Key Financial Market Concepts

Bob Steiner is the founder/managing director of Markets International, an independent training company. A former treasury officer and financial consultant he’s also the author of Mastering Financial Calculations, now in its second edition.

• TIME VALUE OF MONEYSimple Interest and Compound InterestEquivalent Rate, Effective Rate and Continuously Compounded RateFuture Value (FV), Present Value (PV), Rate of Discount and Discount FactorNet Present Value (NPV), and Internal Rate of Return (IRR)Money-weighted and Time-weighted Rates of ReturnAnnuity  THE MONEY MARKETSCertificate of Deposit (CD), Commercial Paper (CP), Treasury Bill, True Yield and Discount RateValue Dates, Interpolation and Extrapolation  ZERO-COUPON YIELD AND YIELD CURVEZero-coupon Yield, the Spot Yield Curve and BootstrappingThe Par Yield CurveThe Forward-forward Yield Curve  FORWARD-FORWARDS, FRAS AND FUTURESForward-forward Interest RateForward Rate Agreement (FRA)Stir Futures Contract and MarginBasis RiskSpread, Butterfly Spread and CondorSTRIP  THE BOND AND REPO MARKETSAccrued Interest, Clean Price and Dirty PriceMoney Market Basis and Bond BasisYield to Maturity (YTM)Current Yield and Simple Yield to MaturityZero-coupon Security and STRIPAsset-backed Securities (ABS), Mortgage-backed Securities (MBS), Collateralized Debt Obligations (CDO) and Covered BondsBond Futures, Conversion Factor and Cheapest-to-deliver (CTD)Cash-and-carry Arbitrage and Implied Repo RateDuration, Modified Duration, Price Value of a Basis Point (PVB), Dollar Value of an 01 (DV01) and ConvexityHedge RatioRepo and Reverse RepoHaircut and MarginBuy/Sell -Back and Sell/Buy-BackSecurities Lending/Borrowing  THE SWAPS MARKETInterest Rate Swap (IRS)Asset Swap and Liability SwapOvernight Index Swap (OIS)Currency Swap  FOREIGN EXCHANGEForward Outright and Forward SwapCross-rateShort DatesForward-forward Exchange RateNon-deliverable Forward (NDF)  OPTIONSCalls and PutsThe Black and Scholes Pricing ModelHistoric Volatility and Implied VolatilityBinomial Pricing ModelThe Put/Call ParityCap, Floor, Collar and Zero-cost OptionBreak Forward, Range Forward and Participation ForwardOption Trading Strategies: Straddle, Strangle, Spread, Butterfly, Condor, Ratio Spread and Risk ReversalBarrier Options: Knock-out Option and Knock-in OptionCredit Derivatives, Synthetic CDO and First-to-default BasketsThe ‘Greeks’:  Delta, Gamma, Vega, Theta and Rho  STATISTICSMean, Median and ModeVariance and Standard DeviationCorrelation and CovarianceProbability Density and the Normal Probability Function  RISK MANAGEMENT AND INVESTMENT MANAGEMENTValue at Risk (VaR)The Capital Adequacy RatioEfficient Markets Hypothesis  APPENDICESGlossaryDay/Year Conventions for Money Markets

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