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    Discussion Notes and Extra Learning

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    Discussion Notes and Extra Learning

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    lllt
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    Discussion Notes and Extra Learning

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    lllt

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    Class discussion and extra learning Fall 2024

    Week 1-2

    Hedge funds
    • Hedge funds are pool of private funds and private investment vehicles that manages
    por�olios of public and private securi�es and deriva�ve instruments. They can invest
    both long and short and they can apply leverage and use a variety of risky strategies.

    • It is an aggressively managed por�olio of investments across asset classes and regions


    that is leveraged, takes long and short posi�ons, and/or uses deriva�ves.

    • It has a goal of genera�ng high returns, either in an absolute sense or over a specified
    market benchmark, and it has few, if any, investment restric�ons.

    • It is set up as a private investment partnership open to a limited number of investors


    willing and able to make a large ini�al investment.

    • Hedge Funds are par�ally not regulated

    • Only Accredited investors can invest in Hedge Funds, to ensure the investor is able to
    take on the risk of inves�ng in these unregulated securi�es and may loose all his money.

    Organized exchange Vs OTC:


    1. Organized Exchange: is a regulated marketplace where financial instruments such as
    stocks, bonds, and deriva�ves are bought and sold. Examples include the New York
    Stock Exchange (NYSE), NASDAQ, and the Chicago Mercan�le Exchange (CME).
    • Regula�on: Exchanges are highly regulated by government agencies (e.g., the
    SEC in the United States, FRA in Egypt) to ensure transparency, fairness, and
    investor protec�on.
    • Standardiza�on: Products traded on exchanges are standardized in terms of
    contract size, expira�on dates, and other key features. This standardiza�on
    enhances liquidity.
    • Transparency: Prices and trade informa�on are publicly available, and trades
    are conducted in a transparent environment
    • Clearing and Setlement: It provides a central clearinghouse that guarantees
    the trades, reducing counterparty risk.
    2. Over-the-Counter (OTC): is a decentralized market where financial instruments are
    traded directly between two par�es, without a central exchange or intermediary. OTC
    trading is common for bonds, currencies, deriva�ves, and certain types of equity
    (penny stocks).
    • Regula�on: OTC markets are less regulated compared to organized exchanges,
    leading to greater flexibility but also higher risks.
    • Customiza�on: Contracts in OTC markets are o�en customized to meet the
    specific needs of the par�es involved. This allows for tailored terms regarding
    size, dura�on, and other contract specifics.
    • Privacy: dealers in the OTC market are o�en private and not disclosed to the
    public
    Class discussion and extra learning Fall 2024
    Week 1-2

    • Counterparty Risk: Since there’s no central clearinghouse, the risk that the
    counterparty might default is higher. Par�es rely on each other's
    creditworthiness.

    • Liquidity: Liquidity can vary widely depending on the specific instrument and the
    counterpar�es involved. Less liquid than an exchange.

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