The function of securities markets Securities markets financial marketplaces for stocks bonds and other investments that assist businesses in finding longer funding to finance capital needs and prove private investors a place to buy and sell securities investments such as stocks and bonds Primary markets handle the sale of new securities Corporations make money on the sale of their stock only once in the primary market Secondary market handles the trading of these securities between investors Initial public offering IPO The first public offering of a corporation s stock Investment Bankers Specialists who assist in the issue and sale of new securities Institutional investors Large organizations such as pension funds mutual funds and insurance companies that invest their own funds or the funds of Stock exchange An organization whose members can buy and sell exchange securities for companies and individual investors NASDAQ A nationwide electronic system that links dealers across the nation so that they can buy and seek securities electronically others Stock Exchanges ex New york stock exchange CAC is in France DAK in Germany Han seng in Hong Kong London and Tokyo cid 127 Over the counter OTC market Exchange that provides a means to trade stocks not listed on the national exchanges Securities and exchange commission The federal agency that has responsibility for regulating the various stock exchanges security act of 1933 during great depression helps investors by requiring full disclosure of financial statements Prospectus A condensed version of economic and financial information that a company must file with the SEC before issuing stock the prospectus must be sent to prospective investors How businesses raise capital by selling stock Stock Shares of ownership in a company issued the firm s board of directors is forced out of business and its assets sold How businesses raise capital by issuing bonds Stock certificate Evidence of stock ownership that specifies that name of the company the number of shares it represents and the type of stock being Dividends Oart of a firm s profits that the firm may distribute to stockholders as either cash payments or additional shares of stock Common stock The most basic for of ownership in a firm it confers voting rights and the right to share in the firm s profits through dividends if approved by Preferred stock Stock that gives its owners preference in the payment of dividends and an earlier claim on assets than common stockholders if the company Bond A corporate certificate indicating that a person has lent money to a firm or government Principal the face value dollar value of a bond which the issuing company is legally bound o repay in full to the bond holder on the cid 127 Maturity date The exact date the issuer of a bond must pay the principal to the bondholder interest The payment the issuer of the bond makes to the bondholders for use of the borrowed money Different classes of bonds Debenture bonds Bonds that are unsecured i e not backed by any collateral such as equipment Secured bonds mortgage bonds backed by a collateral such as land or billings that is pledge to bondholders if interest isn t paid when promised Sinking fund A reserve account in which the issuer of a bond periodically retires some part of the bond principal prior to maturity so that enough capital will an investor may put 25 of money into high risk stocks 25 in conservative government bonds 25 in dividend paying stocks that provide income 10 be accumulated by the maturity date to pay off the bond callable bond allows the bond issuer to pay off the principal before its maturity date How investors buy securities Stockbroker A registered representative who works as a market intermediary to buy and sell securities for clients Diversification Buying several different investment alternatives to spread the risk of investing in an international mutual fun and the rest in a bank decreases the chance of losing everything portfolio strategy Investing in stocks Capital gains The positive difference between the purchase price of a stock and its sale price Stock splits An action by a company that gives stockholders two or more shares of stock for each one they own Buying stock on margin Purchasing stocks by borrowing some of the purchase cost from the brokerage firm Investing in bonds junk bonds High risk high interest bonds increases liabilities on the balance sheet bond holders are not owners but a bond is a contract to pay the amount issued plus interest by the maturity date cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 Mutual funds An organization that buys stocks and bonds then sells shares in those securities to the public exchange traded funds Collections of stocks bonds and other investments that are traded on exchanges but are traded more like individual stocks than Dow Jones Industrial average the dow The average coast of 30 selected industrial stocks used to give an indication of the direction up or down of the Program trading Giving instructions to computers to automatically sell if the price of a stock dips to a certain point to avoid potential losses Reduces net worth stockholder s equity Investing in mutual funds and exchange traded funds like mutual funds Understanding stock market indicators stock market over time CHART ON 513 debt vs equity Pg 527 advantages and disadvantages of issuing stock Pg 541 cid 127 cid 127 cid 127 cid 127
View Full Document
Unlocking...