List and Discuss the Characteristics of Various Types of Financial

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The Answer is A security is a legal contract representing the right to receive future benefits under a stated set of conditions.The various types of financial securities are:
A.Money Market Securities
Money market securities are short-term debt instruments sold by governments,financial institutions,and corporations.Money market instruments have maturities of one year or less when issued and their transaction size is typically large.The various types of money market instruments are:
1.Treasury Bills (T-bills): These are the least risky and the most marketable of all money market instruments.T-bills are sold at a discount from face value and pay no explicit interest payments.The difference between the purchase price and the face value constitutes the return the investor receives.These are considered to be the closest approximations available to a riskless investment.
2.Repurchase Agreements (Repos): These refer to an agreement between a borrower and a lender to sell and repurchase a U.S.government security.The maturity of a repo is usually very short (less than 14 days),with overnight repos being fairly common.Longer repos,often labeled "term repos," may have maturities of 30 days or more.
3.Other Short-Term Instruments: CDs (negotiable certificates of deposit)are time deposits with a bank.Bankers' acceptances are contracts by a bank to pay a specific sum of money on a particular date.Both instruments sell at rates that depend on the credit rating of the bank that backs them.Commercial paper is a short-term debt instrument issued by large,well-known corporations,and rates are determined in part by the creditworthiness of the corporation.
B.Capital Market Securities
Capital market securities include instruments with maturities greater than one year,and those with no designated maturity at all.The types of capital market instruments are:
1.Fixed Income Securities: These securities have a specified payment schedule promising to pay specific amounts at specific times.In almost all cases,failure to meet any specific payment puts them into default,with all remaining payments (missed interest plus principal)due immediately.
•Treasury Notes and Bonds: The federal government issues fixed income securities over a broad range of the maturity spectrum.Securities with maturity of 1 to 10 years are called Treasury notes,and securities with a maturity beyond 10 years are known as Treasury bonds.Both notes and bonds pay interest twice a year and repay principal on the maturity date.
•Federal Agency Securities: They are issued by various federal agencies that have been granted the power to issue debt in order to help certain sectors of the economy.
•Municipal Bonds: They are debt instruments sold by political entities such as states,counties,cities,and so forth,other than the federal government or its agencies.In contrast to agency bonds,municipal bonds can default and the interest on municipal bonds is exempt from federal and usually state taxes.
•Corporate Bonds: They promise to pay interest at periodic intervals and to return principal at a fixed date.The major difference is that these bonds are issued by business entities and thus have a risk of default.
2.Not-So-Fixed Income Securities: These securities have a greater degree of variability in cash flows and variability does not result in the holder's right to force bankruptcy.
•Preferred Stock: These securities promise to pay the holder periodic payments like coupons which are known as dividends rather than interest.Usually when a firm fails to pay dividends,these dividends are cumulated and all unpaid preferred stock dividends must be paid off before any common stock dividends can be paid.
•Mortgage-Backed Securities: These instruments represent a share in a pool of mortgages.
3.Other Asset-Backed Securities: There are securities issued by financial institutions and backed by a pool of other fixed income securities usually structured so that there are several classes with different maturities and different levels of risk.
4.Common Stock (Equity): It represents an ownership claim on the earnings and assets of a corporation.After debt holders' claims are paid,the management of the company can either pay out the remaining earnings to stockholders in the form of dividends or reinvest part or all of the earnings in the business.
C.Derivative Instruments: These are securities whose value is derived from the value of an underlying security or basket of securities.The most common derivatives are:
1.Options: An option on a security gives the holder the right to either buy (a call option)or sell (a put option)a particular asset or a bundle of assets at a future date or during a particular period of time for a specified price.
2. Futures: They are obligations to buy a particular security or a bundle of securities at a particular time for a stated price.
3.Credit default swaps (CDS): These are insurance contracts to protect lenders against credit defaults.Essentially the lender pays an insurance premium to the issuer of the CDS,who will purchase the asset in the event of a default.
D.Mutual fund
A mutual fund holds a portfolio of securities,usually in line with a stated policy and objective.Mutual funds have two variants: open-end funds and closed-end funds.Open-end fund shares are purchased (and sold)directly from (and to)the mutual fund.They are purchased (and sold)at the value of the net assets standing behind each share.Closed-end funds sell at predetermined number of shares in the fund.They then take the proceeds (minus costs)from the sale of fund shares,and invest in stocks or stocks and bonds.The shares of a closed-end mutual fund can sell at a discount or a premium to their net asset value.

List and Discuss the Characteristics of Various Types of Financial

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