Security Markets Flashcards
What are the roles of financial markets?
These are markets that help to provide funds for borrowers
- And borrowers for people who want to lend
What are primary markets?
Where new securities are issued
o E.g. As an IPO or a SEO
SEO = Seasoned Equity Offering
What are secondary markets?
Where investors trade previously issued securities
o Second hand securities
o E.g. NZX
What are IPO’s
New listing of a company – when they first become a publicly listed
company
o Issue will be facilitated by an investment banker – for a fee
Season new issue
This is a new issuance of a already publicly traded company
Non dilutive
Can be from selling existing shares
Dilutive
Or from new shares
What are investment Banks.
These a facilitators of equity raising
o The oversee IPOs and SEOs
IPOs: People pay too much for the _________ of a company. Therefore it creates a price ______ which makes shares of a recently ____ firm have a _____ annual percentage return than a company without ____
expected return, push, floated, lower, issuance
What are secondary Markets
Markets where investors trade previously issued securities
Dealer Markets
Bonds, NASDAQ, OTC Market
Specialist markets
NYSE (Continuous auction)
Each stock has a specialist that keeps the book for that
market
Electronic Communications Networks (ECNs)
These are Electronic Brokerage houses
Everything is done for you
Finds/matches asks and bids together
o E.g. The NZX
The NZX
This is a ECN with centralised computer screen trading
o Brokers terminals are connected to NZX trading system
Therefore there is no physical trading floor
o Therefore the transfer of ownership is electronic and in real time –
no delay
Share Market Index is a portfolio of shares used to?
measure the markets performance over time
As a bench mark to assess portfolio performance
To develop index investment funds
Price Weighted Index
The index is driven by changes in share price not on the return of shares
Price weighted index assumes
you hold an equal number of shares of each company in the index
Return on price weighted index =?
ending value(sum of shares at time 1)/ starting value (sum of shares at time 0) -1
Closing index =?
Opening Index * (ending value / starting value)
When dealing with value weighted index only use shares for?
sale
Value =?
Number of shares * price
Equal weighted Index?
Each share us given an equal weight
Capital Index
Measures share price changes only and reflects value of resources tied up in the market
Capital Index: TMV =? (starting value)
total market value = share price * number of shares
Capital Index: Ending value formula =?
Price at time 1, Ex Dividend * No of shares
Gross Indices
Measures both changes in share price and value of dividends
Measures the total return to investors
Closing Gross Index
(Price ex dividends + Dividends)*# of Shares
Trading shares: investors submit ___ to a ___ by phone or on-line
orders, broker
Note: specify the share, volume and order type
Market order?
Buy/sell stock immediately at the best available price
- Most common order
Limit order?
Specified market price that it must reach before the transaction is
authorised
- Specify the length of time the order is open for, e.g. end of trading day or
forever
Stop Order
Specifies a market price at which a market order is authorised
- To cut losses, or retain gains
Shorting an asset
position is opened by borrowing shares of a stock or other asset that the investor believes will decrease in value
Shorting an asset, is mathematically the same is buying ____
amounts of that asses, therefore it will have negative ____ in
a portfoli0
negative, weighting
Margin
Borrowing money from a broker to buy approved shares using the value of your
portfolio as a security
Initial Margin =?
= (amount investor contributes/Total value)
Actual Margin =?
Actual margin = (Current Value – Amount borrowed)/Current
value
There in NZ the initial margin requirements range between
30 - 60%
Marginal Call
When actual margin falls below maintenance margin requirement (Initial
Margin – Buffer)
