章節(jié)2-金融英語(yǔ)任務(wù)1講義financial english for frm

1、Financial English for FRM CandidatesMikey ChowSenior FRM instructor, Golden FutureWarm upOptions and futuresFlight to quality2-763-76How to Decode a Terminology Without Translation【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義An excerpt from “Fixed-Income”The features of a fixed-income security include speci

2、fication of:The issuer of the bond.The maturity date of the bond.The par value.Coupon rate and frequency.Currency in which payments will be made.4-76An excerpt from “Fixed-Income”Issuers of BondsThere are several types of entities that issue bonds when they borrow money, including:Corporations, Sove

3、reign national governments, Nonsovereign governments Quasi-government entities. Not a direct obligation of a countrys government or central bank. An example is the Federal National Mortgage Association (Fannie Mae)Supranational entities. Issued by organizations that operate globally such as the Worl

4、d Bank, the European Investment Bank, and the International Monetary Fund (IMF).5-76An excerpt from “Fixed-Income”Bond MaturityThe maturity date of a bond is the date on which the principal is to be repaid. Once a bond has been issued, the time remaining until maturity is referred to as the term to

5、maturity or tenor of a bond.6-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義An excerpt from “Fixed-Income”P(pán)ar ValueThe par value of a bond is the principal amount that will be repaid at maturity. The par value is also referred to as the face value, maturity value, redemption value, or principal value of a

6、bond. Bonds can have a par value of any amount, and their prices are quoted as a percentage of par. A bond with a par value of $ 1,000 quoted at 98 is selling for $980.7-76An excerpt from “Fixed-Income”Coupon PaymentsThe coupon rate on a bond is the annual percentage of its par value that will be pa

7、id to bondholders. Some bonds make coupon interest payments annually, while others make semiannual, quarterly, or monthly payments. A $1,000 par value semiannual-pay bond with a 5% coupon would pay 2.5% of $1,000, or $25, every six months. A bond with a fixed coupon rate is called plain vanilla bond

8、 or a conventional bond.8-76An excerpt from “Fixed-Income”Some bonds pay no interest prior to maturity and are called zero-coupon bonds or pure discount bonds. Pure discount refers to the fact that these bonds are sold at a discount to their par value and the interest is all paid at maturity when bo

9、ndholders receive the par value. A 10-year, $1,000, zero-coupon bond yielding 7% would sell at about $500 initially and pay $1,000 at maturity. We discuss various other coupon structures later in this topic review.9-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義An excerpt from “Fixed-Income”P(pán)rice = ?C+ParC

10、CCC012345term to maturity = 510-76An excerpt from “Option”An option contract gives its owner the right, but not the legal obligation, to conduct a transaction involving an underlying asset at a predetermined future date (the exercise date) and at a predetermined price (the exercise price or strike p

11、rice). Options give the option buyer the right to decide whether or not the trade will eventually take place. The seller of the option has the obligation to perform if the buyer exercises the option.11-76An excerpt from “Option”The owner of a call option has the right to purchase the underlying asse

12、t at a specific price for a specified time period.The owner of a put option has the right to sell the underlying asset at a specific price for a specified time period.12-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義An excerpt from “Option”For every owner of an option, there must be a seller. The seller of

13、 the option is also called the option writer. There are four possible options positions:Long call: the buyer of a call option - has the right to buy an underlying asset.Short call: the writer (seller) of a call option - has the obligation to sell the underlying asset.Long put: the buyer of a put opt

14、ion - has the right to sell the underlying asset.Short put: the writer (seller) of a put option - has the obligation to buy the underlying asset.13-76An excerpt from “Option”To acquire these rights, owners of options must buy them by paying a price called theoption premium to the seller of the optio

15、n.14-7615-76An excerpt from “Option”CallPutLongBuyer of the option Right to buy asset Pay the premiumBuyer of the option Right to sell asset Pay the premiumShortSeller of the option Obligation to sell asset Receive the premiumSeller of the option Obligation to buy asset Receive the premiumPremium【夢(mèng)軒

16、考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義16-76How to Parse a Long andSophisticated SentenceAn excerpt from past exam questionsA portfolio manager just observed the announcement of an increase in the target federal funds rate from the US Federal Open Market Committee and notices that housing-related stock p

17、ositions in the portfolio are quickly losing value. The trader would therefore like to reduce these positions immediately to try to prevent more extreme losses. Which of the following order types would be best for the portfolio manager to use?Limit orderStop-loss orderStop-limit orderMarket order17-

18、76An excerpt from past exam questionsIn I995, Barings was forced to declare bankruptcy after reporting over USD 1 billion in unauthorized trading losses by a single trader, Nick Leeson. Which of the following statements concerning the collapse of Barings is correct?The effectiveness of the firms ris

