Business Analyst finance domain interview Questions

How are the three terms, pre-qualification, pre-approval & final loan approval differs from each other? The first process called pre-qualification involves the assessment of the total mortgage you can offer to the lender and this is determined by the income-proof provided by you and your credit report. The verification of your employment and accounts information is conducted in the next process called pre-approval. In this very process your mortgage capacity is approved after estimating the market value of the property you are interested in. The last process, known as the final loan approval, marks the completion of the loan approval with all necessary documents and other formalities including contingency plan been finalized by the lender.

How many types of first-time buyer programs are there? You can confirm about the different buyer programs available to you through your agent. But always remember that buyer programs are mostly there at the level of your local community, state or province, rather than at the level of the nation. This is because the buyer programs are frequently created and operated upon at the local level.

How could I know that which one is the best of the number of different mortgage plans? To choose the best mortgage plan for yourself youll have to do some research. This research should include from a local bank having a mortgage program to the brokers that have a wide range of lenders to offer. Other than that you should also visit some sources online, like LendingTree, where you will get information about the lenders from across the U.S. You can also have three lenders on offer from a single loan request form that are vying to give you the loan. Is the IRA retirement fund is accepted as the down payment for a house? If its your first time to buy a house then you are most welcome to utilize your IRA retirement funds. Moreover, The IRS stipulates that husband & wife can separately utilize up to $10,000 as the qualified acquisition costs that is also penalty-free, provided each of them is buying the house for the first time. The qualified acquisition costs is nothing but the costs of having a house built, rebuilt or bought, including other financial transactions, like closing and settlement costs.

First time homebuyer: A person having no claim on the main home at least for 2 years, after the end of which he or she owns the main home (his or her spouse) to which these conditions applies, is considered as the first-time buyer. Am I liable to pay points? When you compare the different mortgages, you must take into notice the number of points, that is your up-front interest, together with your rate of interest. Are there any options for the individuals having bad credit record? Yes, there are! Many lenders are particularly concerned with this kind of clients only. Many of the buyers missed the opportunity of having a better deal stroked because of their sheer apathy towards their credit report. It is not always that your credit report is as worse as you think it is. You can get a fair deal once you sit down and re-evaluate your credit report and correct the errors if any along with handling your account better. Here you are provided with a scheme of free credit report together with free Credit Check Monitoring Service for 30 consecutive days. If you are also facing the problem of a poor credit report, but want a great deal on your mortgage then you can rely on the service of the LendingTree.

What the terms front ratio & back ratio indicates to, as I frequently encounter them when looking for a mortgage program? Before you are awarded a loan it is determined that of what scale a house you can afford and it is assessed through your present income. This process involves these two terms, front & back ratio. Front Ratio: It is the ratio of all the mortgage payments (PITI) that includes your taxes, principal amount, insurance, and condominium to your GROSS income. It should be under 28% mark, but is not compulsory. For an instance, if your income is $37000/month and your total mortgage payment is $973, and then your front ratio will end up being 26%. Back Ratio: It is the ratio of the sum of your total mortgage payment, credit card payments, car payments or any other kind of loan payments to your GROSS income. Its limit is up to 36%. For an instance, if your income is $37000month, your mortgage payment is $973, two credit card payment is $59 and & $43, car payment is $212 that adds up to $1287, and then your back ratio would be 35%. What should a buyer do in case he doesnt have any money for the down payment and for the closing costs? There are a few mortgage programs that allow the individuals having low or no money to buy a home. But still, you are supposed to deposit funds for the down payment or the closing cost or in some cases both. This is because the lenders expect you to be actively participating in the program, as a substantial amount of your income would go into the mortgage payment. In some

circumstances it has been seen that the seller itself bears some of the closing costs (normally ranges between 3%-5%) or the cost of down payment is lowered (up to 5%). But it is very hard to find a case of no down payment at all. Although, having a good credit report and money for the closing costs, enables an individual to benefit in some ways in the area of conventional loan. What is a fixed rate loan? It is the interest rate that never varies until the loan gets repaid and the monthly installments remain the same. It also means that your rate of interest and the installments will remain steady irrespective of the market rates. This way, once your home equity loan gets closed with Citibank, you will be entitled to get all your money in a single payment.

What is Home equity line of credit (HELOC)?

It is a kind of credit that enables a borrower to get the maximum amount from its lender within a specified time period. This type of credit can be used again, once the total amount has been paid back and the borrower can use its principal amount again. With the use HELOC, a borrower can get the full benefits on the accumulated equity. This line of credit is available through checks and or some other means (e.g., Citibank Financial Center, ATM or through online and others). You can understand the value of HELOC by looking at its uses in different areas that include educational needs, renovation of home, automobile purchases and many others. Some of the properties of HELOC include: It is very much alike to the credit cards, but its limit is determined through your homeequity and your credit report and is normally of lower rate than the credit cards. You can always utilize the power of the Line of Credit, thus making it very useful for you and your family. In case of HELOC, the rate of interest can vary according to the market trend as it is associated with the Prime Rate and is mostly lower than the fixed rate that can be seen in a particular section of the Wall Street Journal called Money Rates. You have the power to pay your interest to a period that can span up to 10 years or can pay the whole balance at once. Citibank provides you with a facility to get your funds through checks.

Debt to income lien holder

What is Debt-to-income-ratio? It is the ratio of your debt payments per month (including mortgage debt) to your gross income per month. On which criteria the sanctioning of a loan depends? There are three criteria for a mortgage program sanctioning: LTV, Debt ratio & FICO score. What is Lien and Lien Holder? Lien is the legal claim on a property until the debt on that property is repaid. Lien Holder can be an individual or an institution that has a lien on someones other property.

