FINANCIAL SERVICES: SECTOR ESSENTIALS
THE FINANCIAL SERVICES ALPHABET Impress employers and colleagues alike with your familiarity of financial services terminology from A to Z.
Arbitrage The practice of making a profit from trading on two markets simultaneously. Such trades profit by exploiting price differences of similar financial instruments on different markets or in different forms. Example If the price of wheat in Indonesia is lower than in Singapore, buying in Indonesia and simultaneously selling in Singapore will allow you to earn in the difference. In a financial context, if the stock of company X is traded at $10 on the Singapore Stock Exchange (SGE) while it is simultaneously trading on the Indonesian Stock Exchange (IDX) for $10.50, a trader could exploit this arbitrage by buying the stock on the SGE and immediately selling the same shares on the IDX.
Bear market If you’ve heard of the banking term “bear”, you can most likely guess what a bear market is. A bear market is any market where securities prices exhibit a declining trend for a prolonged period of time. Since bears attack by clawing down, this term is associated with a falling market. Example The recession following the great Wall Street stock market crash in 1929 can be referred to as a bearish market. With investors struggling to get out of the market by selling their stocks, the market incurred huge losses which led to a sustained decline in the economy, known as the Great Depression.
Coupon No, it’s not the coupon you redeem. Instead, this coupon refers to the annual interest rate due on a debt product, such as a bond or a loan. You wouldn’t be quite as happy to receive this kind of coupon! Example A $1,000 bond with a coupon of five per cent pays $50 a year. Quite often, these interest payments are semi-annual, whereby the investor receives $25 twice a year.
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