CISI Financial Markets flashcards
CISI Financial Markets · Build recall with a focused review session.
33 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Primary market
- The market in which securities are issued for the first time, allowing companies or governments to raise new capital from investors.
- Bid-ask spread
- The difference between the price at which a market maker will buy (bid) and sell (offer) a security; it compensates the dealer for liquidity provision and risk.
- Limit order
- An instruction to buy or sell a security only at a specified price or better, giving price control but no guarantee of execution.
- Central counterparty
- An entity that interposes itself between trade counterparties, becoming buyer to every seller and seller to every buyer, thereby reducing counterparty risk.
- Inverted yield curve
- A yield curve in which short-term yields exceed long-term yields, often interpreted as a signal of expected tighter policy or economic slowdown.
- Recession
- A period of significant economic decline, commonly identified as two consecutive quarters of negative growth in gross domestic product.
- Modified duration
- A measure of a bond's price sensitivity to yield changes, calculated as Macaulay duration divided by one plus the yield per period.
- Dividend discount model
- A valuation method pricing a share as the next dividend divided by the required return minus the constant growth rate, assuming r exceeds g.
- Beta
- A measure of a security's sensitivity to market movements; a value above one indicates greater volatility than the market.
- Systematic risk
- Market-wide risk affecting all securities that cannot be removed by diversification; it is measured by beta and priced in expected returns.
- Open-ended fund
- A collective investment scheme that issues and redeems units at net asset value based on underlying holdings, with no fixed number of shares.
- Price-earnings ratio
- A share's price divided by its earnings per share; it indicates how much investors pay per unit of earnings and reflects growth expectations.
- Money market instrument
- A short-term debt security maturing within one year, such as a treasury bill or commercial paper, typically issued at a discount.
- Forward contract
- A bespoke over-the-counter agreement to buy or sell an asset at a set future date and price, carrying counterparty credit risk.
- Futures contract
- A standardised exchange-traded agreement to trade an asset at a future date, marked to market daily and cleared through a central counterparty.
- Call option
- A contract giving the buyer the right, but not the obligation, to buy the underlying asset at a stated strike price before expiry, in return for a premium.
- Intrinsic value
- The payoff obtainable if an option were exercised now: for a call, the underlying price minus strike, floored at zero; for a put, the reverse.
- Interest rate swap
- An agreement in which two parties exchange fixed and floating interest payments calculated on a notional principal over a defined period.
- Hedging
- Using derivatives or offsetting positions to reduce exposure to adverse price, rate, or currency movements rather than to take directional risk.
- Put-call parity
- An arbitrage relationship for European options stating that a call minus a put equals the underlying price minus the present value of the strike.
- Leverage
- The use of borrowed funds or margin so that a small capital outlay controls a larger exposure, magnifying both gains and losses.
- Direct quote
- An exchange rate expressed as the amount of domestic currency required to purchase one unit of foreign currency.
- Cross rate
- An exchange rate between two currencies derived from their individual rates against a third, commonly quoted currency such as the US dollar.
- Purchasing power parity
- A theory holding that exchange rates adjust so that identical goods cost the same across countries, implying higher-inflation currencies depreciate over time.
- Interest rate parity
- A relationship stating that the forward exchange rate differs from spot by the interest rate differential, preventing riskless arbitrage.
- Currency carry trade
- Borrowing in a low-interest-rate currency to invest in a higher-yielding one, earning the interest differential but exposed to adverse exchange rate moves.
- Spot FX settlement
- A foreign exchange transaction for immediate delivery, typically settling two business days after the trade date in major currency pairs.
- Insider dealing
- Trading or encouraging others to trade on unpublished price-sensitive information, an offence under market abuse rules.
- Market abuse
- Conduct such as insider dealing, market manipulation, or unlawful disclosure of inside information that undermines market integrity and fairness.
- Know your customer
- Anti-money-laundering requirement for firms to verify client identity and understand the source of funds and nature of the relationship.
- Best execution
- A duty on firms to take all sufficient steps to obtain the best possible result for clients, considering price, cost, speed, and execution likelihood.
- Chinese walls
- Internal information barriers separating advisory and trading functions within a firm to prevent misuse of confidential or price-sensitive information.
- Suitability
- A requirement that firms assess a client's knowledge, experience, and objectives before recommending or selling an investment product.