 Financial Instruments © Copyright 2012 MUTIS. All rights reserved 2012.

 The information and material provided at MUTIS is for educational purposes only and does not constitute financial product advice. The views of the speakers are their own and not those of MUTIS. MUTIS does not represent or warrant that the information or material is complete or accurate. You should consider obtaining independent advice before making any financial decisions. If you are seeking advice (including a recommendation or opinion) about a financial product you should consult a certified financial advisor. To the extent permitted by law, no responsibility for any loss arising in any way (including by way of negligence) from anyone acting or refraining from acting as a result of the information or material is accepted by MUTIS © Copyright 2012 MUTIS. All rights reserved Disclaimer

 Your Subject  Equities  Bonds  Futures  Options © Copyright 2012 MUTIS. All rights reserved 2012.

 Your Subject  Equity is a claim to a share in a company’s ownership  2 types of shares:  Common share – voting rights, dividend not guaranteed  Preference share - fixed dividend, no voting rights © Copyright 2012 MUTIS. All rights reserved 2012.

 Your Subject  Primary market – new equities are issued(flotation)  IPO – Initial Public Offering  Secondary market – trading of existing shares  Investment opportunities, liquidity  Examples of stock exchanges? © Copyright 2012 MUTIS. All rights reserved 2012.

 Your Subject  Capitalizing profit from equities trading  Stock price appreciation  Dividend payout © Copyright 2012 MUTIS. All rights reserved 2012.

 Your Subject  Stock valuation methods  Discounted cash flow (DCF) model  Capital Asset Pricing Model (CAPM) © Copyright 2012 MUTIS. All rights reserved 2012.

 Your Subject  Bond is debt instrument where the holder receives coupon payments(fixed) at regular intervals, and at the maturity the principal(face value) amount is repaid.  -central government (treasury)  -Local government (municipal)  -Companies (corporate) © Copyright 2012 MUTIS. All rights reserved 2012.

 Your Subject  Convertible bonds – have the option to be converted into equities at a future date.  Eurobonds – is denominated in a currency not native to the country where it is issued.  Junk bonds – high risk bonds rated ‘junk’ by credit rating agencies. © Copyright 2012 MUTIS. All rights reserved 2012.

 Your Subject  Yield to maturity is the discount rate used to discount the bond to its current price.  YTM represents the risk investors are willing to take to invest in a bond.  There is an inversely proportional relationship between YTM and bond price.  The higher the YTM the lower the bond price vice versa. © Copyright 2012 MUTIS. All rights reserved 2012.

 Your Subject  A futures contract is a financial contract obligating the buyer to purchase(or seller to sell) a financial instrument at a predetermined future date and price.  Underlying assets: Indices, stocks, currencies, debt, commodities © Copyright 2012 MUTIS. All rights reserved 2012.

 Your Subject  use: - Speculation – hedging - arbitrage  Speculators try to predict the price movement, take a position accordingly in order to make profit from the price movement. Eg. Buy S&P 500 index futures believing the market will go up. © Copyright 2012 MUTIS. All rights reserved 2012.

 Your Subject  An option grants the holder to right to buy or sell the underlying asset at a pre-specified price within a specified date.  A call option grants the holder the right to buy the underlying asset.  A put option grants the holder the right to sell the underlying asset. © Copyright 2012 MUTIS. All rights reserved 2012.

 Your Subject  Options are mainly used for hedging purposes  Hedging – offsetting your position’s risk by taking the exact opposite position.  Example – A short position on stock X can be offset by purchasing call options of that stock hedging the possibility of the stock price moving upwards. © Copyright 2012 MUTIS. All rights reserved 2012.

 Your Subject  Exchange-Traded Fund(ETF) - A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. © Copyright 2012 MUTIS. All rights reserved 2012.

 Your Subject Any questions? (please say no) © Copyright 2012 MUTIS. All rights reserved 2012.