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• Securities Financial instrument such as stocks and bonds. PRIMARY VERSUS SECONDARY MARKETS

• Securities Financial instrument such as stocks and bonds. PRIMARY VERSUS SECONDARY MARKETS • Primary market • Initial public offering (IPO) • Sold in open markets or through investment bankers • Underwriting • Secondary market. TYPES OF SECURITIES Money Market Instruments

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• Securities Financial instrument such as stocks and bonds. PRIMARY VERSUS SECONDARY MARKETS

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  1. • Securities Financial instrument such as stocks and bonds. • PRIMARY VERSUS SECONDARY MARKETS • • Primary market • • Initial public offering (IPO) • • Sold in open markets or through investment bankers • • Underwriting • • Secondary market

  2. TYPES OF SECURITIES • Money Market Instruments • • Money market instruments Short-term debt securities • Bonds • • Firms use bonds to obtain long-term debt capital. • Quality Ratings for Bonds • • Two factors determine the price of a bond: its risk and its interest rate. • • Bond rating indicates a bond’s level of risk. • Retiring Bonds • • Firms must have necessary funds to pay bonds at maturity. • • Call provisions.

  3. Stock • Common stock Shares of ownership in a corporation. • Preferred stock Stock whose holders have priority over common stockholders. • Convertible Securities • • Holder has right to exchange for a fixed number of shares of common stock.

  4. SECURITIES PURCHASERS • • Institutional investors and individual purchasers • Investment Motivations • • Growth in capital over time • • Stability of principal • • Liquidity • • Current income from dividend yields • • Income growth • Taxes and Investing • • Tax considerations are an important factor in investment decisions.

  5. SECURITIES EXCHANGES • • Stock exchanges Financial market where stocks are traded. • New York Stock Exchange • • World’s largest, as measured by total value of stock traded. • The Nasdaq Stock Market • • A computerized communications network that links member investment firms. • Other U.S. Stock Markets • Foreign Stock Markets • • Most countries have at least one stock exchange. • ECNs and the Future of Stock Markets

  6. BUYING AND SELLING SECURITIES • Brokerage firm Buys and sells securities for individual and institutional investors. • Placing an Order • • Investor initiates purchase by contacting brokerage firm. • • Market order • • Limit order • Stock Indexes

  7. MUTUAL FUNDS AND EXCHANGE-TRADED FUNDS • Mutual fund Financial institution that pools money from purchases of its shares and uses the money to acquire diversified portfolios of securities consistent with the fund’s investment objectives. • Mutual Funds • • Investors become part owners of large number of securities, lessening individual risk. • Exchange-Traded Funds • • Raises funds by selling shares to investors and then uses those funds to purchase a portfolio of securities. • • Low operating expenses, more tax efficient.

  8. LEGAL AND ETHICAL ISSUES IN SECURITIES TRADING • Government Regulation of the Securities Market • • Regulated through the Securities and Exchange Commission • • Full and fair disclosure • • Insider trading • Industry Self-Regulation

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