Securities Products and Features
This domain tests whether you can link a product's economics to an investor's need: what the investor owns, what they are contractually owed, and which risks transfer to them.
Describing any product
Use a consistent checklist: issuer, legal claim, cash-flow pattern, seniority, liquidity, currency and leverage. A share is an ownership claim with residual cash flows; a bond is a loan with scheduled coupons and priority over shareholders; a fund is a pooled claim on a managed portfolio; a derivative derives its value from an underlying. Higher expected return normally requires more uncertainty, less liquidity or lower seniority. If a product promises high return with capital certainty, identify who is bearing the risk and how they are paid.
Worked example
A bond pays a 5% annual coupon in two semiannual instalments. Ninety days into a 180-day coupon period, accrued interest per 100 nominal is 2.5 x 90/180 = 1.25. With a clean price of 98.00, the buyer pays 99.25. The seller has held the bond for 90 days and is compensated for coupon earned but not yet paid; the clean price excludes accrued interest, the dirty price includes it.
Traps that cost marks
Quoting coupon as yield; comparing a clean price with a dirty price; accepting capital protection without checking the guarantor's credit quality; ignoring redemption terms, call features or secondary-market liquidity.
Product due diligence
Before selling, confirm the product's terms, fees, risk rating and target market, and that it is authorized or permitted for the client's account type.