Book Three: Financial Markets and Products
Module Thirty-six point one: Option Types, Positions, and Underlying Assets
Module Forty-two point three: Prepayment Modeling
LEARNING OBJECTIVES AND READING ASSIGNMENTS
Twenty-six. Insurance Companies and Pension Plans
Twenty-seven. Fund Management
Twenty-eight. Introduction to Derivatives
Twenty-nine. Exchanges and Over-the-Counter Markets
Thirty-one. Futures Markets
Thirty-two. Using Futures for Hedging
Thirty-three. Foreign Exchange Markets
Thirty-four. Pricing Financial Forwards and Futures
Thirty-five. Commodity Forwards and Futures
Thirty-six. Options Markets
Thirty-seven. Properties of Options
Thirty-eight. Trading Strategies
Thirty-nine. Exotic Options
Forty. Properties of Interest Rates
Forty-one. Corporate Bonds
Forty-two. Mortgages and Mortgage-Backed Securities
Forty-three. Interest Rate Futures
MODULE twenty-five point one: Banks
Major Risks Faced by Banks
Economic Capital vs. Regulatory Capital
Basel Committee Regulations
Deposit Insurance and Moral Hazard
Investment Banking Financing Arrangements
Potential Conflicts of Interest
Banking Book vs. Trading Book
The Originate-to-Distribute Model
MODULE QUIZ twenty-five point one
ANSWER KEY FOR MODULE QUIZZES
MODULE Twenty-six point one: Insurance Companies and Pension Plans
Property and Casualty (P and C) Insurance
Risks Facing Insurance Companies
EXAMPLE: Breakeven Premium Payments
Moral Hazard and Adverse Selection
Mortality Risk vs. Longevity Risk
Capital Requirements for Insurance Companies
Guaranty System for Insurance Companies
MODULE QUIZ twenty six point one
ANSWER KEY FOR MODULE QUIZZES
Two. B The operating ratio is computed as follows:
MODULE twenty-seven point one: Mutual Funds and Exchange-Traded Funds
Undesirable Trading Behaviors
Module twenty-seven point two: Hedge Funds
Hedge Fund Expected Returns and Fee Structures
Hedge Fund Performance and Measurement Bias
MODULE QUIZ twenty-seven point two
ANSWER KEY FOR MODULE QUIZZES
Module Quiz twenty-seven point two
MODULE twenty-eight point one: DERIVATIVES MARKETS AND SECURITIES
Advantages of OTC trading:
Disadvantages of OTC trading:
LO twenty-eight.c: Differentiate between options, forwards and futures contracts.
LO twenty-eight.d: Identify and calculate option and forward contract payoffs.
EXAMPLE: Calculating Payoffs and Profits From Options
EXAMPLE: Calculating Forward Contract Payoffs
MODULE QUIZ twenty-eight point one
MODULE twenty-eight point two: DERIVATIVES TRADERS
EXAMPLE: Hedging With a Forward Contract
EXAMPLE: Hedging With a Put Option
EXAMPLE: Speculating With Futures
EXAMPLE: Speculating With Options
EXAMPLE: Arbitrage of Stock Trading on Two Exchanges
L O twenty-eight point i: Describe some of the risks that can arise from the use of derivatives.
MODULE QUIZ twenty-eight point two
ANSWER KEY FOR MODULE QUIZZES
Module Quiz twenty-eight point two
MODULE twenty-nine point one: EXCHANGE-TRADED DERIVATIVES
MODULE QUIZ twenty-nine point one
MODULE twenty-nine point two: OVER-THE-COUNTER DERIVATIVES
Exchange-Traded Derivatives
Classes of OTC Derivatives
Mitigating Risks of OTC Derivatives
LO twenty-nine.h: Describe the role of collateralization in the over-the-counter market and compare it to the margining system.
MODULE QUIZ twenty-nine point two
Exchange-Traded Derivatives
ANSWER KEY FOR MODULE QUIZZES
Module Quiz twenty-nine point two
MODULE thirty point one: Principles of Central Clearing
Central Counterparties in Over-the-Counter Transactions
LO thirty point c: Describe advantages and disadvantages of central clearing of over-the-counter derivatives.
Disadvantages of Central Clearing
Regulatory Initiatives for Over-the-Counter Markets
Impact of Central Clearing
MODULE QUIZ thirty point one
MODULE thirty point two: RISKS FACED BY CENTRAL COUNTERPARTIES
Risks to Clearing Members and Non-Members
MODULE QUIZ thirty point two
ANSWER KEY FOR MODULE QUIZZES
Module Quiz thirty point two
MODULE thirty-one point one: FUTURES CHARACTERISTICS
Key Features of a Futures Contract
EXAMPLE: Why the Futures Price Must Equal the Spot Price at Expiration
MODULE QUIZ thirty-one point one
MODULE thirty-one point two: Futures Markets
LO thirty-one.d: Describe the role of an exchange in futures and over-the-counter market transactions.
LO thirty-one point f: Explain the different market quotes.
Marking to Market and Hedge Accounting
Forwards and Futures Contracts
MODULE QUIZ thirty-one point two