Question

Please describe what are the basic characteristics and types of bonds, stock and derivatives

Answer 1

Derivatives:
Derivatives are instruments to manage financial risks. Since risk is an inherent part of any investment, financial markets devised derivatives as their own version of managing financial risk. Derivatives are structured as contracts and derive their returns from other financial instruments.
Derivatives are designed as contracts signifying an agreement between two different parties, where both are expected to do something for each other. It could be as simple as one party paying some money to the other and in return, receiving coverage against future financial losses. There also could be a scenario where no money payment is involved up front. In such cases, both the parties agree to do something for each other at a later date. Derivative contracts also have a limited and defined life. Every derivative commences on a certain date and expires on a later date. Generally, the payoff from a certain derivative contract is calculated and/or is made on the termination date, although this can differ in some cases.
Types of Derivatives:
-   Exchange Traded (ET) Contract.
-   Over The Counter (OTC) Contract
-   Forward Commitments.
-   Options Contracts
-   Swaps

Bonds:
Bonds are issued by organizations generally for a period of more than one year to raise money by borrowing.
Organizations in order to raise capital issue bond to investors which is nothing but a financial contract, where the organization promises to pay the principal amount and interest (in the form of coupons) to the holder of the bond after a certain date. (Also called maturity date).Some Bonds do not pay interest to the investors, however it is mandatory for the issuers to pay the principal amount to the investors.
A bond is generally a form of debt which the investors pay to the issuers for a defined time frame. In a layman’s language, bond holders offer credit to the company issuing the bond. Bonds generally have a fixed maturity date. All bonds repay the principal amount after the maturity date; however some bonds do pay the interest along with the principal to the bond holders.
Types of Bonds:
-   Fixed Rate Bonds
-   Floating Rate Bonds
-   Zero Interest Rate Bonds
-   Inflation Linked Bonds
-   Perpetual Bonds
-   Subordinated Bonds
-   Bearer Bonds.

Stocks:
Stock, sometimes referred as share, security or equity, is ownership in part of a company. For every stock you own in a company, you own a small piece of the office furniture, company cars and even that lunch the boss paid for with the company credit card. More importantly, you are entitled to a portion of the company's profits and any voting rights attached to the stock. With some companies, the profits are typically paid out in dividends.
A stock exchange is an organized body with a management committee and rules that control how the exchange works. Public companies are a key component of stock markets. Public companies are those that have stock that is bought and sold on a public stock exchange. Before a stock can be sold, it must first be listed on the exchange. Trading on a stock exchange is restricted to stock brokers and traders who are members of the exchange. Individual investors must have a brokerage account in order to participate in trading. Initial public offerings (IPOs) are the mechanism used to introduce a company’s stock for public sale on a stock exchange. An IPO is said to take place in the primary market, with follow-on trading between investors occurring in the secondary market. The price of a company’s stock reflects supply and demand for the stock itself and is often independent of the company’s success.
Types of Stock:
-   Growth stocks
-   Dividend or yield stocks
-   New issues
-   Defensive stocks