Tutorial lessons
03 Financial Markets and Products
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Lessons
Tutorial lessons
FMP 1: Banks
Commercial banking vs investment banking: what each one does Banks sit at the centre of the world financial system, and in most countries their work falls into two broad trades. Commercial banking is
FMP 2: Insurance Companies and Pension Plans
Life insurance and property and casualty insurance: the two main categories An insurance contract sells protection against a named adverse event. The buyer is the policyholder, and the price is paid i
FMP 3: Fund Management
Why investors pool money into funds, and how open-end mutual funds work Money handed to a professional rarely sits in an account of its own. It is pooled with money from other clients, and the manager
FMP 4: Introduction to Derivatives
What a derivative is, and how linear and non-linear derivatives differ A derivative is a contract whose value is worked out from something else: an equity price, an exchange rate, an interest rate, a
FMP 5: Exchanges and OTC Markets
What an exchange is and how margin reduces counterparty risk An exchange is an organisation with members who trade with each other, and for a long stretch of history that was nearly the whole of it. T
FMP 6: Central Clearing
What a central counterparty is and how a CCP clears a trade A central counterparty, usually shortened to CCP and often called a clearing house, steps into the middle of a trade so the two firms who ag
FMP 7: Futures Markets
How a futures exchange works and what the exchange does A futures contract commits two parties to trade an asset on a future date at a price fixed today. What sets it apart from a private agreement is
FMP 8: Using Futures for Hedging
What a short hedge is and how to calculate its profit and loss Futures serve two opposite purposes, and which one applies depends on what the trader already owns. A firm exposed to an exchange rate, a
FMP 9: Foreign Exchange Markets
How a currency quote works: base currency, quote currency and quote direction Currency trading is the largest market anywhere by notional turnover. The Triennial Central Bank Survey run by the Bank fo
FMP 10: Pricing Financial Forwards and Futures
What a financial asset is and how it differs from a consumption asset A forward contract fixes today the price for a trade that settles later, and no-arbitrage reasoning, not a forecast of the deliver