allow employee to receive difference between market value and a set fixed price

don't require employee to put up funds

securities used to facilitate trading of foreign stocks

sponsored - underlying company pays a bank to issue shares

unsponsored - does not pay fees and trades in OTC Pink Sheets

investors total return

greatest yield when bond sold at discount

smallest yield when sold at premium

Occurs when interest rates decline and call provision is invoked

lowers interest expense

Convexity

positive and negative

positive - as yields decline, prices increase at a faster rate for long term bonds compared to short term

negative - duration shortens as yields fall

Corporation issuing more than 10B in debt must provide indenture between issuer and trustee

Indenture - protective coventants (what borrower pledge for protection) and default

backed by assets of the corporation, priority in terms of getting paid back

ex. mortgage backed, asset,, collateral trust

buy call - when investor thinks stock will go up in value, can use leverage to increase position

sell call -   when investor thinks stock will not go up in value

buying put -   when investor thinks stock will go down in value

selling put - when investor thinks stock will not go down in value

T-Bonds

T-Notes

T-Bills

STRIPS - restructure treasury offerings and reselling as zero coupon payments

TIPS - inflation adjusted, interest rate fixed, principal varies

CMB - short term debt offering to even out treasury flow

FHLB

FHLMC (Freddie Mac)

FNMA (Fannie Mae) - not backed by gov

GNMA (Ginnie Mae) - backed by gov

CMO

Asset-backed