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There are features that make financial assets unique: 1. They cant depreciate b/se they dont wear out 2. Their physical condition or form usually is not relevant in determining market value 3. Their cost of transport is little 4. They have little or no value as a commodity 5. They are fungible( can easily be changed in form) 6. A bond or stock can be quickly converted in to cash at lower cost and are able to be converted it to another asset what the holder wants. 7. They are generally represented by piece of papers.
Financial Market
The financial system fulfills its various roles though markets where financial claims and financial services are traded. These markets are served as a channel for the demanders and suppliers of fund Financial markets are where individuals and institutions come together in order to trade financial assets Functions of financial markets The three major functions are: 1. To provide price information about the financial asset trade in them 2. To offer liquidity, hence allowing holders to alter their portfolio easily 3. To reduce the costs of buying and selling financial asset. This comprises: search cost which are time and resource and Information costs
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Negotiable certificates of deposit are issued in denominations over $100,000. They are sold on the open market. The depositor of a negotiable CD is allowed to negotiate the interest rate with the financial institution that issued it. Negotiable CDs are the only interest-bearing money market securities. The secondary market is where investors can sell their certificates of deposit to other investors before maturity if they need cash. However, the CDs must be $1 million or more in value to be traded. Negotiable CDs have maturities ranging from 14 days to more than one year. Their rates are closely tied to the going rate of Treasury bills. They are the only interest-bearing money market securities.
The N-day forward or future rate is the rate which appears in a contract to exchange a currency for another N days in the future, but the price fixes now. This is used to hedge or speculate Spot rate is the rate used in agreements to exchange one currency for another immediately. An option is a contract in which the writer of the option grants the buyer of a right, but not the obligation, to purchase from or sell to the writer something at a specified price with in specified period of time/date. In this case your loss is limited to the price paid, and helps to reduce risk of adverse change in security price. An option grants the buyer to purchase is called call option A buyer has the right to sell to the writer is called put option. The price at which the asset may be bought or sold is called exercise or strike price. The date at which the option is void is called expiration date
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