Financial Markets and Instruments Overview

Laws

How have recent financial disturbances altered the manner ins which monetary markets are controlled? The subprime home mortgage crisis is a big example of a financial interruption that changed the manner ins which financial markets are managed. Since bankers were offering out subprime home loans that the house purchasers could not repay, your home purchasers all gotten method too much financial obligation that they could not repay. Since people couldn't pay back their financial obligations then they got foreclosed. Considering that this messed up our whole economic status there have been a great deal of guidelines on that market.

Bonds

Explain the standard features and attributes of bonds. What is a convertible bond and why do investors discover such bonds appealing? What benefits do convertible bonds have for the releasing firms? What stakeholder group might be harmed when a firm concerns convertible bonds?

A formal financial obligation instrument issued by a corporation or federal government entity and is anywhere from 10 years to thirty years long.

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A convertible bond is a bond or share of favored stock that gives its holder the right to exchange it for a specified number of shares of typical stock. Investors like convertible bonds due to the fact that it allows them to acquire from a boost in the rate of common stock, while restricting their risk if the price of the stock falls. The firm can also benefit from providing convertible bonds due to the fact that the popularity of this function with investors enables it to offer a lower voucher rate on convertible bonds, therefore lowering its fixed payments.

The important group that can be hurt by convertible bonds is the corporation's existing stockholders.

Security Markets

What is the essential distinction between the main and secondary securities markets? Why are the trades that take place on the secondary market important to a firm's management?

• Primary securities: The market where newly issued securities are traded. The primary market is where the firms that issue securities raise additional financial capital.
• Secondary securities: The market where previously issued securities are traded. The secondary market dictates what the value of a firm is. If there is a lot of trading going on for a certain firm’s securities then the value of the firm will go up. But if everyone sells the securities in a firm then the firm will lose a lot of money and value.

Stockbrokers

What service does a stockbroker offer? Briefly describe the difference between a full service broker and a discount broker. How does a broker handle a market order? How does a broker handle a limit order?

·A stockbroker is a regulated professional individual, usually associated with a brokerage firm or broker-dealer, who buys and sells stocks and other securities for both retail and institutional clients, through a stock exchange or over the counter, in return for a fee or commission. · Full service: provide a variety of services, such as personal advice, retirement planning and tax tips. Full-service brokers offer a wider selection of investment products such as derivatives and insurance, as well as access to the company's research. Full service brokers are paid based on commission. · Discount: do not provide investment advice. Fees are kept low because discount brokers offer fewer products.

They are paid on salary, not commission.

Market order: An order that an investor makes through a broker or brokerage service to buy or sell an investment immediately at the best available current price. A market order is the default option and is likely to be executed because it does not contain restrictions on the buy/sell price or the timeframe in which the order can be executed. · Limit order: An order placed with a brokerage to buy or sell a set number of shares at a specified price or better. Because the limit order is not a market order, it may not be executed if the price set by the investor cannot be met during the period of time in which the order is left open. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled.

Information about the Stock Market

In addition to reporting a stock's closing price, most financial websites provide additional information about the stock, including its market capitalization, price-earnings ratio, earnings per share and dividend and yield. Define each of these measures and provide a brief explanation of its significance.

Market capitalization: The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures. · Price earnings ratio: A valuation ratio of a company's current share price compared to its per-share earnings. ·

Earnings per share: The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. · Dividend and yield: A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows: