Академический Документы
Профессиональный Документы
Культура Документы
Assumptions of CAPM
1. Aim to maximize economic utilities (Asset quantities are given and fixed).
2. Are rational and risk-averse.
3. Are broadly diversified across a range of investments.
4. Are price takers, i.e., they cannot influence prices.
5. Can lend and borrow unlimited amounts under the risk free rate of interest.
6. Trade without transaction or taxation costs.
7. Deal with securities that are all highly divisible into small parcels (All assets are perfectly divisible and
liquid).
8. Have homogeneous expectations.
9. Assume all information is available at the same time to all investors.
Unsystematic risk, also known as "specific risk," "diversifiable risk" or "residual risk," is the type of
uncertainty that comes with the company or industry you invest in. Unsystematic risk can be reduced
through diversification. For example, news that is specific to a small number of stocks, such as a sudden
strike by the employees of a company you have shares in, is considered to be unsystematic risk.
Systematic risk, also known as "market risk" or "un-diversifiable risk", is the uncertainty inherent to the entire
market or entire market segment. Also referred to as volatility, systematic risk consists of the day-to-day
fluctuations in a stock's price. Volatility is a measure of risk because it refers to the behavior, or "temperament,"
of your investment rather than the reason for this behavior.
CML'
A line used in the capital asset pricing model to illustrate the rates of return for efficient portfolios depending on
the risk-free rate of return and the level of risk (standard deviation) for a particular portfolio. The CML is
derived by drawing a tangent line from the intercept point on the efficient frontier to the point where the
expected return equals the risk-free rate of return.
SML'
A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows
all risky marketable securities. The SML essentially graphs the results from the capital asset pricing model
(CAPM) formula. The x-axis represents the risk (beta), and the y-axis represents the expected return. The
market risk premium is determined from the slope of the SML.
1. The CML is a line that is used to show the rates of return, which depends on risk-free rates of return and
levels of risk for a specific portfolio. SML, which is also called a Characteristic Line, is a graphical
representation of the markets risk and return at a given time.
2. While standard deviation is the measure of risk in CML, Beta coefficient determines the risk factors of the
SML.
3. While the Capital Market Line graphs define efficient portfolios, the Security Market Line graphs define both
efficient and non-efficient portfolios.
4. The Capital Market Line is considered to be superior when measuring the risk factors.
5. Where the market portfolio and risk free assets are determined by the CML, all security factors are
determined by the SML.
Option : an instrument that provides its holder with an opportunity to purchase or sell specified asset at started price on or before a set expiration date.optiones are probably the most
popular type of debenture security. Call option: an option to purchase a specified number of shares of a stock on or before a specifies future date at a stated price
Some agencies of the federal government issue both short-term and long-term obligations, including the loan
agencies Fannie Mae and Sallie Mae. These obligations are not generally backed by the government, so they
offer a slightly higher yield than T-bills, but the risk of default is still very small.
Short-Term Tax Exempts
These instruments are short-term notes issued by state and municipal governments. Although they carry
somewhat more risk than T-bills and tend to be less negotiable, they feature the added benefit that the interest is
not subject to federal income tax. For this reason, corporations find that the lower yield is worthwhile on this
type of short-term investment.
Certificates of Deposit
Certificates of deposit (CDs) are certificates issued by a federally chartered bank against deposited funds that
earn a specified return for a definite period of time. They are one of several types of interest-bearing "time
deposits" offered by banks.
Commercial Paper
Commercial paper refers to unsecured short-term promissory notes issued by financial and nonfinancial
corporations. Commercial paper has maturities of up to 270 days (the maximum allowed without SEC
registration requirement).
Bankers' Acceptances
A banker's acceptance is an instruments produced by a nonfinancial corporation but in the name of a bank. It is
document indicating that such-and-such bank shall pay the face amount of the instrument at some future time.
Repurchase Agreements
Repurchase agreementsalso known as repos or buybacksare Treasury securities that are purchased from a
dealer with the agreement that they will be sold back at a future date for a higher price. These agreements are
the most liquid of all money market investments, ranging from 24 hours to several months.
The journey of Bangladesh stock market started on April 28, 1954 as East Pakistan Stock
Exchange Association Ltd.
The exchange was renamed on June 23, 1962 as Dhaka Stock Exchange (DSE) Limited.
Trading on Dhaka Stock Exchange was suspended from 1971 to 1976 because of liberation
war and its post-independence weak economy. Then the trading was resumed in 1976 with
9 listed securities having a total paid up capital of Taka 137.52 million.
Dhaka Stock Exchange is the first & biggest stock exchange of the country. The operation
of Dhaka Stock Exchange started on May 14, 1964 after renaming East Pakistan Stock
Exchange Limited.
Dhaka Stock Exchange (DSE) is registered as a Public Limited Company and its activities
are regulated by its Articles of Association rules & regulations and bye-laws along with the
Securities and Exchange Ordinance - 1969, Companies Act - 1994 & Securities & Exchange
Commission Act - 1993.
DSE uses automated trading system. The system was installed on 10th August, 1998 and
was upgraded time to time. The latest upgrading was done on 21st December, 2008.
There are 238 members and total 538 listed securities in Dhaka Stock Exchange. The
working days of DSE is 5 days in a week without Saturday, Sunday public holidays & other
government holidays. The trading time is from 10:30 am to 2:30 pm (local time).
Investment options for an investor in this market are ordinary share, Debenture, Bond &
Mutual funds.
As mentioned by Fellowes (2008), Every stock market has its indices to show movements
in the market as a whole. In the beginning DSE had only one index. However, now there
are three different indices which are DSI (All share), DGEN (A, B, G & N) and DSE 20.
Functions of DSE:
The major functions are:
Gifting of share / granting approval to the transaction/transfer of share outside the trading
system of the exchange (As per Listing Regulations 42).
Market Surveillance.
Investors Protection Fund (As per investor protection fund Regulations 1999).
Chittagong Stock Exchange was incorporated as a self regulated non profit organization on
1st April, 1995 and formally opened on November 4, 1995. It started its trading through
cry-out system. Then Chittagong Stock Exchange started first automated trading bourse of
the country. CSE started its automated trading on 2nd June, 1998 and internet trading
service on 30th May, 2004.
The trading time, working days & holidays of CSE are same as like as DSE. CSE consists of
25 members of whom 12 are elected through election of CSE members, 12 members are
elected from different major economic & social arena of Bangladesh and CEO is nominated
and appointed by its own board but the approval of SEC mandatory
Now CSE has 147 members and 238 of listed securities. There are four different markets in
CSE too which are public, Spot, Block & Odd Lot market. Trading is done through all these
four markets. A, B, N, G and Z these are the 5 categories of company listed in CSE and it is
mentionable that in G category there is not any company.
CSE maintained only one index that was All Share Price Index until 10th October, 1995.
Now CSE has 3 indices in the stock exchange. Indices are All Share Price Index (CASPI),
CSE Selective Index (CSE30) and CSE Selective Categories' Index (CSCX).
Primary Market : Initial Public Offerings (IPOs), new share issuance of a company
comes through primary market. Companies can issue new securities after getting
permission from the market regulators.
I. Public Market: Instruments are traded on this market in normal volume which is called lot
share.
II. Spot Market: Trading is done in normal volume under corporate actions and must be
settled in 24 hours.
III. Block Market: In this market bulk volume of instruments are trades through pick & fill
basis.
IV. Odd lot Market: Odd lot refers to a quantity of shares that is less than market lot. Odd
lots of all instruments are traded through pick & fills in this market. Basically odd lots
generated from bonus and rights issues
The stock market is one of the most important sources for companies to raise money. This
allows businesses to be publicly traded, or raise additional financial capital for expansion
by selling of ownership of the company in a public market. This is an attractive feature of
investing in stocks, compared to other less liquid investments such as real estate. Some
companies actively increase liquidity by trading in their own shares.
A portion of the funds involved in saving and financing, flows directly to the financial
markets instead of being routed via the traditional bank lending and deposit operations.
The general public interest in investing in the stock market, either directly or through
mutual funds has been an important component of this process.
Treasury bill
Since they mature so quickly, T-bills are simply sold at a discount to their face value at
maturity. The discount is determined by the interest rate.
30-day T-Bills
91-day T-Bills
182-day T-Bills
364day T-Bills
2-years T-Bills
5-years T-Bills
The primary money market is comprised of Banks, FIs and primary dealers as
intermediaries and savings & lending instruments, treasury bills as instruments. There are
currently 15 primary dealers (12 banks and 3 FIs) in Bangladesh. The only active
secondary market is overnight call money market which is participated by the scheduled
banks and FIs. The money market in Bangladesh is regulated by Bangladesh Bank (BB),
the Central Bank of Bangladesh.
