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A plea for help

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Post time01:02 24-06-2009

Hi, I am hoping that someone here can help a recent Cambridge grad with a few questions. I have recently needed to acquire a great deal of knowledge about ‘the world of finance’. A month ago I had no idea what the difference between equity and debt was, but since then I have made full use of some excellent resources on the internet to try and teach me what I need to know. I give you this potted history to explain that I am not asking these questions because I’m simply too lazy to look up the answers! Rather it is because I have attempted to look them up and the resources have always danced around the edges of explanation, or assumed prior (probably rather basic) knowledge. Understanding these issues is a matter of urgency to me and I would be very grateful if one, hopefully several, of you could come to my assistance. I have hundreds and hundreds of questions but have condensed them so as not to give everyone a headache. If anyone would be interested in doing a little charity work and maybe answering a few more…? my email address is Sorry to be burden on anyone’s time. The questions are as follows:


1. Does anybody have a comprehensive list of where all different types of securities are traded? For example, are stocks, bonds, options, futures and currencies ever traded on the same exchange?


2. Are securities ever listed on two types of exchange at the same time? E.g. could one security be listed on the London Stock Exchange and the London International Finance Futures and Options Exchange?


3. Which exchanges are electronic (or ‘over-the-counter’) and which have a physical, tangible trading floor?


4. *I am confused about the different levels of interest rate that prevail at any one time, and the forces responsible for setting/affecting them. Is the following correct?


*There are four interest rates:

A. The rate at which central banks lend to other ordinary banks (known as the discount rate in the US)

B. The rate at which banks lend to one another (known as the fed funds rate in the US and LIBOR in the UK. Controlled by the purchase and sale of government bonds to banks)

C. The rate at which banks then lend to businesses/customers. (affected by the above interest rates plus the likelihood of businesses/customers to repay etc.)

D. The rate at which businesses lend to each other. (affected by the above interest rates plus the likelihood of repayment from each other etc.)


*When we hear pronouncements like ‘The Bank of England has slashed interest rates to 0.5%’ or ‘The ECB has slashed interest rates to 1.5%’, are they referring to ‘interest rate A’, the rate at which central banks lend to other ordinary banks?


*Through this lower interest rate are central banks attempting to encourage banks to borrow more from them- increasing the likelihood of these banks lending more out?


*And does this operate alongside the policy of buying bonds from ordinary banks, giving them more funds to lend out?


*Is there an average interest rate somewhere out there that represents all the interest rates that banks and businesses are charging each other worldwide/in different countries?


5. In over-the-counter trades, do brokers simply call each other up, make a deal and then inform NASDAQ/the relevant exchange?


6. What is the exact function of clearing houses such as Euroclear, Clearstream, DTC, LCN. Clearnet, Icap and what type of securities do they handle?


7. On what dates do business years begin and end? On what dates do the official quarters begin and end?


8. Something very basic: is the amount paid in dividends to shareholders fixed to say, 3% of the year’s profit- no matter how good or bad this profit? Is the amount paid a standardised percentage of profits? Or can the company just adjust its dividend at will?


9. Is it the case that T-bill auctions are held weekly for 3 and 6 month bills, but monthly for 9? How frequently do Britain and other countries hold sovereign debt auctions?


10. Futures contracts: can either party cancel, ‘close out’ of the contract at any time? Or does it have to be on a pre-ordained, highly specific date? If the former (as some imply) then why would the half currently making a loss agree to let the half currently making a gain go ahead and ‘close out’?