Theory

Swap
A Swap is simply an agreement between two parties to exchange payments over some period of
time
Interest rate Swap
pay floating/Receive fixed Pay fixed/receive floating
Two counter parties agree to exchange int. pmts. Based upon a notional amount of principal
Inverse Floaters
A bond or other type of debt whose coupon rate has an inverse relationship to a
benchmark rate. An inverse floater adjusts its coupon payment as the interest
rate changes. When the interest rate goes up the coupon payment rate will go
down because the interest rate is deducted from the coupon payment.
Structured notes and CMOs
Is a debt security with one or more special features, such as making payments based on an
underlying index. For instance, a structured note is a bond which, instead of paying the
typical interest payments, will use an index, such as the S&P 500,
to determine the amount of the interest payment.
List the criteria considered important in choosing an investment bank
Industry Experience
Size of Transaction
Team
Fee Structure
Explain the key differences between a private placement and a public offering
In a private placement, you sell equity shares of your business to a select group of investors.
The most common type of public offering is an initial public offering, in which equity shares are offered to
public investors for the first time
Differentiate between a pure commercial bank and a pure investment bank
Commercial bank provide other various facilities such as deposit , atm . internet banking
It provide loan which is considered as an asset in their balance sheet
Investment bank acts as an intermediary and invest the money of its investors to assure the gain on it
Identify the major differences between the forward contracts and the
futures contracts
A futures contract is a standardized contract that is traded on an exchange and is marked to
market daily, but where physical delivery of the underlying asset usually does not occur.
Under a forward contract, one party agrees to buy a commodity at a specified price and a
specific future date and the other party agrees to make the sale. Delivery does occur.

State the industries which are most sensitive to the business cycles
Cyclical industries include those that produce durable goods such as raw
materials and heavy equipment.
What does an inverted yield curve suggest about an economy
An interest rate environment in which long-term debt instruments have a lower
yield than short-term debt instruments of the same credit quality. This type of
yield curve is the rarest of the three main curve types and is considered to be a
predictor of economic recession.





Explain the concept of earnings quality
The degree to which earnings are attributed to aspects of the company's business, as
opposed to external forces. If a company has a change in earnings derived from
a decrease in production costs or an increase in sales, they are said to have a high quality
of earnings. If a company's earnings are attributed to outside sources such as inflation, this
is seen as low quality of earnings.
Why is common stock referred to as a residual claimant security
In the events of a firms liquidation, common stockholders cannot be paid until claims of employees,
the government, short-term creditors, bondholders, and preferred stockholders are satisfied. After
these prior claims are paid, the stockholders are entitled to what is left over, the residual.
Why is the call provision on a bond generally an advantage to the
bondissuer
that grants the issuer the right to buy back all or part of an issue prior to the maturity date. Typically,
call options on bonds will be exercised by the issuer when interest rates have fallen. A bond call will
almost always favor the issuer over the investor.
What is meant by convexity? Why should bond investors consider it?
In the bond world, convexity refers to the shape of the yield curve and how sensitive bond prices
are to changes in interest rates.
convexity helps investors anticipate whatwill happen to the price of a
particular bond if market interest rates change.