19、k oversight was improved by allowing one individual to serve both as the head of trading as well as of the divisions back office.Most of Leesons trades were over-the-counter trades on long-term futures contracts, which allowed Barings to delay cash payments on losing trades until the contracts matur

20、ed.Initial streams of large profits were not investigated by management despite the fact that they were associated with a low-risk trading strategy.The loss at Barings was detected when several customers complained of losses on trades that were booked to their accounts.18-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA

21、FRM全程高清視頻+講義An excerpt from past exam questionsThe collapse of Long Term Capital Management (LTCM) is a classic risk management case study. Which of the following statements about LTCM is correct?While LTCM had a sophisticated risk reporting system in place, LTCM failed to measure portfolio VaR on a

22、 regular basis.The stress testing conducted by LTCMs risk management group had little influence on the firms strategy.The soloing, or lack of sharing, of information within LTCM contributed to its rapid failure when seemingly unrelated positions declined in value at the same time.LTCMs stress test s

23、cenarios failed to include the impact of competitors holding similar positions exiting the market.19-76An excerpt from past exam questionsA risk manager at an asset management firm changes the firms risk measurement framework to gauge portfolio risk. The methodology underlying the new framework is n

24、ot consistent with a recent major change in generally accepted practices in the industry. No one at the firm is aware of the changes to the industry best practices. As a long-time GARP member, has the risk manager violated the GARP Code of Conduct?No. this is not a violation of the GARP Code of Cond

25、uct because the risk manager was not aware of the changes to risk measurement best practices at the time the firms framework was changed.Yes. This is a violation of the GARP Code of Conduct.This is a violation of the GARP Code of Conduct only if the methodology was not considered industry best pract

26、ice at the time the risk manager started implementing the new framework.This is a violation of the GARP Code of Conduct only if investment decisions are made based on the risk managers risk reports.20-76An excerpt from past exam questionsAn organization can gain an advantage over competing firms by

27、adopting prudent risk management practices. One example of this would be:Eliminating, as much as possible, qualitative methods for assessing risks in favor of quantitative methods.Compensating risk-taking employees primarily with stock option grants in order to better align their interests with thos

28、e of the firm.Encouraging the independent operation and oversight of risk- taking functions within the firm to gain the “benefits of specialization”.Preserving debt capacity by issuing less debt than the firm can afford.21-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義An excerpt from past exam questionsWhe

29、n helping to decide which financial product to use for a given trade, which of the following statements about futures and forwards would a risk manager consider correct?Delivery dates on futures and forward contracts are not specified at the onset of the contract.Forwards carry less credit risk than

30、 futures.Maturing commodity futures may not dictate delivery of a greater volume of the underlying asset than what is physically available.Futures and forwards can both be subject to the posting of collateral based on daily valuation.22-76An excerpt from past exam questionsLIBOR should be fully unde

31、rstood before using it as a reference rate for risk management calculations. Which of the following statements regarding LIBOR is correct?LIBOR is quoted in GBP, EUR, USD, and other major currencies.LIBOR is more representative of a risk-free rate than the OIS (overnight indexed swap).LIBOR is avail

32、able for maturities of up to 5 years.LIBOR is free of credit risk since interbank deposits are fully insured by the UK government.23-76An excerpt from past exam questionsA buffalo farmer is concerned that the price he can get for his buffalo herd will be less than he has forecasted. To protect himse

33、lf from price declines in the herd, the farmer has decided to hedge with live cattle futures. Specifically, he has entered into the appropriate number of cattle future position for September delivery that he believes will help offset any buffalo price declines during the winter slaughter season. The

34、 appropriate position and the likely sources of basis risk in the hedge are, respectively:Short; choice of futures delivery date.Short; choice of futures asset.Short; choice of futures delivery date and asset.Long; choice of futures delivery date and asset.24-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義A

35、n excerpt from past exam questionsFor use in VaR calculations, a risk manager is considering switching from using historical volatility to implied volatility. Which of the following statements about implied volatility is correct?Implied volatility is model dependent and a misspecified model can resu

36、lt in erroneous forecasts.Implied volatility assumes that historical returns are indicative of future returns.Implied volatility tends to underestimate future volatility as a result of mean reversion.Implied volatility estimates are generally not available for assets on which derivatives are traded.

