Forward market is an over the counter market.lets understand what is OTC market?Over the counter market Over the counter market is an important alternative to exchange and measured in term of total volume and trading.It is a telephone and computer linked network of dealers who do not physically meet.Trades are done between a financial institution and one of its corporate clients.Trades in the over-the-counter market are typically much larger than trade in the exchange traded market .
Now understand what is forward contracts?
A forward contract is particularly simple derivative.It is an agreement to buy or sell an asset at a certain future time for certain price.
“Forward contract is traded in the over-the-counter market.Usually between two financial institution and one of its clients.” forward contract on foreign exchange are very popular most large bank have “forward desk” within their foreign exchange trading room.
Forward in the debt market.
The forward contracts that are found in the debt market are.
1) Forward Interest rate contracts:-Forward interest rate for a future period of time implied by the rates prevailing in the market.Forward interest rates are the rats of interest implied by current zero rates for periods of time in the future.
2)Repurchase agreements(Repo rate):-Repurchase agreement a contract where an investment dealer who owns securities agrees to sell them to another company now and buy them back letter at slightly higher price.
The difference between the price at which the securities are sold and the price at which they are repurchase is the interest it earns.The interest rate is referred to as the repo rate.
Type of repurchase agreement .
1) Open repurchase agreement :-Open repurchase agreement is where there no agreed termination date.Both parties have the option to terminate the agreement without notice .Rate of these agreement is usually a floating rate.
2)Fixed term repurchase agreement-Where the rate and the term are agreed at the outset of the agreement.The term of repos usually ranging from a day to a few months.
3)Forward rate agreement:-A forward rate agreement is an over-the-counter agreement that a certain interest rate will apply to a certain principal during a specified future period of time. FRA is agreement between two parties based on a notional amount for an contract period.This is a contract where interest rate is fixed for future.FRA hedge the interest rate risk.its consist of one to six month.
Financial services is an intermediary activity involved in security the saving of the public fund and facilitating them to be available to the needy for investment.The presence of well organized financial system is highly imperative for the development of any country.Financial system is the nerve point which are accelerate the economic growth.
Role of financial services
Neutralizing the risk
Enhancing the return
Type of financial service
Saving oriented service
Investment related service
Income related service
Classification of financial services
Financial services offered not only lending and deposit money but also serve many more thing like easy banking,investment.This era of digitalization.Technology made services more easy and advanced like mobile banking and e-wallets.
Fund based activities
Dealing with security market services
Underwriting of share debenture and bond
Participating in new issue market new issue market
Dealing in foreign exchange market
Non-fund based activities
Financial institution provide services on fee basis that is called non-fund based activity.Financial product are taken by clients only when they are suitably supported with the services.Capital market consist of term lending institution and investing institution which mainly provide long term fund.Money market consist of commercial bank,co-operative bank.Financial services industry include all kind of organization which facilitate services for both individuals and corporate customer.
The security analyst always faced with the problem of buy hold or sell decision.He/she must evaluate the past performance of the security for forecasting the future performance.
Valuation of preference share and bond is straight forward because return generally constant and certain.Equity valuation is different because return on equity is uncertain and it can change time to time.therefore analysis and forecasting of equity is crucial.Stock market is not totally efficient.
Active Equity investment style:
Active equity management has two styles top-down and bottom-up.In top-down equity management style begins with overall economic environment forecasting near term outlook and make a general asset allocation decision.Top-down managers analyses the stock market is an attempt to identify economic sector after identifying attractive and unattractive sectors and industries top-down managers finally select a portfolio of individual stock.
Bottom-up equity management style:
In bottom-up styles managers focuses analysis of individual security instead economic and environmental analysis using financial analyst or computer screening bottom-up managers analyses company performance ratio analysis,price earning ratio other financial ratio,management efficiency.