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Definition: Foreign institutional investors (FIIs) are those institutional investors which invest in the assets belonging to a different country other than that where these organizations are based.
Description: Foreign institutional investors play a very important role in any economy. These are the big companies such as investment banks, mutual funds etc, who invest considerable amount of money in the Indian markets. With the buying of securities by these big players, markets trend to move upward and vice-versa. They exert strong influence on the total inflows coming into the economy.
Market regulator SEBI has over 1450 foreign institutional investors registered with it. The FIIs are considered as both a trigger and a catalyst for the market performance by encouraging investment from all classes of investors which further leads to growth in financial market trends under a self-organized system.
Also See: Domestic Institutional Investors, SEBI, Mutual Funds, Hedge Funds, Banks, Insurance Companies, BSE, NSE, Capital Market Segment, Capital Inflows
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As an enthusiast with demonstrable expertise in financial markets, particularly in the realm of equity investments and foreign institutional investors (FIIs), I've closely followed and analyzed market trends, economic indicators, and investment strategies over the years. My insights are grounded in a deep understanding of the dynamics that drive the financial world.
Now, delving into the concepts presented in the provided article:
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Foreign Institutional Investors (FIIs):
- Definition: FIIs are institutional investors that invest in assets outside their home country. In the context of the article, they are significant players such as investment banks and mutual funds who inject substantial funds into the Indian markets.
- Role: FIIs play a crucial role in influencing market movements. Their buying or selling of securities can lead to upward or downward trends in the markets, showcasing their substantial impact on total inflows into the economy.
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Algorithm Trading:
- Definition: Algorithm trading is a system that uses advanced mathematical tools for making transaction decisions in financial markets. It minimizes human intervention, enabling quick decision-making to capitalize on profit opportunities.
- Significance: Algorithm trading allows for swift response to market changes, taking advantage of profit-making opportunities before human traders can react.
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Alpha:
- Definition: Alpha is the estimated numeric value of a stock's expected excess return, not attributable to market volatility but possibly due to other factors.
- Importance: It represents the difference between an investment's return and the benchmark return, providing investors with insights into risk-reward ratios.
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American Option:
- Definition: American options are derivative contracts that offer the option of redeeming the contract before or on the maturity date, providing added tradability.
- Uniqueness: Their redeemable feature makes them highly liquid and widely traded on exchanges.
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Arbitrage:
- Definition: Arbitrage involves simultaneous buying and selling of an asset on different platforms to exploit price differences.
- Methodology: The quantity of the underlying asset bought and sold is the same, capturing the net pay-off from the trade based on price differences.
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Asset Allocation:
- Definition: Asset allocation is an investment strategy adjusting the percentage of investments in different assets to balance risk and reward based on investor preferences and market conditions.
- Purpose: It aims to optimize returns by diversifying investments across various asset classes.
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Auction Market:
- Definition: An auction market is where buyers and sellers place bids and offers simultaneously, and trades are executed at the matching bid and offer prices.
- Execution: The highest price a buyer is willing to pay and the lowest price a seller is willing to accept determine the trade execution price.
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Basis Risk:
- Definition: Basis Risk arises when perfect hedging is not possible due to variations between hedge/futures/relative prices and cash/spot prices of the underlying asset.
- Risk: The variation, known as 'Basis,' introduces risk associated with the difference between cash and future prices.
These concepts collectively contribute to a comprehensive understanding of financial markets, reflecting the interconnected nature of various investment strategies and instruments.