Everything That You Should Know About Mutual Fund

Mutual funds are the combined money of a group of interested persons that have put their money as an investment for a particular management company. And, as usual, mutual funds also come with its own kind of commissions and fees. There are mainly two types of mutual funds based on the way a mutual fund company collects money. The money required for a load mutual fund includes the total price of the shares along with the sales fee. Generally, sales fee hovers around 4%-8% of the total invested amount. Take an example: If you are opting for a load mutual fund of 5% and your investment is $1000, then your actual investment will be $950 and the rest $50 is taken as commission. Again the load mutual fund could be divided into two types: (1) back end loads fee is charged at the time withdrawal of the funds; (2) front end loads: fee is charged at the time of investment. But you can also invest in shares without paying any kind of commissions in the form of no-load fund. This type of investment is normally recommended, as it doesnt involve any kind of sales fee. But you should always avoid withdrawing the funds early as it encompasses a penalty fee (normally before the completion of 5 years) in a no-load fund investment. But you can reap its benefit better if you are a going to invest for a longer duration.

What are stocks and trading

Trading Of Stocks
Exchanges are the places where both the sellers and the buyers transact with each other. Exchanges can be of two types: physical and virtual. Physical exchanges have some trading floors for the transactions, while the virtual exchanges make use of computers and Internet for the trading. It is most likely that you have seen the actions of the traders going out in the physical exchanges on TV or through some other sources. Stock market is a place that provides all of the basic requirements that one needs to trade in a secure environment. It would have been almost impossible to trade or transact without compromising with your security and privacy, if this kind of exchanges were not there. So, the exchanges could be taken as a wholesale market that caters to the need of every buyers and sellers. Now proceeding further to understand the stock market one must know the importance of the two types of market: Primary & Secondary. Primary market is involved in the creation of securities through IPO and secondary market deals with the trading of those securities. This very secondary market is construed as the stock market, where the investors trade their securities without any direct engagement of the issuing company.

Newyork stock exchange

Importance of The New York Stock Exchange New York Stock Exchange (NYSE) is the most prominent of all among the trading exchanges. The birth of "Big Board" occurred 200 years back at the table, where some 24 New York City stockbrokers and merchants had signed the Buttonwood Agreement. Almost all of the Americas biggest companies invest in the market through NYSE only and it contains all big name companies like Gillette, McDonalds, Coca-Cola, General Electric, Wal-mart, Citigroup, etc. The NYSE is also a listed exchange, which means that all of the trading occurs through physical means between the traders on a physical trading floor. There is a place on the trading floor called trading post, where the brokers trade their stocks and those stocks comes into the hand of brokers via brokerage firms that are members of the exchange. There is a personnel at the trading post called specialist that determines the prices through an auction method and matches the compatible sellers & buyers. The current price of a stock is the highest possible value a buyer offers and the lowest possible value a seller offers for its stocks. After successful completion of all these steps the brokerage firm is apprised of the trading details and the brokerage firm in turn

provide those details to the concerned investor. Despite referred as a physical exchange, the NYSE makes use of the vast capability of computers as well. The Nasdaq The other kind of exchange called virtual exchange or more often over-the-counter (OTC) market is devoid of any kind of physical trading floors or the floor brokers. Nasdaq is the same for the virtual exchange, what NYSE is for the physical exchange. All sorts of transaction and trading are achieved through a network of computers and telephones. Previously it became a custom for all the bigger companies to go for the NYSE, leaving behind other second-tier stocks to be listed on other exchanges. But the scenario has changed completely with the advent of latest technologies in the late 90s that made Nasdaq the primary choice for many larger technology companies that included Dell, Microsoft, Oracle and Intel. This change put the Nasdaq in the level of the NYSE. Here on Nasdaq, there are market markers for the stocks that are nothing but the brokerages as in the NYSE. Through these market markers the shares prices are regulated within a limit and bids are thrown continuously to create a potential market for those shares. Market markers can also find the compatible sellers & buyers, but most of the time they are involved in supplementing the requirements of the investors by creating the shares-inventory. We are not describing the whole process in detail, as the detail is available in our tutorial named "Electronic Trading and Market Makers."

What are different stock exchanges

Other Exchanges Earlier the American Stock Exchange (AMEX) was also a great competitor of the NYSE, but now its been displaced by the Nasdaq. But it is still the third biggest exchange of the U.S. market. It has been bought by the parent of nasdaq called the National Association of Securities Dealers (NASD) in 1998. Amex has now been the target source for small-cap stocks and their derivatives. Despite being the largest and most prominent hub of stock exchanges, the America is home for only a part of the total investments all around the world. London & Honk Kong represents the other two most significant markets for their respective stock exchanges. An over-the-counter market generally comprises small public undertakings that are not at par with those of finely regulated markets and includes Nasdaq and over-the-counter bulletin board (OTCBB). The investment in OTCBB should be carefully tracked; otherwise there is a high chance of losing your investment completely, as the OTCBB has no regulatory force at all. If you

are really learning something from this tutorial then you should certainly avoid investing in the OTCBB.

