Financial instrument representing:
• Stocks
o Ownership in publicly traded corporation
• Bonds
o Creditor relationship with governmental body/corporation
• Options
o Rights to ownership
It is a financial instrument that is;
• Fungible
• Negotiable
• Represents financial value
Company/entity issuing security = issuer
• i.e.
• Issuer of bond may be;
o Government
Raising funds for particular project
Investors of securities may be;
• Retail investors;
o Buy/sell securities on own behalf
o Not for organizations
• Wholesale investors;
o Financial institutions acting on;
Behalf of clients
Their own account
• Institutional investors =
o Investment banks
o Pension funds
o Managed funds
o Insurance companies
Securities typically divided into;
• Debt securities and equities
Debt security;
• Money that is borrowed and must be repaid
o With terms defining;
Borrowed amount
Interest rate
Maturity/renewal date
• Includes;
o Bonds
o Certificates of deposit (CDs)
o Preferred stock and collateralized securities (CDOs CMOs)
• Holders receive;
o Interest and repayment of principal capital
Equities represent;
• Ownership interests held by shareholders in a corporation
• i.e. stock
• Holders are able to;
o Profit from capital gains
o i.e. dividends, stock increase
Fungible
• Goods/Securities or instruments
o That are;
Equivalent
o And therefore
Interchangeable
• Goods consisting of many identical parts
o That can be easily replaced
By other identical goods
• If goods sold by weight/number
o Good sign that they are fungible
• Commodities, common s hares, dollar bills = fungibles
• Fungibles of listed options
o Makes it possible for
Buyers + sellers to close positions
• By taking offsetting positions
• i.e.
• buying a long call option
o close out position by selling (writing)
put option with;
• same underlying, expiration date & strike price