Different types of transactions with financial instruments

Author:Univ. prof., PhD Elena DOBRE

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Keywords:bonds exchange, pensions, secondary market, arbitrage, speculation, hedging, cession, acquisition, portage, options, swap

Abstract:
The transactions with bonds that can be met on the primary market are: selling, buying and conversion or exchange of securities or related rights. The transactions with primary financial instruments and derivatives which are at the same time bonds that we can meet on the secondary market are:: arbitrage, speculation and hedging. \r\n\r\nBonds exchange is a transaction where the cost of the bonds acquired based on the exchange is the venal value (the market value) of one of the two lots of bonds, the one of which estimation is more secure. \r\n\r\nThe pension is from the legal point of view, a cession operation of bonds, titles or effects, accompanied by a firm contract of buying them back from the one who renounce those bonds (gives them for pension) and of cession them back from the other part (the one who receives the bonds) at an agreed time and price. \r\n\r\n„Portage” on the equity bonds is a transaction that can be met in France consisting of an agreement by which the „porteur“ (generally a credit institution) accepts, by an „ordonator” request to become temporarily the owner of those bonds, by agreeing in writing to renounce those bonds at a time and a price agreed in advance in writing for a nominated person (who can the one who trigger the order) and who agrees to buy back the bonds. The arbitrage is defined by the simultaneous selling and buying of some equivalent bonds (cash or futures) on different markets in order to benefit from the differences in prices. \r\n\r\nThe transaction is used mainly on the foreign exchange markets and of the precious metals one. The speculation is a transaction specific to the secondary markets (futures markets) by which an individual takes the risk hoping to gain a profit from the differences in prices. The Speculator will buy from the futures markets if he/she expects that the prices will increase and will sell if he/she expects that the prices will lower. The hedging is a strategy meant to protect the company against a risk of price development in an unfavorable direction.. \r\n\r\nThe protections is made by making transactions on the futures market and with options which, together with the transactions on the cash market of the support asset (merchandise, currency, title) creates a relationship by which the loss on a market is compensated by the gain on the other market. The hedging or risk hedging means to compensate a position by taking a different position with the same size on a separate but parallel market. The effect of the compensation position is to reduce or to eliminate the effects of changes in values of the both positions.\r\n

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