What are the changes that will effect with price change in stock market

What are the factors that affect the changes to the price of stocks? Due to the market force of supply & demand the change in the stock prices is of a daily phenomenon. If the ratio of demand to supply is higher, the stock prices go upwards. But when this ratio comes below the mark of one, the stock prices go downwards. Demand & supply are directly related to buying & selling respectively. It is quite easy to understand the concept of demand and supply. The thing that is somewhat more complex to understand is that why people prefer a particular stock to others. Different planning and strategies of different investors govern this preference to the stocks and it involves the favorable or unfavorable news concerned to the companies. Stock prices of an individual companies vary according to the understanding of investors for the companys worthiness. Never judge the value of a company through its stock price rather it should be judged through the market capitalization of the company. Market capitalization is calculated as the stock price multiplied with the shares outstanding. To understand it more clearly take an example: the company having stock price @ $50 and 5,000,000 shares outstanding ($50 x 5,000,000 = $250,000,000) has more value than the company having @ $100/share and 1,000,000 shares outstanding ($100 x 1,000,000 = $100,000,000). Besides, deciding the value of a company the stock prices are also used to assess the future growth of the company. Now the more a companys earning the greater is its value in the market. Earnings of a company show its profit and if there is no earning to show then obviously there is no profit or money to run the company. The earnings of public sector companies are reported in a year for four earning seasons, at which the Wall Street keeps its attention. The reporting of the earning has a very important value in deciding the future value of a company. The more a company shows its earnings the better its chance to be valued highly by the market analysts and the investors; and this analysis is based upon the future earning projections of the company decided by their current earning report. But the earning is not the sole reason behind the pricing of the stocks. There are other forces too that works towards deciding the stock prices. To understand it, we should go into the market during dot-com-bubble. That time many Internet companies mushroomed with their market capitalization worth millions of dollars and that without having any supportive earning to report. Most of these companies couldnt hold to their capitalization and been valued far lower than

expected from their capitalization. So its quite clear that there are other driving force too that are working towards determining the vale of stocks. Some of those forces include very strange terms like, Moving Average Convergence Divergence (MACD) and Chaikin Oscillator, while there are some more familiar terms too like, P/E ratio. So, why the stock prices keep changing? Its answer is not a an easy task to find out. There are people who believe that creating flowcharts with the help of past performances of the stocks, it is possible to determine the value of the stocks. Then, there are people who think that it is simply not possible to determine the value of stocks for sure. So, one can say that the thing that is known for certainty is the uncertainty of the stock prices. Points to be kept in mind for this subject are: The first thing having determining effect on to the stock price is supply & demand. While comparing the value of two companies the market capitalization (i.e., price * shares outstanding) should also be considered. In theory it is the companys earning through which investors assess the value of a company, but it is not completely true. Other common factors have also their roles to play, like expectations, sentiments, reliance of the investors towards the company.

There are several theories doing the rounds that claim to be most effective in determining the stock prices, but in reality not a single theory is capable enough to correctly predict the stock price.

How to buy a stock

How to buy a stock? As, it is explained about meaning of stocks and principles & forces of stock market, it is the time to know how to buy stocks? You dont have to scare from the chaos of the trading floors, as an investor you are not supposed to personally go to the trading floor. You can buy stocks from any of the two ways: Through Brokerage It is the most accepted way of buying stocks. There two types of brokerage to choose from: full service & discount service. The former type of brokerage takes all of the responsibilities of your

account, but their service charge is higher; the latter provides limited services to your account but is cheaper in comparison. There was a time when only full service brokerage was there that charged heavy service charges and were out of the reach of small investors. But, with the advent of Internet there came the flood of discounted brokerage as a relief for the small investors. Dividend Reinvestment Plans (DRIPs) and Direct Investment Plans (DIPs) These plans allow the investors to purchase their stocks directly from the stock releasing companies and drawing the stock prices to a lower level. So, if you plan to invest small sum of money at regular intervals, the DRIPS is a great plan to follow. With the purchase of stocks you get the right to vote for the companys policies and also have the limited ownership on the assets as well as on the earnings of the company. Why stocks are treated as equity, while the bonds as debt? This is because the bonds provide a guaranteed return on the investment with a higher claim too. On the other hand, shares doesnt always guarantee return on the investment and so is riskier, but the shares provide comparatively higher returns on the same amount of investment. This means that you get more money from the same amount of investment from stocks than from bonds, if your investment is in a profitable company, but you also have the risk to loose all of your money if your decision to choose a particular stock proves a mistake. There are mainly two kinds of stocks: common & preferred. Companies can form classes within their stocks at their will. So, always remember one thing that it is not too difficult to understand the stock tables or stock quotes, if you know what does mean a specific term there.

How many types of swaps are there?

Forward swap It is also known as delayed start swap, forward start swap or deferred start swap and is a kind of swap agreement that is often valued with two different and partial offsetting swaps and both the swaps starts immediately. But one of them ends on the date of the start of the other one known as forward swap. This swap is specially designed for the timing convenience of the investors. Total return swap it is the most widely used form of swap in physical commodities market or in case of equity market. It is a kind of swap agreement that allows one party to pay according to a fixed rate or according to a variable rate. But, the other party only pays according to the returns it gets from the underlying assets like loans, bonds, etc. and includes the generated income from and the capital gains of the underlying assts.

Currency swap it is the kind of swap with the help of which all of the principal amount as well as the interest on that amount of a particular currency can be swapped with another currency and it is free of any kind of exchange rules. Circus swap it also termed as currency coupon swap or cross-currency swap and includes the characteristics of both the currency swap as well as of the interest rate swap. Under this swap a loan of fixed rate of a particular currency can be replaced with a loan of floating rate of some other currency. Commodity swap this is a kind of swap under which all of the cash transactions are the result of the underlying commodity and hence called commodity swap. Through this swap an institution gets a fixed price from the commodity user and market price from the commodity producer. The financial institution in return facilitates the required needs of both the parties. Asset swap Under this swap agreement, only the floating or the fixed investments are swapped but not the fixed or floating interest rates and this swap is almost similar to the plain vanilla swap except the underlying swap contract. Interest rate swap it is the kind of swap agreement between two companies or banks to switch over a floating rate loan into a fixed rate loan or vice versa in different countries. The currencies into which the swap has taken place could be either same or different. Constant maturity swap it is the kind of swapping agreement under which a buyer has the right to set its own time duration for the received flows on a particular swap. It can of two different types termed as cross-currency swap or single currency swap. This swap allows the readjustment of a part of the interest rate periodically based on the fixed maturity rate of the market and it is a variant form of interest rate swap. But it cannot be readjusted with any floating reference index rate. Basic rate swap Generally, due to different rates of borrowing and lending, companies run the risk of interest rate, which is neutralized with the help of basic rate swap. It enables the two parties involved in the agreement to exchange the interest rates varying according to money markets. Variance swap It is a variant of the volatility swap and under this swap the linearity of variance go along with the payout, not with the volatility as in the case of volatility swap. This difference makes the payout as the one with higher rates, not the volatility. Overnight index swap it simply involves the swapping of a fixed interest rate to an overnight rate. Zero basic rate also known as Zebra swap, actual rate swap or perfect swap and is a swap agreement between a financial intermediary and a municipality. Under this swap agreement, the financial intermediary receives from the municipality a floating rate of interest and pays to the municipality a fixed rate of interest.

