THE WORLD OF STOCK MARKET
What is SENSEX?Index of Bombay Stock ExchangeMost popular stock market index in india
First compiled in 1986Consists of 30 stockBase year 1978-79, base value 100Current sensex value is 17900
What is NIFTY?Index of National Stock ExchangeMost widely used index in indiaFirst published in 1995Base year 1995, base value 1000Consist of 50 stock from 21 sectorsCurrent value of Nifty is 5380
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<img width=1 height=1 alt="" src="http://row.bc.yahoo.com/b?P=rtMc37TpcxElbihxTmXKHwBhddYSCU82nlcABUv6&T=1c252f39b%2fX%3d1328979543%2fE%3d1186550071%2fR%3dinfin%2fK%3d5%2fV%3d3.1%2fW%3dJR%2fY%3dIN%2fF%3d3623534647%2fH%3dY2FjaGVoaW50PSIxMTg2NTUwMDcxIiBjb250ZW50PSJleGNoYW5nZT1CU0U7cGVyY2VudENoYW5nZUZsYWc9LTE7dGlja2VyPV5CU0VTTjt0aWNrZXJUeXBlPWluZGV4OyIgc2VydmVJZD0icnRNYzM3VHBjeEVsYmloeFRtWEtId0JoZGRZU0NVODJubGNBQlV2NiIgdFN0bXA9IjEzMjg5Nzk1NDMzODUyMTUiIHRpY2tlcj0iXkJTRVNOIiA-%2fQ%3d-1%2fS%3d1%2fJ%3d2672E9B4">
BSE-17748Nifty-5381Nikkei- 8947Hangseng- 20783Straits- 2960Dowjones- 12801Nasdaq- 2903USD to INR 49.50
Uses of an IndexLead indicator of the economyBarometer to monitor market movement
Benchmark for portfoliosUse in Index fundsUnderlying asset in index derivatives
Reflection of expectation about future
Financial MarketsMarkets for financial assets or financial claims
1. Money markets2. Capital markets
Capital MarketsMarkets for long term fundsInstruments like shares, debentures, etc1. Primary markets2. Secondary markets
Primary MarketsMarket for new issuesInitial Public Offer (IPO)Qualified Institutional Placements (QIP)
Merchant bankingBook building
Secondary MarketsStock exchanges- BSE and NSETrading: floor trading to electronic trading
Dematerialization: NSDL and CDSL
Clearing and Settlement (T+2 rolling)
Type of TradingInvestment: SpeculationGambling
InvestmentsBuying for long termDividend income andLong term capital gain
Speculation Taking high risk for high return
Planned game for very short period
Based on rumors, guess work, intelligence
GamblingTaking high risk for enjoyment
Blind tradingGreed and Panic
Type of speculators1. BULLExpect market to go upBulls buy first sell next
2. BEARExpect market to go downBears sell first buy next
Security AnalysisFundamental analysisTechnical analysisEfficient market hypothesis
Factors to watchGlobal marketsMacro economic factors like inflation, interest rate, GDP data etc
General sentiment (institutional & retail)
Company specific newsTechnical levels
DerivativesFinancial contractsDerived from the value of an underlying asset
Types of derivativesForwardsFuturesOptionsSwaps
Forwards Vs Futures
Futures Forwards
Exchange traded Non exchange traded
Margin required No margin requirement
Standardized contracts Customized contracts
No counter party risk High counter party risk
Options Option or right to buy or sellNo obligation to buy or sellTwo typesCALL option – option to buyPUT option- option to sell
SwapsAgreements to exchange one series of cash flow with another series.
Example: plain vanilla fixed interest loan to floating interest loan
SwaptionsTwo typesPayer swaption: pay fixed, receive floating.
Equal to a call optionReciever swaption: receive fixed pay floating.
Equal to a put option
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