Investment

Two of the chief reasons why people invest in international investments and investments with international exposure are:

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  Diversification. International investing may help U.S. investors to spread their investment risk among foreign companies and markets in addition to U.S. companies and markets.
  
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  Growth. International investing takes advantage of the potential for growth in some foreign economies, particularly in emerging markets.
  

69.	What is the difference between an investment-grade bond and a junk bond? Investment-grade bonds are issued by large and influential corporations whereas junk bonds come from startups or financially struggling firms.
70.	What is the yield to maturity? Why it is considered as a good measure of interest rates? Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate. In other words, it is the internal rate of return (IRR) of an investment in a bond if the investor holds the bond until maturity, with all payments made as scheduled and reinvested at the same rate. Yield to maturity is also referred to as "book yield" or "redemption yield."
71.	Why are derivatives market needed? Explain. Derivatives are financial contracts, set between two or more parties, that derive their value from an underlying asset, group of assets, or benchmark. A derivative can trade on an exchange or over-the-counter. Prices for derivatives derive from fluctuations in the underlying asset. Derivatives are usually leveraged instruments, which increases their potential risks and rewards. Common derivatives include futures contracts, forwards, options, and swaps.
72.	What is futures contract? Give an example? , forwards, options, and swaps.
73.	How is liquidity linked with profitability? What about risk?
74.	Explain Call Options with an example. Call options are financial contracts that give the option buyer the right but not the obligation to buy a stock, bond, commodity, or other asset or instrument at a specified price within a specific time period. The stock, bond, or commodity is called the underlying asset. A call buyer profits when the underlying asset increases in price.
75.	What are the differences between options and futures? Futures are a contract that the holder the right to buy or sell a certain asset at a specific price on a specified future date. Options give the right, but not the obligation, to buy or sell a certain asset at a specific price on a specified date. This is the main difference between futures and options.
76.	Define different types of corporate bonds. Corporate bonds are the means by which private firms borrow money directly from the public. These bonds are similar in structure to Treasury issues—they typically pay semiannual coupons over their lives and return the face value to the bondholder at maturity. They differ most importantly from Treasury bonds in degree of risk. Default risk is a real consideration in the purchase of corporate bonds, and Chapter 14 discusses this issue CHAPTER 2 Asset Classes and Financial Instruments 39 in considerable detail. For now, we distinguish only among secured bonds, which have specific collateral backing them in the event of firm bankruptcy; unsecured bonds, called debentures, which have no collateral; and subordinated debentures, which have a lower priority claim to the firm’s assets in the event of bankruptcy. Corporate bonds sometimes come with options attached. Callable bonds give the firm the option to repurchase the bond from the holder at a stipulated call price. Convertible bonds give the bondholder the option to convert each bond into a stipulated number of shares of stock. These options are treated in more detail in Chapter 14.
77.	Why do low-paying securities exist?
78.	Explain the major causes of the Financial Crises in 200.8
79.	Why do corporations participate in financial markets? Financial markets exist to satisfy the individuals’, corporations’, and governments’ needs for lending and borrowing. Thanks to financial markets, businesses and governments can raise capital for their financial needs while the investors (buyers of financial assets) can earn some interest on their idle income.
80.	Why do households participate in financial markets?
81.	“If all securities are fairly priced, all must offer equal expected rates of return.” Comment. In the above scenario, it would have been more appropriate to say “expected risk adjusted returns”. All the securities have same risks adjusted expected returns. However because of certain unforeseen events, their results may vary. Since these are not known in advance hence the known information is used to set in the expectation.
82.	If prices are as likely to increase as decrease, why do investors earn positive returns from the market on average?