Roller coaster swap it is a kind of seasonal swap that gets created for meeting the periodical financial requirements of the counter-party and provides some liberty in terms of payment according to the periods set beforehand. So if a company is dealing in some commodity, which has its demand seasonally, then the company will surely go for a roller coaster swap. Airbag swap this swap gets created to counter the effects of fluctuating interest rates that puts a negative pressure on the investment. This counter effect is achieved through the adjustment of the notional value of the fluctuating interest rate by indexing the very part of the interest rate that is fluctuating to a constant maturity swap.

How many types of OPTIONS are there? There are mainly two types of OPTIONS called calls and puts. The former provides an authentication to an individual to make a purchase of some property within a given time frame and is very much similar to a stocks long position. Buyers invest in the calls with an expectation of a large raise in the value of stocks. But when it comes to put, the holder gets an authentication to sell some property or asset within a given time period and it is very much similar to a stocks short position. How many types of Bonds are there? Treasury bonds this bond is the most widely known and is issued by the U.S. government only with a starting value of $1000. Its maturity being longer than 10 years has a fixed interest rate and is marketable too. Municipal bonds this bond can be issued by municipality or the state or the country itself and its purpose is to provide debt security by financing the public expenditures. Corporate bonds this bond is issued by the corporations only and thus taxable. Normally it has a par value of $1000 and a maturity term, but can be traded freely at major exchanges. Zero coupon bonds it is named zero coupon bond because there no payment in terms of coupon is made rather an initial discount is offered at the par value. As an instance, a trading value of $600 could be possible for a zero coupon bond that has its par value at $1000 and maturity term of ten years. So, this zero coupon bonds would be worth of $1000 after the expiration of its maturity term.

What are bonds in finance

What is the way of pricing and trading of the bonds?

The price of a bond never remains constant on a given day, as it is true for any of the securities that are traded publicly. It is not necessary to hold a bond for its selling until its maturity rather it can be sold any time in a open market and this is the reason its price never remains static. There are several factors affecting the price of a bond, but the most influential of them all is present interest rates doing rounds in an economy. The other factors include: maturity term, face value, yield, coupon payment and the issuer. The price of the bonds falls as soon as the prevailing interest rate in the market rises, bringing up the yield of the older bonds and making then stand at the same price level to that of the newer bonds, with higher coupon. On the contrary, the price of the bonds raises as soon as the prevailing interest rate in the market falls, bringing down the yield of the older bonds and making them stand at the same price level to that of the newer bonds, with lower coupon. How the three terms bonds, bills & notes can be differentiated from each other? To understand the difference among the three terms first one should know the purpose and the similarity of the three. All of them are the means of lending your money to the U.S. government itself, in return of which you get some interests paid by the government. The U.S. government issues those three to raise the money for paying off to the maturing debts and for other financial needs. T-bills are traded at a discounted price from that of its face value and are issued for a short-term maturity (1 year or less). But theres no provision of any interest before the date of maturity. The interest of T-bills would be the difference of the purchase price from the face value paid at maturity. But if it were sold to someone else before its maturity then the interest would be the difference between the purchase price and the selling price. But the release of interest rate is semi-annually or half-yearly in case of treasury bonds and treasury notes. When it comes to the difference between notes and bonds, then it is their maturity term. Notes are issued with a maturity term of 2 to 10 years and the bonds with more than 10 years.

What are options in finance

How an option is dealt with? To understand it clearly, let us assume that there is a company Sanra and its stock price is $67 with a premium rate of $3.15 on 1st May for a July 70 call, so the expiration date would fall on to 3rd Friday of July with a strike value of $70. The overall value of the agreement would come to be $3.15 x 100 = $315. This is because stock option agreement or contract is to buy the shares 100 in numbers. But, the strike price to be of any value for the call option, the price of stock must become more than $70. Besides, as the contract represent the value of each share at $70;

the break-even value would come to be $73.15. Now, if the stock price comes to any price lower than the mark of $70 that is the strike price, the option would be of no value or in other words you are in loss. Now, if three weeks afterwards the stock price comes to be $78, then the option contract will also increase and would be worth of $8.25 x 100 = $825. You can calculate your profit as: ($8.25 - $3.15) x 100 = $510. So, you can see the money almost doubled in a span of three weeks. Now, you can also exercise your right to close your option by selling it off in the market and can collect your profit along with your principal. But if you realize that the prices would still rise, then you can wait for a few more days. But, if at the time of expiration the price comes to be $62, then the option contract would be worthless. To see all of the events in a summary, look at the table below:

DATE Stock Price Option Price Contract Value Paper Gain/ Loss

May 1st $67 $3.15 $315 $0

May 21st $78 $8.25 $825 $510

Expiry date $62 Worthless $0 -$315

What is a derivative how does it function? It is a kind of financial security that derives its price from one or more than one underlying assets. It is in itself nothing more than a contract between two or more than two parties. Its price is highly depends on the fluctuating value of the underlying assets. Some of the important underlying assets on which the price of derivative depends are: commodities, stocks, interest rates, bonds, currencies, etc. The institutional investors mostly use it for their increment in overall return.