37、25-76An excerpt from past exam questionsWhich of the following statements about stress testing are true?Stress testing can complement VAR estimation in helping risk managers identify crucial vulnerabilities in a portfolio.Stress testing allows users to include scenarios that did not occur in the loo

38、kback horizon of the VAR data but are nonetheless possible.A drawback of stress testing is that it is highly subjective.The inclusion of a large number of scenarios helps management better understand the risk exposure of a portfolio.26-76An excerpt from past exam questionsWhich of the following stat

39、ements is correct when evaluating the country and sovereign risk of an international bond portfolio?The assessment of transfer risk is important even when evaluating home-currency denominated debt.As a result of regulatory initiatives, country level data is generally publicly available and up to dat

40、e.Democratic countries will have almost no political risk due to the accountability of their political systems.When compared to corporate defaults, sovereign defaults are relatively easy to model using parametric methods.27-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義An excerpt from past exam questionsWh

41、ich of the following statements about internal credit rating systems is correct?When backtesting internal credit rating systems, the minimum time period required for investment-grade securities should be greater than that required for non-investment-grade securities.A through-the-cycle approach to d

42、esigning internal credit rating systems leads to more rating changes over time than a point-in- time approach.For an internal credit rating system to be consistent, banks must use the same transition matrix for all asset classes.An effective way to compensate for the difficulty of obtaining qualitat

43、ive data for small firms is to combine a qualitative approach for large firms with a quantitative approach for small firms.28-7629-76How to Hack a Chapter Having Paper Structure30-76Terms! Terms! Terms!【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義31-76I. GeneralAnalysis techTechnical AnalysisFundamental Ana

44、lysis32-76RatesRisk-free rateNominal interest rateReal interest rateLibor: The London Interbank Offered Rate33-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義EMHEfficient Market HypothesisWeak-form EMHSemi-strong-form EMHStrong-form EMH34-76MiscellaneousPlain vanillaExoticEmerging marketsCPI: Consumer Price

45、 Index35-7636-76II. Fixed Income【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義Basic ConceptsBondCouponMaturityPar37-76KindsBullet bond Callable bondZero-coupon bond- RedemptionPerpetual bond- Early redemption- PrepaymentPuttable bondConvertible bond38-76PricesClean priceDirty priceOn-the-Run IssueOff-the-Run

46、 Issue39-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義YieldYTM: Yield To MaturitySpot rateYield curveInverted yield curve40-76MiscellaneousDurationRepoOvernight / term repoFloating rate noteCollarCapFloor41-76US Treasury BondsTreasury BillTreasury NoteTreasury BondTIPS: Treasury Inflation-Protected Securi

47、tiesSTRIPS: Separate Trading of Registered Interest and Principal of Securities42-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義SecuritizationAmortizationCollateralMBS: Mortgage-backed SecurityCMO: Collateralized Mortgage ObligationABS: Asset-backed Security43-76MunisMunis: Municipal bondGeneral obligation

48、 bondRevenue bond44-76Credit RatingMoodysStandard & PoorsDowngrade / UpgradeInvestment grade: BBB-/Baa3Speculative grade: junk bondCredit watch45-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義46-76III. Forward and FuturesBasic ConceptsUnderlying assetLongShort47-76Mark to MarketClearing HouseMarginLeverage

49、Initial marginMaintenance marginMargin callVariation marginMark to Market48-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義CommoditiesCommodityCrack spreadCash settlementDelivery49-76Financial futuresStock Index FutureFRA: forward rate agreementFX: foreign exchange50-7651-76IV. Option【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CF

50、A FRM全程高清視頻+講義Basic ConceptsOption writer: shortOption buyer: longPremiumCallPutStrike price: XExpiry date52-76Intrinsic ValueIntrinsic value= max S-X,0 for a call option= max X-S,0 for a put optionIn the MoneyAt the MoneyOut of the Money53-76AO / EOAmerican optionEuropean optionBermuda optionEarly

51、exercise54-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義MiscellaneousWarrantBlack-Scholes ModelVolatility- Historical volatility / Implied volatilityThe Greeks55-76GreeksGreek letterLower caseUpper caseApplications in FinanceAlphaaAExcess/abnormal return, interceptBetaQBSensitivity, slope coefficientGamma

52、ySecond derivativedelta6l:ifirst derivative, change of rate, hedgeepsilonEEresidual/errortheta。0Sensitivity to timelambda入APassion distribution, coefficientnuvNSensitivity to volatility(vega)56-76GreeksGreek letterLower caseUpper caseApplications in FinancemuMmeanpi兀TTInflation; ProductrhopPcorrelat

53、ionsigma。IVolatility; SumtauJTThe length of timephie中Liquidity premiumchixxChi-square testomegaw0weight57-76【夢(mèng)軒考資】QQ106454842專(zhuān)業(yè)提供CFA FRM全程高清視頻+講義58-76V. TradingIndicesS&P 500DJIA: Dow Jones Industrial AverageNASDAQMSCI Indices: Morgan Stanley Capital InternationalFTSE 100: the FootsieNikkei 225Hang Seng59-76ExchangesCBOE: The Chicago Board Options ExchangeCME: The Chicago Mercantile ExchangeNYSE: New York Stock ExchangeLME: London Metal ExchangeCBOT: The Chicago B