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115 CFA
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115.060.01.02 Equity Investments - Reading 36 - 2. Assets and Contracts

2. Assets and Contracts

b. describe classifications of assets and markets;

c. describe the major types of securities, currencies, contracts, commodities, and real assets that trade in organized markets, including their distinguishing characteristics and major subtypes;

What are the six categories of assets and contracts?
1. debts
2. equities
3. currencies
4. derivatives (contracts)
5. commodities
6. real estate

What is a fixed-income investment?
These have a contractually mandated payment schedule. Their investment contacts promise specific payments at predetermined times.

What is a preferred stock security?
Preferred stock is classified as a fixed-income security because its yearly payment is stipulated as either a coupon (e.g., 5% of the face value) or a stated dollar amount.

What are equities?
Equities represent residual ownership in companies after all claims-including any fixed-income liabilities of the company - have been satisfied.

What are common stocks?
Common stocks represent ownership of a firm. Owners of the common stock of a firm share in the company's successes and problems.

What is a warrant?
A warrant allows the holder to purchase a firm's common stock from the firm at a specified price for a given time period.

What is a pooled investment?
Rather than directly buying an individual stock or bond, you may choose to acquire these investments indirectly by buying shares in an investment company that owns a portfolio of individual stocks, bonds, or a combination of the two.

What are the four types of financial contracts?
1. Forward contract
2. Futures contract
3. Swap contracts
4. Options

What is a forward contract?
Forward contracts allow buyers and sellers to arrange for future sales at pre-determined prices. They represent a commitment to buy or sell.

What is a futures contract?
Futures contracts are standardized forward contracts guaranteed by clearing houses. They are traded on a futures exchange.

What is a swap contract?
Swap contracts are derivative securities in the form of agreements between two counterparties to exchange cash flows over a period of time, depending on the values of specified market variables.

What is an Option contract?
Options are rights to buy or sell an underlying instrument at a specified price within a designated time period.

What is a commodity?
Commodities include agricultural products, energy, metals, etc. Commodities complement investment opportunities offered by shares of corporation that extensively use these raw materials in their production processes.

What is a Real Asset?
Real assets include tangible assets such as real estate, airplanes, machinery, or lumber stands. They are often illiquid and have high transaction costs compared to stocks and bonds.


Source:
  • CFA