can also deflned as
A blue chlp ls Lhe nlckname for a sLock LhaL ls LhoughL Lo be safe ln excellenL
flnanclal shape and flrmly enLrenched as a leader ln lLs fleld 8lue chlps generally pay
dlvldends and are favorably regarded by lnvesLors
amp|e
A few examples of blue chlps are WalMarL CocaCola CllleLLe 8erkshlre PaLhaway
and LxxonMoblle
] rokerage Functions
A brokerage flrm ls a company LhaL carrles ouL buy and sell orders of sLocks or
oLher securlLles @hey acL as Lhe mlddleman beLween companles selllng sLocks
and lndlvlduals wlshlng Lo purchase Lhem
] pen-end and closed-end mutual fund
Cpenend funds
Cpenend muLual funds musL be wllllng Lo buy back Lhelr shares from Lhelr
lnvesLors aL Lhe end of every buslness day aL Lhe neL asseL value compuLed LhaL
day MosL openend funds also sell shares Lo Lhe publlc every buslness day Lhese
shares are also prlced aL neL asseL value A professlonal lnvesLmenL manager
oversees Lhe porLfollo buylng and selllng securlLles as approprlaLe @he LoLal
lnvesLmenL ln Lhe fund wlll vary based on share purchases redempLlons and
flucLuaLlon ln markeL valuaLlon
C|osedend funds
Closedend funds generally lssue shares Lo Lhe publlc only once when Lhey are
creaLed Lhrough an lnlLlal publlc offerlng @helr shares are Lhen llsLed for Lradlng
on a sLock exchange nvesLors who no longer wlsh Lo lnvesL ln Lhe fund cannoL
sell Lhelr shares back Lo Lhe fund (as Lhey can wlLh an openend fund) nsLead
Lhey musL sell Lhelr shares Lo anoLher lnvesLor ln Lhe markeL Lhe prlce Lhey
recelve may be slgnlflcanLly dlfferenL from neL asseL value L may be aL a
premlum Lo neL asseL value (meanlng LhaL lL ls hlgher Lhan neL asseL value) or
more commonly aL a dlscounL Lo neL asseL value (meanlng LhaL lL ls lower Lhan
neL asseL value) A professlonal lnvesLmenL manager oversees Lhe porLfollo
buylng and selllng securlLles as approprlaLe
12% Cuxh Cow
A buslness producL or asseL LhaL once acqulred and pald off wlll produce
conslsLenL cash flow over lLs llfespan
ample
A dalry cow ls an example of a cash cow as afLer Lhe lnlLlal caplLal ouLlay has
been pald off Lhe anlmal conLlnues Lo produce mllk for many years Lo come
13% Colluterul
Co||atera| refers Lo asseLs LhaL you are wllllng Lo puL up Lo secure credlL such as a
small buslness loan
ample
?our house (lf you own lL ouLrlghL) your car properLy or equlpmenL ls all
examples of Langlble asseLs LhaL you may be able Lo use as collaLeral
Collur
@he lowesL raLe accepLable Lo a buyer of bonds or Lhe lowesL prlce accepLable Lo
Lhe lssuer of an underwrlLlng or Lhe lowesL raLe posslble for an ad[usLable raLe
ample
n example is a circuit breaker which is meant to prevent extreme losses (or gains)
once an index reaches a certain level.
Collars can protect you against massive losses, but they also prevent massive gains.