Which are the most prominent fixed income instruments? The most prominent fixed income instruments include: notes, bonds and bills. What kind of work a broker dealer does?

Basically the two terms denote two separate individual or institution, but due to the functioning of several brokerage firms both as a dealer and as a broker has combined the two terms as broker dealer. If taken separately, a broker does all kinds of transactions on behalf of an investor. On the other hand, a dealer is one who deals with every details of his/her account himself/herself.

What is commercial bank and brokerage industry?

How does a commercial bank operate in a brokerage industry?

There are several functionalities of a commercial bank in a brokerage industry:

It helps the brokerage firms in dealing with their security inventories and providing margin loans to their clients, by financing the loans. It acts as a cashier for the securities of the U.S. government. It also provides custody to the financial institutions. It issues commercial papers and loans to make it easier of the availability of short-term credit for the trading market. It also takes part in the municipal bonds underwriting. It also functions as the creator of bankers acceptances to facilitate t he trade internationally.

Who is a market maker? Market makers, also known as Ax, are the one who throw bids continuously and quote the prices that ranges within the prescribed percentage spread of the shares and the market makers are obliged to make a market for the share within that spread. It depends on the volume of the stock, if the numbers of the market makers for that stock would be 4 or 40 or somewhere within them. Market makers also exert a large effect on the secondary market through accelerating the liquidity of stocks and in result growing the market on a long run. This is why; the market makers are also termed as the catalyst of the market.

The main function of a designated market maker is to make ready the buyers and the sellers for the sell orders and the purchase orders respectively. So, they are responsible for both the bid and the price quote to be maintained all the time and that also under a predefined spread. This function of a market maker creates a market for the stocks. Who is a specialist?

To perform all kinds of trading functions, the NYSE rely on an individual known as the specialist. All of the stocks in the NYSE are allocated to this specialist, who performs all kinds of buying and selling of those stocks through a particular place called the trading post. The agents, brokers or the floor traders, all of them gather at this trading post to know about the all of the bids and the ask prices for the securities. Then the current bids and the ask prices are told loudly to the floor traders and an execution of trading completes, when a bid and its ask order meets each other.

Many of the specialists are not only assigned the task of meeting the buyers and the sellers rather they also have to hold a substantial number of different shares in order to fill the gap, if any, between the buy and the sell orders. So, the traders are continuously holds more and more share until equilibrium reaches for the demand & supply. It is a common task for the specialists to hold shares. Besides, these regular tasks the specialists are also responsible for holding the order of a customer that has ordered a price that is higher than the lowest ask price or is lower than the stop order, which is the best bid price. Now that the specialists only execute order when he ensures that the ordered price has come at par with the stock price.

Another task for the specialists is to find out the fair price for each of the stocks, which are under their supervision, at the start of the trading day, under their guidance. Fair price of a stock is determined according to the current demand & supply of the concerned stock. The specialists has also the authority to delay the opening of a particular stock well after the opening of the NYSE at 9:30 a.m., until they find the fair price for that stock. So, its quite evident that a specialists works are very stressful and he/she hardly gets any leisure time in between.

It becomes the responsibility of the market makers to buy or to sell minimum 1000 securities at their quoted price, once they make that quotation. Afterwards, they can leave the market and then propose a new bid or the price, so that they can make some profit on those securities. Besides this task they are also involved in the facilitation of the liquidation for their clients. For this task they get a predetermined commission. They can also do the trading for a firm other than their own, just like a specialist. The market makers are federally bound to provide the best possible bids and ask prices to their clients for every transaction and it has the purpose of conducting a fair transaction for a twosided market. Without these regulations, the customers would have been the victims of the trading market.

All About bonds and bond types:

What is a Treasury bond? Treasury bonds involve no risk at all as the U.S. government itself issues them in a term of 30 years with a fixed interest rate calculated half-yearly. What is a corporate bond? There are times when a company needs a large capital for some kind of investment or expenditures, but are not able to support it through their own sources. Then the company issues bonds in the market for the public to buy them and these very bonds are called corporate bonds. What is a Euro bond? Some company that has no presence in the European market issues euro bonds, also known as the global bonds. This is why the, the currency in which the issuing company of this type of bonds deals in are different from the currency in which the Euro bonds are sold and bought. Mostly, the currency for trading Euro bonds is Euro. What is a municipal bond? Municipal bonds are those bonds that are issued by the local government or the state or the city itself, to raise funds to meet their special expenditures and some special projects. What is an emerging market bond? This is the kind of bond issued by the financial market that is still in the phase of development and is comparatively small in size. These markets are situated in the developing countries. What is an investment grade bond? These are the bonds that are considered safe to invest in with a high rating of bond, such as BBB or even higher. What are high yield bonds? There was a time when the high yield bonds were considered very risky. But now, it has earned its credibility among the investors as a solution for the non-investing companies to raise some capital in the market. Only those companies that are far from the credit rating guidelines of Fitch, S&P and Moody issue these bonds. What are convertible bonds?

