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Securities Market . Investments and Portfolio Management MB 72. Outline. Meaning of Financial Markets Role of Financial Markets Types of Financial Markets Primary Markets

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securities market

Securities Market

Investments and Portfolio Management

MB 72

  • Meaning of Financial Markets
  • Role of Financial Markets
  • Types of Financial Markets
    • Primary Markets
    • Secondary
      • Stock Exchanges
      • Over-the-Counter Market
      • Third and Fourth Market
  • Mechanics of Trading
    • Types of Orders
    • Margin Trading
financial markets
Financial Markets
  • A place where borrowers and lenders are brought in contact with one another
  • Help in allocation of scarce resources in the economy
  • Channeling savings into investments
  • Provide an economy’s link with the future
primary markets
Primary Markets
  • New issues market which brings together the supply and demand or sources and uses for new capital funds
  • A market where securities are issued for the first time
  • contributes directly to capital formation
  • any increase in primary market activity leads to more investment, more capital formation
secondary market
Secondary Market
  • Deals in existing securities; market for buying and selling of existing securities
  • does not directly contribute to capital formation
  • increase in volume of business in the secondary market does not mean more capital formation
  • Indirectly helps in capital formation
  • Secondary markets can be classified as:
    • Auction Markets
    • Negotiated Markets
  • Stock Exchanges are classified as auction markets
  • Over-the-Counter Market
  • What is a third market?
  • What is a fourth market?
mechanics of trading
Mechanics of Trading
  • Open a brokerage account
    • cash account
    • margin account
  • Types of Orders
    • Market order
      • buy/sell securities at the best available price in the market
    • limit order
      • specifies a particular price to be met or bettered
    • stop order
      • specifies a certain price at which a market order is to take over
margin trading
Margin Trading
  • A customer can pay part of the total amount due and borrow the remainder from the broker, who in turn typically borrows from a bank to finance customers.
  • Margin is that part of a transaction’s value that a customer must pay to initialize the transaction. It is part of the total value of the transaction that cannot be borrowed from the broker.
  • What is initial margin?
    • Part of a transaction’s value that a customer must pay to initialize a transaction
  • What is maintenance margin?
    • Minimum amount needed in the investors account at all times as compared to the market value
  • What is margin call?
    • A margin call is issued when the actual margin declines below the maintenance margin
Market Value of

securities minus Amount Borrowed

Actual Margin = -----------------------------------------------------------

Market Value of Securities