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Finance GlossaryCapital Asset Pricing Model
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Capital Asset Pricing Model

Definition of Capital Asset Pricing Model

Capital Asset Pricing Model or CAPM is used to determine the expected return one can earn on an asset by evaluating the associated risks and how markets price the asset.

Related Terms

Lead Underwriter

The lead underwriter is a financial institution that is in charge of ensuring that an IPO is successful on the primary market. Companies may also hire lead underwriters to carry out a FPO.

Cash Ratio

A cash ratio measures a company’s ability to fulfill short-term debt obligations using only its cash and cash equivalents, which are known to have high liquidity. The formula for calculating cash ratio is:

Cash Ratio: Cash + Cash Equivalents / Current Liabilities

Face Value

The term face value refers to the actual price of a stock that’s obtained by dividing a company’s net value by its total shares outstanding. In India, the face value of shares can range from Rs. 1 to Rs. 100.

However, the market value of the share may vary. At times, the difference can be drastic. For example, the face value of an MRF share is Rs. 10 but the market value (LTP) of the same share is Rs. 86,313.45.

Face value is also known as nominal value or par value. The latter is used frequently in the case of bonds.

The face value of a bond is the amount that an investor receives from the issuer on maturity. Similar to stocks, bonds and other fixed income instruments may have a different face value and market value.

Forex Futures Trading

Forex futures trading is the buying and selling of exchange-traded futures contracts for currency pairs . A forex futures contract gives the holder the right and the obligation to buy or sell a pair of currencies at a predetermined price and date. The important components of forex futures trading include:

  • Forex pair: the currency you will buy in exchange of the other at the end of the futures contract
  • Lot size: the value of the currency included in the contract
  • Contract price: the price at which the futures contract is trading
  • Spot price: the latest forex rate for the currency pair, different from the contract price
  • Margin: the amount of money you’re required to deposit with your currency trading platform
  • Tick size: the minimum amount by which a forex futures contract can move, which is Rs. 0.0025 in India
  • Expiration date: the preagreed day on which the contract must be excercised or squared off

Forex futures trading in India is possible through three exchanges: NSE, BSE, and MSE. The forex futures contracts are standardized derivatives that can be traded between 9.00 AM to 7.30 PM. Forex futures in India are cash settled, meaning profits or losses are settled in INR while the base currency is not delivered.

At The Opening

At the opening is an instruction to execute an order at the open price, which is the price of a security at the start of regular stock market hours.

Bull Market

Bull market is a positive trend in the stock market where price of shares increase by 20% or more after falling by 20%. Investors may say they’re bullish or expect a bull market to arrive when they believe that there will be prolonged periods of increase in the stock market.



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