As its name suggests these are the bonds that can be converted or exchanged with a certain number of the same companys shares that has issued the convertible bonds. These bonds are normally of junior debenture kinds. What is an equity-linked bond? It is the bond that has its returns dependent upon the performances of the equity index, the single equity share and the basket of equity securities. What is an exchangeable bond? These bonds have the same properties as that of the convertible bonds. The only exception is that an exchangeable bond can be exchanged into a certain number of shares of the companies that havent issued that exchangeable bond. What is an inflation-linked bond? An inflation-linked bond is very much similar to a regular saving bond. The difference lies in its capability to insulate the effects of inflation due to the tying of its yield with the rate of inflation. What is a mortgage bond? Mortgage bonds are those bonds that are acquired by offering a physical property or real state as the mortgage. This mortgage provides the security to the issuing company. What is a Yankee bond? It is the bond that can only be issued by the overseas corporations and banks that are not situated in the U.S., but the value of bonds are denominated in the dollars of U.S. only. What is a subordinate bond? This bond is also termed as the junior security and is taken as a subordinate of other kinds of bonds in respect of the earnings and the assets. What is a discount bond? This is the bond whose market price is valued lower than that of its face value. What is a zero coupon bond? This is the bond, which doesnt provide any interest whatsoever, but provide profits in terms of a large discount at the time of buying and this discount can be converted into cash at the time of its maturity.

What is a T-bill? Ii is the security that is issued by none other than the U.S. government itself, for a term less than a year. What is a commercial paper? The corporations and the banks issue it as unsecured obligation to fund their short-term financial need, e.g., inventory and the accounts receivables. The period of maturity varies from 2 days to 270 days. What is a floating rate note? It is also termed as floaters and carries a interest rate that is variable. Usually, after every six months, its interest rate is gets associated with some specific money-market index. What is called repo? Repo is also termed as repurchase agreement or buyback due to its property that allows its issuers to buy it back from its holder at a specific time and value. What is the bond future and option? It is the contract, under the rules of which bonds are considered as the underlying assets. What is the interest rate swap? It is the agreement between two parties, where a specific future interest payments are swapped with some other payments based upon a predetermined principal amount. The two parties are called the counter-parties. This kind of swaps most often include the swapping of a payment that is fixed in nature with a payment that is not, but is linked to an interest rate (e.g., LIBOR). The companies exercise this swaps when they want to limit or to manage the effects of the interest rate fluctuations. They also use it to reduce the interest rate, without which they wont be able to lower the interest rate easily. What is asset swap? This swap is very much similar to a vanilla swap. But here, the exchange takes place between the fixed and the floating investments rather than between the fixed and the floating rate interests. What is a credit default swap? Under this swap agreement two counter-parties can transfer the credit risks of a third party, associated with any of them, between one another. What is a total return swap?

This is the kind of swap under which the total return of the equity and the instruments with fixed income decide (with a longer life than the swap itself) the non-floating rate. . What is a collateralized debit obligation? These dont include the non-mortgage bonds and loans and is supported by a collection of bonds, loans and some other types of assets.

What is SOX ?
It is the act that has been passed by the U.S. Congress in favor of investors, through which the corporations are bound not to do any kind of fraud with the investors. This act provides more teeth to the already present security regulations. The important points of SOX Act is given below:

It is the law for the security of investors and is necessary to follow by the people who comes under its net and knows its relationship with the information security. It secures the whole audit history of different software policies and maintains all the records including the changes in policies. It also helps in keeping the proper record and maintenance of the project documentations. It also keeps the tab on the data conversion and the security risk and develops the system acquisitions. It clearly defines the boundary between the development and the application of products in order to automate and model the involved processes. Ensures a strict regimen of testing which also includes the test cases. Keeps continuous vigil to the application-movements by development authorities throughout from the testing to the production. Reviews the management and the approval of IT systems by automating the process of approval. Keeps the security system intact by enforcing all of the formal procedures and policies. It has also established the Public Company Accounting Oversight Board (PCAOB) for the companies to be registered and that is mandatory too. Hires auditing committees to strictly apply auditor regulation and inspect the actions of accounting firms. Increases the responsibilities for corporate to always take care of any kind of fraudulent activities. Enforces the ethical guidelines for the senior financial officials and disclosure of the financial statements of companies. Stipulates the guidelines to be followed in case of any conflicts of interest among analysts. Availability of the authorities before Commission & Federal Court and requirement of qualifications for the brokers and the dealers.

Availability of the enforcement methods to punish any criminal activities, identified under the Act.

Basel II also known as New accord (International Convergence of capital Measurement and capital standards)

As Basel I was not efficient enough to provide insulation against the credit risks, e.g., Basel I is incapable of distinguishing the characteristics of involved risk between 1-year loan and 5 year loan and also between collateralized & non-collateralized loans. So, all of these anomalies were tried to be eradicated with the introduction of Basel II with some completely novel rules and norms. There are several financial institutions are constantly being evaluated for their operational risk capabilities, practices as well as their credit by Basel II Capital Accord. To enhance the financial performance and to have an advantage over others, many a firms are trying to incorporate their risk management practices with the Basel II standards.

The goal of the final version Basel II

Separation of the operational risk from the credit risk and to quantify both of them. Making the capital allocation to be more risk sensitive in nature. Minimizing the regulatory arbitrage by closely aligning the economic and the regulatory capital.

There is a concept of three pillars that is used by Basel II and includes: minimum capital requirements, supervisory review and market discipline. All these three players have the role in stabilizing the financial system. Basel I made use of only a few aspects of these three pillars like, it only dealt with credit risk without taking into account the market risk or the operational risk involved.

First Pillar

It is involved in the regulatory capital maintenance that is calculated by taking into account the three risk factors faced by a bank. The three risks are: credit, operational & market risk. But it doesnt take into account other than these three risks.

There are three methods of calculation of the credit risk and are called Foundation IRB, Standardized Approach & Advanced IRB (Internal Rating Based Approach). Likewise, the operational risk can also be calculated through three methods called Standardized Approach, Basic Approach & Advanced Measurement Approach (AMA). But the widely used method for the calculation of market risk is VaR (Value at Risk).

