Chapter 8 The Stock arker
Chapter 8 The Stock Market
Information Evolution of the stock market o Orgn 17th century London Coffee houses Purpose To form joint-stock companies to undertake risky trading ventures o Stock Exchanges and Future Markets o Board to Boardless Stock Exchange o 24-hour world stock market
Information: Evolution of the Stock Market • Origin – 17th century – London – Coffee houses – Purpose • To form joint-stock companies to undertake risky trading ventures. • Stock Exchanges and Future Markets • Board to Boardless Stock Exchange • 24-hour world stock market
8.1 ELEMENTS OF THE STOCK MARKET o Securrty a piece of paper in which an organization, either business or government, acknowledge a financial obligation o Bond securities issued to the lenders with large numbers sums of money by some organization, such as the government o Security Market where the holders of securities can buy and sell
8.1 ELEMENTS OF THE STOCK MARKET • Security – a piece of paper in which an organization, either business or government, acknowledge a financial obligation. • Bond – securities issued to the lenders with large numbers sums of money by some organization, such as the government. • Security Market – where the holders of securities can buy and sell
Stock's Category Definition the shares in proportion to contribution to the company with vote o Ordinary shares where the shareholders bear the ultimate risk of loss should the company fail, they have no preferential right to the return of their fund Preference shares the shareholders have fixed payner(not fluctuating with the good or bad performance of the company), and have a over th ordinary shareholders. when liquida, the shareholders have preference with regard to repayment of capital. without votes, the shareholders cannot take part in the operation of the company ° Comparison preference shares is less risky than ordinary shares, with limited participation in the profit and decision making
Stock’s Category • Definition – the shares in proportion to contribution to the company with vote. • Ordinary shares – where the shareholders bear the ultimate risk of loss should the company fail, they have no preferential right to the return of their funds. • Preference shares – the shareholders have fixed payment (not fluctuating with the good or bad performance of the company), and have a preference over the ordinary shareholders. – when liquidation, the shareholders have preference with regard to repayment of capital. – without votes, the shareholders cannot take part in the operation of the company • Comparison – preference shares is less risky than ordinary shares, with limited participation in the profit and decision making
Stock's value o Par yalue the amount price recorded on the shares o Market value Issue price o what shareholders pay when the shares are first offered to investors Exchange price . ABHNS Blue chip .Red chip
Stock’s Value • Par value – the amount price recorded on the shares. • Market value – Issue price • what shareholders pay when the shares are first offered to investors. – Exchange price • A.B.H.N.S. • Blue chip • Red chip
8.2 THE ROLE OF THE AUSTRALIAN STOCK EXCHANGE o Stock Exchange offers several import benefits. Liquidity o shareholders can generally convert their shares to cash at short notice in the ongoing market Valuation o value one's holdings of shares almost on a second by second basis Prorection o ensure a high standard of business behavior on the part of the management of listed companies. o Secondary Market(circulating market where the issued shares can be conveyed o Primary Market(new issue market) which raises the new long-term debt(borrowing)and equity (ordinary share capital) issued by both business and government
8.2 THE ROLE OF THE AUSTRALIAN STOCK EXCHANGE • Stock Exchange offers several import benefits: – Liquidity • shareholders can generally convert their shares to cash at short notice in the ongoing market. – Valuation • value one’s holdings of shares almost on a second by second basis. – Protection • ensure a high standard of business behavior on the part of the management of listed companies. • Secondary Market (circulating market) – where the issued shares can be conveyed. • Primary Market (new issue market) – which raises the new long-term debt (borrowing) and equity (ordinary share capital) issued by both business and government
8.3 HOW THE ASX WORKS 8.3.1 Trading Stockbroking firm instruction of which shares, numbers price Past face-to-face system of a board on the wall of the trading floor SEATS- Stock Exchange automated Trading System computer network linking stockbrokers' offices stockbrokers enter buy and sell orders into the system, monitor the market from moment to moment o a specific market -a network of screen
8.3 HOW THE ASX WORKS 8.3.1 Trading • Stockbroking firm – instruction of which shares, numbers, price • Past – face-to-face system of a board on the wall of the trading floor • SEATS – Stock Exchange Automated Trading System – computer network linking stockbrokers’ offices – stockbrokers enter buy and sell orders into the system, monitor the market from moment to moment. • a specific market – a network of screen
8.3.2 Share Transfer="CHESS o Past the seller required to surrender the share cerificate to the broker for submission to the company's share transfer secretary, who would then issue a new document to the buyer. CHESS-Clearing House Electronic Subregister System it keeps a record of share transactions and shareholders for approved Stock Exchange listed companies, reducing the amount of paperwork and speeding up the process
8.3.2 Share Transfer – “CHESS” • Past – the seller required to surrender the share certificate to the broker for submission to the company’s share transfer secretary, who would then issue a new document to the buyer. • CHESS – Clearing House Electronic Subregister System – it keeps a record of share transactions and shareholders for approved Stock Exchange listed companies, reducing the amount of paperwork and speeding up the process
8.33 Derivatives o Derivative a security which is based upon, or derived from, another security o Options an agreement between two parties where one party gives the other the right, but not the obligation, to buy or sell an instrument, such as a particular share under certain conditions Futures a future contract is a standardized agreement to buy or sell a specific commodity or security at a specific time and place in the future, at a price established through open outcry in a central regulated marketplace
8.3.3 Derivatives • Derivative – a security which is based upon, or derived from, another security. • Options – an agreement between two parties where one party gives the other the right, but not the obligation, to buy or sell an instrument, such as a particular share, under certain conditions. • Futures – a future contract is a standardized agreement to buy or sell a specific commodity or security at a specific time and place in the future, at a price established through open outcry in a central, regulated marketplace
Option o Kinds of Periods American Option: some time in the future European Option: some day in the future o SpecIfIcation buyer, seller, price, quantity, term Category ca‖! Option it gives the holder the right to call for, or buy, a certain number of shares at a predetermined price o bull: someone expects share prices to rise Put OPtion o it gives the holder the right to sell a specified number of shares at a predetermined price. bear: someone expects share prices to bear Stag someone who buys a new issue of shares with the intention of selling as soon as shares come onto the market.(Premium)
Option • Kinds of Periods – American Option: some time in the future – European Option: some day in the future • Specification – buyer, seller, price, quantity, term • Category – Call Option • it gives the holder the right to call for, or buy, a certain number of shares at a predetermined price. • bull: someone expects share prices to rise – Put Option • it gives the holder the right to sell a specified number of shares at a predetermined price. • bear: someone expects share prices to bear – Stag • someone who buys a new issue of shares with the intention of selling as soon as shares come onto the market. (Premium)
