Chapter 02 – Asset Classes and Financial Instruments
CHAPTER TWO
ASSET CLASSES AND FINANCIAL INSTRUMENTS
CHAPTER OVERVIEW
This chapter describes the financial instruments traded in the primary and secondary markets. The broad
LEARNING OBJECTIVES
Upon completion of this chapter the student should have a thorough understanding of the various
PRESENTATION OF MATERIAL
2.1 The Money Market
The major money market instruments are presented here. In describing the individual instruments, it is
2.2 The Bond Market
Debt instruments are issued by both public and private entities. The Treasury and Agency issues have the
direct or implied guaranty of the federal government. Since state and local entities issue municipal bonds,
performance on these bonds does not have the same degree of safety. Since the interest income on
municipal bonds is not subject to federal taxes, the taxable equivalent yield is used for comparison.
Chapter 02 – Asset Classes and Financial Instruments
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2.3. Equity Securities
Two key points are relevant in the discussion of equity instruments. First, it should be emphasized that
2.4 Stock and Bond Market Indexes
The uses of stock indexes provide a good starting point for the discussion of the structure and
construction of stock indexes. Motivational factors include tracking average returns, making comparisons
of managers’ performance to average performance and, increasingly, indexes are used as a base for
2.5 Derivative Markets
Basic positions and terms for options and futures are described here. The basic positions and terms are