Second Pillar
It takes care of the regulatory responses of for the first pillar and provides regulator with improved tools, which are more advanced than the ones used in Basel I. It is also involved in creating the platform for the action against the risks faced by the banks like, reputation, liquidity and legal risks and these risks are called as the residual risks under the Act.

Third Pillar The mandatory disclosures made by banks are increased under this third pillar and it makes it clear to the market that what are the risk positions of the banks and how the counter-parties of the bank will transact.

Disadvantages of Basel II
There are several disadvantages too associated with the Basel II. Due to its detailed management of the risks present for the banks, the larger banks gets the upper hand, as they are capable of implementing all of the norms of the Act. But the smaller banks cant do so because their financial status doesnt allow

them to do so. Eventually, despite being a genuine bank with honest dealing, a smaller bank doesnt receive as much reputation as that of larger banks. The same story is true for the developed and the developing countries too. Basel II also makes it quite difficult for the smaller banks to access credit.

Now it has been very difficult to choose one of the more sophisticated risk management systems or the lesser one, as the more sophisticated measures were required for the larger banks yet these measures were against the interest of the smaller banks. On the other hand, by application of less sophisticated measures it was easier to calculate the risks but it compromised with the sensivity of the risk management. But there is a bright side of the better credit risks that is significant in terms of true pricing by the banks. It has been observed in the U.S. and the U.K. that with a more sophisticated risk management there is greater chance of lending money by the banks to the higher risk borrowers. With this system the locked out borrowers were also able to create a good credit record with the banks.

Basel II is also facing a very sound criticism that its operation will result in a pronounced business cycle with more intensity. The reason behind this criticism is the credit models applied under the pillar I compliance that uses the horizon of one-year. This model will further promote the downturns in the business cycles, as the forecast of this model will support an increased loss in the future. This forecast will naturally make the banks reduce their lending that will lead to an increased downturn. So, the regulators should keep the repercussions of this model and must neutralize its effects while assessment of the bank models.

what is SOX act compliance,

Implementation of Basel II

Reviews the Basel readiness for all the three Basel Pillars Helps in the development of the Basel implementation plan (according to U.S. regulators, Sep. 2005). Helps in the development, validation or implementation of the models of economic capital. Provides guidance to the operational risk AMA implementation. Provides the required support for internal audit.

Association of the Sarbanes-Oxley and the Basel II

Creation or integration of the loss event systems for meeting different compliance standards, identification and collection. Integration of the processes of risk control self-assessment for different compliance initiatives. Determination of the responsibilities as well as the complementary roles for internal audit, risk management & compliance.

Some more risk management services

Governance assessment & design KRI and the model validation Designing and the facilitation of the risk control self-assessment programs Formulation of the risk mitigation strategies Experts in the matters of information security, operational exposures, disaster preparedness, fraud, litigation and some other operational exposures that are critical in nature

Six Sigma
Six Sigma (Six Standard Deviations from mean) is a methodology to enhance the efficiency and minimize the errors in any given process through some special tools & techniques.

First of all it was applied in the manufacturing division of the Motorola Company, where this process is rigorously used for minimizing the errors in the processes of producing several millions of different parts. Afterwards, its application widened with the inclusion of non-manufacturing processes too. It has

spread to such a level that its use can be witnessed in the fields as different as call centers, medical processes and insurance processes.

This methodology always keeps on improving the latest business processes through constant revision and alterations. To get this job done, Six Sigma makes use of a novel methodology called DMAIC (Define opportunities, Measure performance, Analyze opportunity, Improve performance, Control performance). Six Sigma is not only limited to improving the quality of processes, it is also being used widely to create a completely new business process from scratch. For this job, the Six Sigma makes use of another novel methodology called DFSS (Design For Six Sigma) principles. The efficiency of the Six Sigma can be gauged from the fact that there is no scope of more than 3.4 defects in a million of transactions taking place either in the area of products or services. Six Sigma uses the statistical techniques for reducing the errors and measuring the quality.

The experts of Six Sigma, known as green & black belts, thoroughly examine a given business process and then only determines the remedies to get rid of its defects and improve its quality. They are also expert in creating a completely new business process with the help of DFSS (Design For Six Sigma) principles. But it is observed that creating a new business process is a lot easier than improving the quality of an existing business process.

The techniques and the principles used by the Six Sigma are very fundamental to the business, engineering and statistics too. The basic elements of the Six Sigma are none other than these three principles with the help of which the Six Sigma can minimize variations, increase performance and keep intact the quality of process outputs. These measures result in the improvement of profits, reduction in defects, enhancement of quality and satisfaction of the customers.

The methodology of Six Sigma is also applicable for the initiatives of business process management. But these initiatives of business process management are not only restricted to the manufacturing processes

instead they are also applicable within call centers, supply chain management, customer support and project management too.

Some of the important elements for the improvement of process by Six Sigma are: continuous improvement, metrics & measures, customer requirements, employee involvement and design quality.

The three core elements of Six Sigma

Customer satisfaction:

The Six Sigma is very strict towards the customer satisfaction. Under the Six Sigma methodology, it is ensured that the satisfaction of the customers is never compromised with.

Defining processes & metrics and measures:

This element Of Six Sigma defines the usefulness and the understanding of data & systems as well as sets the goals for improvements.

Involvement of employees and team building: Under Six Sigma, it is imperative to involve all the employees by the company and to provide the employees with proper incentives and opportunities. This way the employees can be motivated to do their work more sincerely. Besides, Six Sigma also ensures that each of the employees has a defined role in the company and there is no scope of ambiguity, at all.

