Securities Markets Flashcards
Securities
(Three types and definition of each type)
Money market instruments are short-term IOUs issued by governments, corporations, and financial institutions. (treasury bills)
Bonds are long-term IOUs issued by them.
- Bonds may be rated in various ways, and they may pay off in different ways.
Stocks are units of ownership in corporations, and there are two kinds—common and preferred stock.
- There are various ways to determine what a stock is worth, and there are different exchanges, or arenas, in which to buy and sell stocks.
Security
legal document which evidences that the buyer has loaned money to the issuer or has purchased part ownership of the issuing body (Stock or share certificate of Opsens Inc.)
Written document
Ex: stocks, bonds
Investment
the employment of money for the purpose of earning income or capital gain (money made from the investment) or both for the investor
Dividends
Payments made to shareholders from profits of a company. Dividends are not paid automatically, only when declared or authorized by the Board of directors.
Yield
rate of return upon investment
Securities can be equity or debt securities, explain them
Equity
- Common stock: voting shares
• Class A shares : share categories are now made to measure
- Preferred stock: shares with defined dividends
• Class B shares: (not sure) provide certain benefits to specific shareholders
• Class C shares: (not sure) shares proposed to workers of the company
Debt securities
- Bonds : (GPT) investor lends money to a corporation or government entity in exchange for regular interest payments rover a set period
- Debentures : type of debt instrument to raise capital, have fixed interest rate and maturity date
> some share categories blur the lines so much that auditors reclassify them as debt
Capital
Investment industry
- Funds available for investment
• Cash, savings, deposits, bonds, shares…
- Risk capital
• Money placed in enterprises that have yet to prove their ability to earn profits
The capital of a company
- Loan capital
• Money borrowed to finance its operations
- Share capital or capital stock
• Money owners have invested in the business
How a capital market works
- We live in a modified free-enterprise system
- Businesses are started to make money for their owners
• Managers & employees manufacture goods and expect to get paid for their labor
• Customers who buy the product expect to pay a price which is fair and competitive to similar products
• Investors who put up their savings to get the business started and help it expand expect to be paid a fair return for the use of their savings
Who
Users of investment capital
• Governments & government corporations (Hydro-Québec)
• Businesses
Suppliers of investment capital
• Institutional investors
• Individuals
Financial intermediaries (who bring together the first two)
• Securities firms
• Investment dealer (as a principal, buys for his own account, then sells to others)
• Stockbroker, member of a stock exchange, takes a sales commission
Primary securities market
Prospectus
IPO
• The primary securities market is the financial market in which new security issues are first sold to investors
• The money derived from the sale of the stocks or bonds goes to the issuer
• A prospectus is a detailed written description of a new security, including information about the issuing company and its top management.
• When a corporation’s stock is offered for sale for the first time, it is called an initial public offering (IPO)
New stocks and bonds may be sold in two ways:
• through investment bankers
• through open auctions
Secondary securities market
The secondary securities market is the financial market in which existing stocks and bonds are bought and sold by investors.
The principal reason people participate in the secondary securities market, of course, is the prospect of making money through:
- Capital gains (money made out of an investment)
- Dividends (organisation shares profit to its shareholders)
Common stock: a share of corporate ownership
The basic form of ownership in a corporation:
- voting rights
- rights to dividends
- capital gains
- right to residual claim on assets
What are preferred shares
Preferred shares - preference over common stockholders for payment of dividends but without voting rights
Preferred stock
Category of stock where stockholders have no or limited voting rights, but they get:
1. preferred, or first, claim on the company’s dividends
2. first claim on any remaining assets if the firm goes bankrupt and its assets are sold
Bonds
• Long-term debt issued by a corporation or government
– Maturity Date
– Par Value
– Coupon Rate
• Secured with a pledge of specific assets
