The Share Market Flashcards
What is the share market’s role in the economy?
It allows businesses to sell their shares to raise funds needed for growth, and individuals or other businesses can gain returns on their surplus funds.
Distinguish between public and private companies.
Public - no restrictions on the trade of its shares
Private - restrictions on the trade of its shares
What is the ASX?
The Australian securities exchange is the Australian share market. It provides a regulated environment for investors to buy and sell shares, by matching sellers with a desired selling price with buyers who are willing to pay that price. It is both a primary and secondary market.
How are transactions in the share market conducted?
Through brokers (companies, banks or stockbrokers)
Why do investors purchase shares?
To gain stake in a company’s profits (dividends) and make capital gains from the increases in share price.
Why would a company go public?
A company would enact an initial public offering (float) to raise funds for investment and growth. To access further equity funds, a company can issue more shares.
How does the share market reflect economic conditions?
Share market values, driven by the performance of firms, rise and fall in accordance with economic activity.
How are fluctuations in the share market measured?
Measured by the performance of the all ordinaries index. A measure of the changes in overall value of the top 500 companies on the ASX.
Compare the trends in economic activity to the share values of the All Ords.
The share market is much less stable - it is more volatile than the real economy.
Why is the share market more volatile than the actual economy?
Because many share purchases are speculative - the shares are bought with the intention of selling them for short term capital gain. These decisions are based on ‘hype’ not the profitability of the firm. This can lead to overvalued prices. This leads to inefficient funds allocation in the market.
How does the share market act as a method of reallocating resources?
Companies and sectors with best growth prospects will be able to use additional investment funds most effectively, and will raise the most funds when floated. In this way, an efficient share market will raise the growth prospects of the economy.
When was the ASX formed?
1987
Where is the ASX ranked in the world?
It is the 8th largest share market in the world
What is the Integrated Trading System of the ASX?
It is a system that matches buyers and sellers at a specific price.
What is the Clearing House Electronic Sub-Register (Chess)
System that allows the transfer and ownership of funds between buyer and seller within three days.
