Introduction to Capital Markets

Equity raises capital by selling ownership shares traded on public exchanges; debt raises funds through loans or bonds that pay coupons and trade in public markets.

Explain the key features of a bond, including the issuer, par value, coupons, and maturity, using a fixed 8% coupon on a 1000 par bond.

Explore how institutional investors dominate bond markets, with asset managers, pension funds, sovereign wealth funds, insurance companies, and hedge funds shaping bond portfolios, while retail investors trade smaller amounts.

Explore how bonds differ by coupons: fixed, zero, floating rate, and index linked, through practical examples of coupon calculations, inflation adjustments, and interest rate dynamics.

Explore convertible bonds that may convert to shares when stock value exceeds par value via the conversion ratio, and callable bonds with high fixed coupons redeemable early if rates fall.

Compare bonds using ratings from Standard and Poor's, Moody's, and Fitch to gauge credit quality, from AAA to D, including investment grade and junk bonds, as a research starting point.

Learn how bond prices are driven by interest rates and issuer credit ratings, from primary market par pricing to secondary market premiums or discounts, influenced by demand and coupons.

Understand how a bond's par value, coupon, and time to maturity determine yields. Learn how current yield and yield to maturity reflect price changes and total return.

Explain how the yield curve compares government and corporate bonds across maturities, shows YTM against maturities, and signals future interest rates through its shapes—upward, flat, or inverted.

Explore physical, capital, and derivative markets where buyers and sellers transact at prices driven by supply and demand, and learn how derivatives hedge risk and arbitrageurs profit from pricing differences.

Explore how derivative contracts exchange cash flows based on changes in value of an underlying asset, with examples from commodities and financial assets. Distinguish cash settled from physically settled contracts.

Explore the four main derivatives: futures, forwards, options, and swaps, covering exchange-standardized contracts, daily cash flows, counterparty risk, option premium, strike price, and fixed versus variable cash flows.

Examine bullish long positions and bearish short selling, including borrowing assets with a lending fee, selling now, buying back later, and using derivatives to profit when prices fall.

Explore how hedgers use derivatives to manage interest rate and currency risk, how speculators pursue profits with long and short positions, and how arbitrageurs exploit pricing discrepancies.

Explain how futures contracts function on regulated exchanges, with long and short positions and daily cash flows based on changes in the underlying asset like the S&P 500.

Explore how a futures exchange clears every trade to eliminate counterparty risk, using initial margins and daily mark-to-market with variation margin.

Explore how forward contracts, as over-the-counter derivatives, differ from futures: customization, settlement methods, collateral, and counterparty risk. They cover assets from stocks to commodities.

Call options give the holder the right to buy Amazon shares at a strike price by expiry, paid via an upfront premium, with exercise if price exceeds strike, otherwise lapses.

Analyze put options basics, including premium, strike price, expiry, and cash-settled payoffs, with a gold example illustrating exercise decisions under European and American rules.

Interest rate swaps are over-the-counter derivative contracts exchanging fixed and floating cash flows on a notional value to hedge interest rate risk, with LIBOR as the reference floating rate.

Explore plain vanilla interest rate swaps using a notional amount and currency swaps exchanging principal, and see how credit default and commodity swaps hedge risk with cash flows.