] Flnunclul Axxet
AsseLs ln Lhe form of sLocks bonds rlghLs cerLlflcaLes bank balances eLc as dlsLlngulshed
from Langlble physlcal asseLs
ample
lor example real properLy ls a physlcal asseL buL shares ln a real esLaLe lnvesLmenL LrusL
(8L@) or Lhe sLock or bonds of a company LhaL held properLy as an lnvesLmenL would be
flnanclal asseLs
] lxcoant Rute
1 @he raLe aL whlch member banks may borrow shorL Lerm funds dlrecLly from a
lederal 8eserve 8ank @he dlscounL raLe ls one of Lhe Lwo lnLeresL raLes seL by
Lhe led Lhe oLher belng Lhe lederal funds raLe @he led acLually conLrols Lhls
raLe dlrecLly buL Lhls facL does noL really help ln pollcy lmplemenLaLlon slnce
banks can also flnd such funds elsewhere a|so ca||ed lederal 8eserve ulscounL
8aLe
2 @he lnLeresL raLe used ln dlscounLlng fuLure cash flows here a|so ca||ed
caplLallzaLlon raLe
17% FarobonJ
A bond lssued ln a currency oLher Lhan Lhe currency of Lhe counLry or markeL
ln whlch lL ls lssued
uollar denomlnaLed bond or a bond of anoLher currency LhaL ls lssued and Lraded
ouLslde of Lhe counLry whose currency ls used @yplcally lL ls a bond LhaL ls lssued
by a nonLuropean company for sale and Lrade ln Lurope
ample
An example of a Lurobond ls a bond lssued by a 8usslan corporaLlon ln Lhe
Luropean markeL LhaL pays lnLeresL and prlnclpal ln u dollars
18% 0lobul epoxltury Recelpt - (0R]
1 A bank cerLlflcaLe lssued ln more Lhan one counLry for shares ln a forelgn
company @he shares are held by a forelgn branch of an lnLernaLlonal bank @he
shares Lrade as domesLlc shares buL are offered for sale globally Lhrough Lhe
varlous bank branches
2 A flnanclal lnsLrumenL used by prlvaLe markeLs Lo ralse caplLal denomlnaLed ln
elLher u dollars or Luros
ff-ulunce-Sheet Flnunclng
Cff ba|ance sheet (C8) usually means an asseL or debL or flnanclng acLlvlLy noL
on Lhe companys balance sheeL
ome companles may have slgnlflcanL amounLs of offbalance sheeL asseLs and
llablllLles
ample
lor example flnanclal lnsLlLuLlons ofLen offer asseL managemenL or brokerage
servlces Lo Lhelr cllenLs @he asseLs ln quesLlon (ofLen securlLles) usually belong Lo
Lhe lndlvldual cllenLs dlrecLly or ln LrusL whlle Lhe company may provlde
managemenL deposlLory or oLher servlces Lo Lhe cllenL @he company lLself has
no dlrecL clalm Lo Lhe asseLs and usually has some baslc flduclary duLles wlLh
respecL Lo Lhe cllenL llnanclal lnsLlLuLlons may reporL offbalance sheeL lLems ln
Lhelr accounLlng sLaLemenLs formally and may also refer Lo asseLs under
managemenL a flgure LhaL may lnclude on and offbalance sheeL lLems
Prlvute Plucement
22% Relnvextment Rlxk
@he rlsk LhaL fuLure proceeds wlll have Lo be relnvesLed aL a lower poLenLlal
lnLeresL raLe
ExpIainsReinvestment Risk
@hls Lerm ls usually heard ln Lhe conLexL of bonds @hls relnvesLmenL rlsk ls
especlally evldenL durlngperlods of falllng lnLeresL raLes where Lhe coupon
paymenLs are relnvesLed aL less Lhan Lhe yleld Lo maLurlLy aL Lhe Llme of purchase
ample
The owner oI a certiIicate oI deposit Iaces the risk that lower interest rates will be in
eIIect when the certiIicate matures and the Iunds are to be reinvested.
] 1reuxary Stock (1reuxary Shurex)
@he porLlon of shares LhaL a company keeps ln Lhelr own Lreasury @reasury sLock
may have come from a repurchase or buyback from shareholders or lL may have
never been lssued Lo Lhe publlc ln Lhe flrsL place @hese shares donL pay dlvldends
have no voLlng rlghLs and should noL be lncluded ln shares ouLsLandlng calculaLlons
26% Conxortlam
A group made up of Lwo or more lndlvlduals companles or governmenLs LhaL
work LogeLher Loward achlevlng a chosen ob[ecLlve Lach enLlLy wlLhln Lhe
consorLlum ls only responslble Lo Lhe group ln respecL Lo Lhe obllgaLlons LhaL are
seL ouL ln Lhe consorLlums conLracL @herefore every enLlLy LhaL ls under Lhe
consorLlum remalns lndependenL ln hls or her normal buslness operaLlons and
has no say over anoLher members operaLlons LhaL are noL relaLed Lo Lhe
consorLlum
ExpIanationonsortium
ConsorLlums are ofLen used wlLhln Lhe nonproflL secLor speclflcally wlLh
educaLlonal lnsLlLuLlons @hey ofLen pool resources such as llbrarles and professors
and share Lhem among Lhe members of Lhe group everal groups of norLh Amerlcan
colleges and unlverslLles operaLe under consorLlums
lorproflL consorLlums also exlsL buL Lhey are less prevalenL Cne of Lhe mosL
famous forproflL consorLlums ls Lhe alrllne manufacLurer Alrbus
ample
Consortiums are oIten used within the non-proIit sector, speciIically with educational
institutions. They oIten pool resources such as libraries and proIessors and share them
among the members oI the group.