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BreakingnewsChinacutsrates,lowersreserveratio•China'scentralbankMondaycutthecostofbankloans,thefirsttimesince2002,andloweredtheproportionofmoneylendersmusthaveasreserves,thefirstsuchmoveinnineyears,tokeeptheeconomyfromslidingfurther.•Thebenchmarklendingratewillbeloweredby0.27percentagepointto7.20percentfromTuesday.Chinacutsrates,lowersreserveratio•However,benchmarkdepositratesremainunchangedwiththeone-yearratetobekeptat4.14percent,aproofthatthecentralbankersarekeepinganeyeoninflation.Chinacutsrates,lowersreserveratio•The1percentagepointcutfromthereserverequirementratioof17.5percentdoesnotapplytothefivebiggestbanks(theIndustrialandCommercialBankofChina,theAgriculturalBankofChina,theBankofChina,theChinaConstructionBank,theBankofCommunications)andthePostalSavingsBank,thePeople'sBankofChina(PBOC)saidonitswebsite.StockssinkamidWallStcrisis•USstockssufferedtheirbiggestone-daydeclineonMondaysincethemarketreopenedaftertheterroristattacksofSeptember11,2001,asinvestorssoughtthesafetyofcashandgovernmentdebtfollowingthehistoriccollapseofLehmanBrothersandtheemergencysaleofMerrillLynchtoBankofAmerica.StockssinkamidWallStcrisis•TheunprecedentedchangesonWallStreet-whichwasalsogrippedbyrisingfearsaboutthehealthofAIG,thegiantinsurer-leftinvestorsmoreconcernedwithpreservingtheircapitalthaningeneratingreturns.Yieldsonshort-datedgovernmentdebtcollapsed,fallingfarbelow1percent,amidfrenziedbuyingStockssinkamidWallStcrisisTheFederalReservebattledaferociousstormintheovernightmoneymarket,wherethefederalfundsratebrieflyhit6percent-threetimesthetargetrateof2percent-asfinancialinstitutionsscrambledtoraisecash.TheFedinjectedatotalof$70bninliquidity,beforethefedfundsratefinallyfellbacklater.Agendatoday•Stock(commonv.spreferred)•Derivatives•FinancialinstrumentsininternationalmarketsStock•Ashare(alsoreferredtoasequityshares)ofstockrepresentsashareofownershipinacorporationCategoryofstock•Common•Preferred/preferentialPreferredstock•AhybridFeatures•Prioritytoassetsandearnings•Parvalue•Cumulativedividends•convertibilityCommonstockFeatures•Residualvalue•Dividendsnotobligated•Nomaturity/perpetuity•Controlofthefirm•PreemptiverightTwotypeofstockcompanies•Publiclyheld•PrivatelyheldAdvantagesofissuingC.S•Notlegallyboundtopaydividends•Norepaid“principal”•MorefundstoberaisedthandebtdisadvantagesofissuingC.S•Dilutionofownership•Morenewshareholdersshareprofit•Morecostly•DividendsarenottaxdeductibleComparisonofPSandCS•votingright---CS•getpaidaguaranteeddividendatapre-determinedinterestrate---PS•prioritydistributionofthecompany'sassetsDerivatives•Financialassetswhosevaluesdependonthevaluesofotherassets,suchasstocksorbonds.(underlyingassets)Derivatives•Forward•Futures•Options•AndswapsForwards•Atransactioninwhichaselleragreestodeliveraspecificcommoditytoabuyeratsomepointinthefuture.Futures•Standardizedforwardcontracts•Astandardized,transferable,exchange-tradedcontractthatrequiresdeliveryofacommodity,bond,currency,orstockindex,ataspecifiedprice,onaspecifiedfuturedate.AnexampleOptions•Aright,notanobligation•Exerciseprice•Cost(premium)•SpotmarketpriceOptions•European•AmericanOptions•Inthemoney•Out-ofthemoney•Calloptions•PutoptionsWhichfinancialinstrumentisbest?Financialinstrumentsininternationalmarkets•Americandepositoryreceipts•Foreigndebt•Euro-debt•Euro-equityAmericandepositoryreceipts•Certificateofforeignstock•TradedinstockmarketinU.S•DenominatedinUSDForeigndebtorEuro-debt•Whatisthedenomination?Homecurrencyorhostcountrycurrency