Marketing instruments

A recent brief review showed the working principles of various automatic analyzers6. A modified account of N and O analysis will be presented here. Today there exist in the market instruments that perform organic elemental analyses in a few minutes. The ease and speed of such analyses enable the use of such instruments for routine analysis. Although some operational details vary from model to model and between one manufacturer and another, all these instruments can be considered as exalted versions of the classical Pregl determination of C and H by conversion to CO2 and H2O, together with Dumas method for N by conversion to N2, the calorimetric bomb method for S by conversion to SO2 and SO3 and Schultzes method for O by conversion to CO. This is combined with modern electronic control, effective catalysts and instrumental measuring methods such as IR detectors and GC analyzers. 

How can I fine-tune these marketing instruments so as to achieve harmony between them ... 

Communication does not merely mean a farm prospectus and business card. Communication is constant contact with the customer, using all available marketing instruments, and constant communication in the areas of production, plant protection, fruit processing and marketing, so as to keep abreast of the latest information. 

The result of the NAP development process was a scenario of likely abundance rather than scarcity of allowance. The Italian authorities carefully evaluated this outcome and endorsed it based on a number of considerations. The two main driving factors were on the one hand the expected impact of scarcity on Italian company s competitiveness while on the other the preference for a gradual transition from the traditional more rigid command and control to the new flexible market instrument approach to environmental policy-making. 

Profile Founded in 1958, the company designs, manufactures, and markets instruments used by engineers, technicians, and scientists in the laboratory and in the field to address concerns such as research and development in chemistry and biotechnology, water pollution, process monitoring, quality control, and environmental testing. 

Gaur V. and Seshadri S. 2004. Hedging Inventory Risk through Market Instruments. Working Paper at the Stem School of Business, New York University. 

A bond is a debt capital market instrument issued by a borrower, who is then required to repay to the lender/investor the amount borrowed plus interest, over a specified period of time. Bonds are also known as fixed income instruments, or fixed interest instruments in the sterling markets. Usually bonds are considered to be those debt securities with terms to maturity of over one year. Debt issued with a maturity of less than one year is considered to be money market debt. There are many different types of bonds that can be issued. The most common bond is the conventional (or plain vanilla or bullet) bond. This is a bond paying periodic interest pay-... 

The gilts market is overwhelmingly plain vanilla in nature. We describe all the market instruments here. 

Repo is essentially a secured loan. The term comes from sale and repurchase agreement however, this is not necessarily the best way to look at it. Although in a classic repo transaction legal title of an asset is transferred from the seller to the buyer during the term of the repo, in the author s opinion this detracts from the essence of the instrument a secured loan of cash. It is therefore a money market instrument. Later we formally define repo and illustrate its use for the moment we need only to think of it as a secured loan. The interest on this loan is the payment made in the repo. 

The textbook definition of a money market instrument is of a debt product issued with between one day and one year to maturity, while debt instruments of greater than one year maturity are known as capital market instmments. In practice the money market desks of most banks will trade the yield curve to up to two years maturity, so it makes sense to view a money market instmment as being of up to two years maturity. 

The classic repo is the instrument encountered in the United States, United Kingdom, and other markets. In a classic repo one party will enter into a contract to sell securities, simultaneously agreeing to purchase them back at a specified future date and price. The securities can be bonds or equities but also money market instruments such as T-bills. The buyer of the securities is handing over cash, which on the termination of the trade will be returned to them and on which they will receive interest. 

Fundamentally both classic repo and sell/buybacks are money market instruments that are a means by which one party may lend cash to another party, secured against collateral in the form of stocks and bonds. Both transactions are a contract for one party to sell securities, with a simultaneous agreement to repurchase them at a specified future. They also involve ... 

The main securities settlement mechanisms in France is SICOVAM, the central securities depositary system. This body operates a system known as Relit Grand Vitesse or RGV, an integrated real-time settlement mechanism for bonds, money market instruments and equities. It provides real-time matching, settlement and reporting cycles, and operates for 22 hours out of 24. Put simply, the settlement process works as follows ... 

The above examples have focused on the use of the Euro-Bund future as a vehicle for achieving a particular bond portfolio exposure. As indicated earlier, there are several other futures contracts available in the European arena and these could be used in the same way as described above. The futures contracts could also be used to alter the maturity characteristics of the portfolio by using, for example, futures contracts constructed around shorter or longer dated instruments than those currently held in the portfolio. The fact that the contracts can be bought or sold on margin, that the major contracts are liquid and span the European markets, and their flexibility of use make them essential financial market instruments. 

There are two ways that a swap position can be interpreted (1) a package of forward/futures contracts and (2) a package of cash flows from buying and selling cash market instruments. 

To understand why a swap can also be interpreted as a package of cash market instruments, consider an investor who enters into the transaction below ... 

