Introduction¶
Financial System¶
Trade Types¶
| Goal | Related variables | |
|---|---|---|
| Hedging | Already have exposure Not proactively adding risk to what you have | Currency exchange rate Interest rate |
| Market Making | Earn from bid offer | |
| Proprietary Trading/Portfolio Management | Maximize returns | Directional: Long/Short Arbitrage: Find relationship between prices & profit from mispricing Value/Relative Value Systematic modelling Fundamental analysis |
Parties of Financial Markets¶
| Parties | ||
|---|---|---|
| Individual/Retail Investors | ||
| Dealers | Trade with 1 one interested party when there is no market | Take principal risks |
| Brokers | Intermediary between 2 trade parties | Don’t take principal risks |
| Mutual Funds | Manage public-investors’ money in a long-only format | |
| Insurance Companies | ||
| Pension Funds | ||
| Asset Managers | ||
| Sovereign Wealth Funds | ||
| Hedge Funds | Find opportunities from inefficient market positioning/pricing | |
| Private Equity | Invest in companies | |
| Governments | Policy Makers Intervene in certain cases | |
| Corporate Hedgers | ||
| Liability Managers |
Financing Types¶
| Advantages | Disadvantages | |
|---|---|---|
| Direct | - Information asymmetry - Risk | |
| Indirect | - Information asymmetry alleviation - Risk alleviation |
2024-05-12