Although, Six Sigma evolved from the Motorola Company for the improvement of its manufacturing processes, it can also be utilized by other business to make some profit. To bring high quality into their services, various industries can make use of the benefits of Six Sigma. The different industries that could gain something from Six Sigma are: service industry (Financial/Investment Services, Insurance, call centers, etc.), educational services, ecommerce industry (B2B/B2C websites). The larger companies, like Motorola and GE, have adopted Six Sigma very enthusiastically, but the same is not true with the smaller companies. GE has been the prominent user of Six Sigma methodology.

To make it clearer, consider the points listed below:

Larger companies have the access to large resources and due to which they have their dedicated teams especially working to implement the norms of Six Sigma. They also have a program called train the trainer through which these companies can regularly produce more and more Six Sigma instructors. There are also several larger companies who hire green and black belts of Six Sigma to evolve more interest towards Six Sigma by their employees. It is more difficult to apply the norms of Six Sigma than it appears in the learning classes. Larger companies also encourage their employees to be a part of Six Sigma and give out incentives to the employees who heed these instructions and help other employees too to join Six Sigma. It is common perception that Six Sigma works only for the larger companies because of their larger product volumes and a large base of employees, which is not true. Despite Being small and having as few as 10 employees only, a smaller company can also reap the benefits of Six Sigma after its acceptance.

CMM capability maturity model

It is a process that refines the understandings and the definitions of the processes of an organization. Under CMM, there are five different levels that define the different levels of processes and is described by SEI as: The improvement in the predictability, the effectiveness and the control of the software processes through these five levels of CMM will eventually help the overall processes of an organization to be improved. While this belief is not absolutely out of errors, yet its positive effect has been seen in the processes for which it has been applied till date.

The five different levels are described below:

1st Level Ad hoc (chaotic)

This is the level, which is characterized by the un-documentation of the processes and their status of being in a dynamic change mode, which makes the processes to get into an ad hoc, reactive or uncontrolled status and this situation can be brought about by the users or some events. So, at this level the processes remain in an unstable form or we can also call it the chaotic condition.

Organizational implications of level 1:

Due to non-availability of an organized institutional knowledge at this level, it is hard for the common participants or stakeholders to understand a process thoroughly with its components. This situation leads to the inconsistency in the performance of processes, which highly depends on the competence, institutional knowledge and the out-performance efforts by a very few number of people.

Notwithstanding, the presence of this chaos the organizations keep going on the production and the services front. But doing so, the companies run the risk of under-estimation of the budget or the schedule of a project. Now, when this under-estimation takes place, the organizations are not able to fix this problem, as they dont know the process, which has created this situation or how does a particular process works.

Organizations at this level of CMM do not use processes with a good planning and good executive commitment or are limited with the acceptance of the processes. This nature of the

organization shows its lackluster attitude towards the structure and the formality of processes. These organizations tend to commit way beyond their capacity or leave a process in between its execution. They are also not able to repeat the past successes.

2nd Level - Repeatable

At this level of CMM processes have the repeatable characteristics and that also with a result that is very consistent in nature. But this repetition could not be seen for each and every process of an organization. Organization commonly makes use of a basic project management program to determine the cost and schedule for a particular project. The discipline for the processes is not very strict, yet it ensures the execution of existing practices even in the time of stress. So, at this level the processes are managed according to the plans that have already been documented.

Organizational implications of level 2:

Service deliveries and status of projects are very much apparent for the management at certain points like, at major milestones, at completion of major activities. Project management processes used to determine the cost, functionality and schedule of a particular project with time-to-time tracking also. The disciplines of the processes that have been successful in the past are repeated for the same kind of processes under a project.

3rd Level - Defined

At this level of CMM the processes have the characteristics of defined as well as documented standards and are subject to a certain degree of timely improvement. These processes that are standards among different organizations (i.e., AS-IS processes) are used to instill a consistency in the performance of the processes. Projects always follow the defined processes that are established with a definite set of standard organizations processes and can also be customized with similar standardized guidelines.

Organizational implications of level 3:

The management of the organization defines and establishes the process objectives according to the process standards set by the organization itself. The management also make it sure that the defined objectives must be followed properly.

4th Level - Managed

At this level of CMM the processes have the characteristics of being effectively controlled (control of the AS-IS process) by the management through the utilization of process metrics as is witnessed in the projects of software development. At this level, the management is capable of altering the processes in such a way that they become applicable for a particular project without losing much quality form their set of standards. Establishment of process capability is achieved form this level itself.

Organizational implications of level 4:

Goals with definite quantity as well as quality are set for the output of processes like, software and software maintenance. Performance of the processes is very much under control and predictable because of its monitoring and measurement with the use of quantitative as well statistical techniques.

5th Level Optimized

At this level of CMM the processes have the characteristics of improving their performances through integration of innovative & incremental changes in the technology.

Organizational implications of level 5:

Establishment of the quantitative objectives for the improvement in processes of an organization took place under this level with the scope of continuous revision to integrate the varying business objectives into the processes. It is also used as a standard for the management of improvement in the processes. Hence, under this level, the factors, responsible for variation in processes, are specifically identified, evaluated and then deployed. After the deployment of the process improvements, their effects are measured with certainty and then gets compared with the quantitative process-improvement objectives Both types of processes are targeted for the activities of measurable improvements and the processes include, the defined processes the standard processes of the organization. The process variation, which is being considered under this level are the one that shows the critical distinction between the two types of maturity level (level 4 & level 5).

Processes, which are at the maturity level 4, takes into account the statistical special causes for the variation of processes and provides the results with statistical predictability. Despite the prediction of the results along with the statistics, it may be sometimes not enough to fulfill the objectives that are already established.

Processes, which are at the maturity level 5, takes into account the statistical common causes for the variation of processes and improves the performances of the processes by changing them like, shifting of the mean of the performance of a process. Along with changing the processes for the improvement of their performance, it is also maintained that the processes achieve the established quantitative processimprovement objectives.