Banks-
Sonali Bank - 9%
Janata Bank - 9%
South-East Bank- 8%
Jamuna Bank 7%
AB Bank-8%
Five newly-established commercial banks also got listed with the central bank as primary
dealers of the government securities. They are NRB Commercial Bank, South Bangla
Agriculture and Commerce Bank, Midland Bank, Farmers Bank and Meghna Bank. But the
information in Bangladesh Bank is yet to be updated.
Auction Procedure
Auction is held on every Sunday at 11 a.m. at the Motijheel Branch of BB. If Sunday is a
holiday, then the last working day before Sunday is used. All the investors submit their bid
unless otherwise pension or provident fund. After receiving the bid, the auction committee
decides how much T-bills will be offloaded.
The bidding papers including the rate are to be submitted before 9:00am to 10:30am and
selection process of the bidders is closed in to 10:30 am.
Auction Committee:
Bangladesh Bank and ministry of finance decide what amount of T-bill are issued for which
period.
Foreign Reserve & Treasury management division sends a letter to the Auction Committee
with the details criteria of Auction procedure.
Committee involves 11 members among them 9 members are from the Bangladesh bank
and other 2 members are from ministry of finance and planning.
Basic Characteristics T-Bills These have the shortest range of maturities of all government bonds
at 4, 13, 26 and 52 weeks. They are the only type of treasury security found in both the capital and
money markets, as three of the maturity terms fall under the 270-day dividing line between them. T-Bills
are issued at a discount and mature at par value, with the difference between the purchase and sale prices
constituting the interest paid on the bill.
T-Notes These notes represent the middle range of maturities in the treasury family, with maturity
terms of 2, 3, 5, 7 and 10 years currently available. Treasury notes are issued at a $1,000 par value and
mature at the same price. They pay interest semiannually.
T-Bonds Commonly referred to in the investment community as the long bond, T-Bonds are
essentially identical to T-Notes except that they mature in 30 years. T-Bonds are also issued at and
mature at a $1,000 par value and pay interest semiannually.
It is considered to have little or practically no risk attached. All things being equal, you will definitely
get your money back with the promised interest.
They are very liquid (i.e. you can easily convert them to cash). Even before the full time period elapses,
you can always decide to go for your money at any time. This is however not encouraged, unless you are
in very desperate need of cash. Note that if you decide to go for your money (i.e. sell your Tbills)
before the time elapses, you will not be paid the full interest promised. In order words, the investment
will be discounted.
No transaction cost is charged. Unlike other forms of investment where you are charged a fee by the
broker who purchases them for you, brokers do not charge you for purchasing TBills for you.
The interest rates which are paid on Tbills are almost always lower than the other investment options on
the market. This however makes sense because one of the key principles of investment is the higher the
risk, the higher the expected return.
Portfolio'
A grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual,
exchange-traded and closed-fund counterparts. Portfolios are held directly by investors and/or managed
by financial professionals.
portfolio risk
Chance that combination of assets or units within individual group of investments fail to meet financial
objectives. In theory, portfolio risk can be eliminated by successful diversification.
DEFINITION of 'Derivative'
A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The
derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined
by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds,
commodities, currencies, interest rates and market indexes.
Types of Derivative Instruments:
Forward Contracts
A forward contract is an agreement between two parties a buyer and a seller to purchase or sell something at a
later date at a price agreed upon today. Forward contracts, sometimes called forward commitments , are very
common in everyone life. Any type of contractual agreement that calls for the future purchase of a good or
service at a price agreed upon today and without the right of cancellation is a forward contract.
Future Contracts
A futures contract is an agreement between two parties a buyer and a seller to buy or sell something at a
future date. The contact trades on a futures exchange and is subject to a daily settlement procedure. Future
contracts evolved out of forward contracts and possess many of the same characteristics. Unlike forward
contracts, futures contracts trade on organized exchanges, called future markets. Future contacts also differ from
forward contacts in that they are subject to a daily settlement procedure. In the daily settlement, investors who
incur losses pay them every day to investors who make profits.
Options Contracts
Options are of two types calls and puts. Calls give the buyer the right but not the obligation to buy a given
quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right,
but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date.
Swaps
Swaps are private agreements between two parties to exchange cash flows in the future according to a
prearranged formula. They can be regarded as portfolios of forward contracts. The two commonly used swaps
are interest rate swaps and currency swaps.
1. Interest rate swaps: These involve swapping only the interest related cash flows between the parties in
the same currency.
2. Currency swaps: These entail swapping both principal and interest between the parties, with the cash
flows in one direction being in a different currency than those in the opposite direction.