The terminology used to describe the position of a party in the swap markets combines cash market jargon and futures market jargon, given that a swap position can be interpreted as a position in a package of cash market instruments or a package of futures/forward positions. As we have said, the counterparty to an interest rate swap is either a fixed-rate payer or floating-rate payer. Exhibit 19.2 describes these positions in several ways. 

As explained earlier in this chapter, a swap position can be interpreted as a package of forward/futures contracts or a package of cash flows from buying and selling cash market instruments. It is the former interpretation that will be used as the basis for valuing a swap. In the case of a EURIBOR-based swap, the appropriate futures contract is the 3-month EURIBOR futures contract. For this reason, we will briefly describe this important contract. 

As we have seen, interest rate swaps are valued using no-arbitrage relationships relative to instruments (funding or investment vehicles) that produce the same cash flows under the same circumstances. Earlier we provided two interpretations of a swap (1) a package of futures/forward contracts and (2) a package of cash market instruments. The swap spread is defined as the difference between the swap s fixed rate and the rate on the Euro Benchmark Yield curve whose maturity matches the swap s tenor. 

The swap curve depicts the relationship between the term structure and swap rates. The swap curve consists of observed market interest rates, derived from market instruments that represent the most liquid and dominant instruments for their respective time horizons, bootstrapped and combined using an interpolation algorithm. This section describes a complete methodology for the construction of the swap term structure. 

Another key feature of a bond is its term to maturity the number of years over which the issuer has promised to meet the conditions of the debt obligation. The practice in the bond market is to refer to the term to maturity of a bond simply as its maturity or term. Bonds are debt capital market securities and therefore have maturities longer than one year. This differentiates them from money market securities. Bonds also have more intricate cash flow patterns than money market securities, which usually have just one cash flow at maturity. As a result, bonds are more complex to price than money market instruments, and their prices are more sensitive to changes in the general level of interest rates. 

Floating-rate bonds, often referred to as floating-rate notes (FRNs), also exist. The coupon rates of these bonds are reset periodically according to a predetermined benchmark, such as 3-month or 6-month LIBOR (London interbank offered rate). LIBOR is the official benchmark rate at which commercial banks will lend funds to other banks in the interbank market. It is an average of the offered rates posted by all the main commercial banks, and is reported by the British Bankers Association at 11.00 hours each business day. For this reason, FRNs typically trade more like money market instruments than like conventional bonds. 

This chapter considers some of the techniques used to fit the model-derived term structure to the observed one. The Vasicek, Brennan-Schwartz, Cox-Ingersoll-Ross, and other models discussed in chapter 4 made various assumptions about the nature of the stochastic process that drives interest rates in defining the term structure. The zero-coupon curves derived by those models differ from those constructed from observed market rates or the spot rates implied by market yields. In general, market yield curves have more-variable shapes than those derived by term-structure models. The interest rate models described in chapter 4 must thus be calibrated to market yield curves. This is done in two ways either the model is calibrated to market instruments, such as money market products and interest rate swaps, which are used to construct a yield curve, or it is calibrated to a curve constructed from market-instrument rates. The latter approach may be implemented through a number of non-parametric methods. 

A swap can be viewed in two ways. First, it may be seen as a strip of forward or futures contracts that mature every three or six months out to the maturity date. Second, it may be seen as a bundle of cash flows arising from the sale and purchase of cash market instruments—the preferable view in the author s opinion. 

It was suggested earlier that a swap be seen as a bundle of cash flows arising from the sale and purchase of two cash-market instruments a... 

The pricing of other interest rate products, both cash and derivatives, that was described in previous chapters used rigid mathematical principles. This was possible because what happens to these instruments at maturity is known, allowing their fair values to be calculated. With options, however, the outcome at expiry is uncertain, since they may or may not be exercised. This uncertainty about final outcomes makes options more difficult to price than other financial market instruments. 

Options price sensitivity is different from that of other financial market instruments. An option contract s value can be affected by changes in any one or any combination of the five factors considered in option pricing models (of course, strike prices are constant in plain vanilla contracts). In contrast, swaps values are sensitive to one variable only—the swap rate—and bond futures prices are functions of just the current spot price of the cheapest-to-deliver bond and the current money market repo rate. Even more important, unlike for the other instruments, the relationship between an option s value and a change in a key variable is not linear. 

Because the future values for the reference index are not known, it is not possible to calculate the redemption yield of an FRN. On the coupon-reset dates, the note will be priced precisely at par. Between these dates, it will trade very close to par, because of the way the coupon resets. If market rates rise between reset dates, the note will trade slightly below par if rates fall, it will trade slightly above par. This makes FRNs behavior very similar to that of money market instruments traded on a yield basis, although, of course, the notes have much longer maturities. FRNs can thus be viewed either as money market instruments or as alternatives to conventional bonds. Similarly, they can be analyzed using two approaches. 

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