2

Market Fundamentals

‘Everyone thinks you know and understand this....’

Introduction

How banks generate income

Three key assumptions

Role and use of LIBOR

Day counts

Financial maths

Calculating forward rates

Marking to market (MTM or M2M)

Yield curves

Quiz

INTRODUCTION

This chapter is designed for all those of you who feel that maybe, just maybe, you missed something somewhere along the line. It may help fill in some of the knowledge gaps or it may give you the urge to learn more. In my experience a vast range of individuals wants to learn about derivatives; they may have personal backgrounds ranging from a graduate with a degree in Medieval History, to a trader with 10 years’ experience in the commodities market, to an IT specialist ...

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