Asset Classes and Financial Instruments,’Investments’

Financial markets are traditionally segmented into money markets and capital markets.

Money market funds are easily accessible to small investors.

2.1 The Money Market
- Treasury bills : The difference between the purchase price and ultimate maturity value constitutes the investor’s earnings.
- Commercial Paper : Well-known companies often issue their short-term unsecured debt notes rather than borrow directly from banks. Commercial paper is considered to be a fairly safe asset, because a firm’s condition presumably can be monitored and predicted over a term as 1 month.
- Federal Funds : Banks maintain deposits of their own at a Federal Reserve bank
- Money Market Fund (MMF) : Mutual funds that invest in the short-term debt instruments that comprise the money market.
- The LIBOR market : The London Interbank Offered Rate

2.2 The Bond Market
- Treasury Notes and Bonds
- TIPS : Treasury Inflation Protected Securities/ Building an investment portfolio is at the least risky end of the spectrum, Hence referring to an index of safer country.
- MBS (Mortgage-Backed Securities) : Either an ownership claim in a pool of mortgages or an obligation that is secured by such a pool.

2.3 Equity Securities
- Common Stock as Ownership shares : Represent ownership shares in a corporation
- Characteristics of Common Stock : Residual claim and Limited liability
 > Residual Claim means that stockholders are the last in line of all those who have a claim on the assets and income of the corporation.
 > Limited liability means that the most shareholders can lose in the event of failure corporation is their original investment.
- Preferred Stock : Promise to pay to its holder a fixed amount of income each year. Preferred stock payments are treated as dividends rather than interest, they are not tax-deductible expenses for the firm.
- Depository Receipts : Markets that represent ownership  in shares of a foreign company
 Ex) ADR,GDR

2.4 Stock and Bond Market Indexes
- Dow Jones Averages
 >  Originally, the DJIA was calculated as the simple average price of the stocks included in the index.
 > the Dow corresponds to a portfolio that holds one share of each component stock, the investment in each company in that portfolio is proportional to the company’s share price. -> Price weighted average.