Quanto

Quanto" is short for "quantity adjusting option." Aquantois a type ofderivativein which theunderlyingasset is denominated in onecurrency, but the instrument itself is settled in another currency at some fixed rate. Such products are attractive for speculators and investors who wish to have exposure to a foreign asset, but without the correspondingexchange raterisk.
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Common types of quanto include: Quantofutures contracts, such as a futures contract on a Europeanstock market indexwhich is settled in US dollars.
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Quantooptions, in which the difference between the underlying and a fixed strike price is paid out in another currency.
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Quantoswaps, in which onecounterparty pays a non-localinterest rateto the other, but thenotional amountis in local currency. The second party may be paying a fixed or floating rate.
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Quanto Swap is also known as Differential Swap. These are essentially of two types: 1. Fixed Floating Type of Swaping Interest Rate 2. Floating-Floating Type of Swaping Interest Rate Fixed-for-floatingquanto swapsallow an investor tominimize foreign exchange risk. This isachievedby fixing both the exchange rate and interest rate at the same time. Floating-for-floating swaps have slightly higher risk, since each party is exposed to the spread between each country's currency interest rate.
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ADVANTAGE: If an investor of one country invests in the assets traded in the exchange of another country then he/she is exposed to the risk of two types of fluctuations: - 1. Asset price fluctuation in the foreign country. 2. Fluctuation in the exchange rate of the currencies of the two countries. Quantity Adjusting Option or Quanto help its investors by shielding them from the abovementioned fluctuations because at the time of option exercising, its intrinsic value is converted 3/13/13 from foreign currency to domestic one at a fixed

For example: The Chicago Mercantile Exchange (CME) trades futures on Japan's Nikkei 225 stock index that settles forUSD5.00 for eachJPY.01 of value in the Nikkei index. If you hold a future, and the Nikkei rises JPY 12 (or 12 points), you earn USD 6000. Quanto - Basis of Pricing Quanto is priced by making models on three aspects, namely 1.Underlying Asset 2.Exchange Rate 3.Correlation between the underlying Asset and the Exchange Rate
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Conclusion
Quanto or Quantity Adjusting Option is a risk management instrument used by the investors for hedging their risk. It shields them from exchange rate fluctuations as the intrinsic value of the currencies are converted from foreign to domestic at a fixed rate.

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Real Estate Investment Trust

A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.

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REITs can be classified asequity,mortgage, or hybrid. Equity REITs: Equity REITs invest in and own properties.Their revenues come principally from their properties' rents. Mortgage REITs: Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans. Hybrid REITs: Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by 3/13/13 investing in both properties and mortgages.

AReal Estate Investment Trustwas first conceptualized and rationalized in the US. This trust was created to offer a helping hand to that section of the American public whose buying capacity was lower in comparison to the prevalent real estate prices. The main advantage of investing in such a fund is that it offers income tax exemptions, both for corporate entities and the general investors. An important feature of such investment is equity real estate investment, where the trust invests in or owns the real estate and collects rents for the investors.
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These trusts have to utilize at least 90% of this tax saving corpus. The corpus accumulated is invested in different kinds of real estate properties like - Business premises Shopping malls Entertainment facilities Health care facilities Hotels

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