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MGTA04 Chapter 11.docx

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Management (MGT)
H Laurence

Securities Market  Securities: stocks and bonds which represent a secured-asset-based claim on the part of investors that can be bought and sold Primary and Secondary Markets for Securities  Primary securities markets: the sale and purchase of newly issues stocks and bonds by firms or governments new ones may be sold only to a small group of people=private placements  Investment banker: any financial institution engaged in purchasing and reselling new stocks and bonds serve as financial specialists in issuing new securities advice the company on the timing and financial terms for the new issue, they underwrite (buy) new securities and bear some risk of issuing the new security, and create the distribution network that moves the new securities through groups of other banks and brokers into the hands of individual investors  Secondary securities markets: the sale and purchase of previously issued stocks and bonds Stocks  Capital gain: as business grows, acquires more assets, more revenue and generates more and more profits market value of a share will increase  Common Shares  Individuals and other companies buy a firms common shares for gaining value and dividend income  Market value: the current value of one share of a stock in the secondary securities market real value of a share depends on objective and subjective factors (rumors, investor relations and stockbroker recommendations)  Book value: value of a common stock expressed as total owner’s equity dived by the number of shares of stock for successful company market value > book value  Investment Traits of Common Shares” riskiest of all securities, can quickly change, share holder income and share price may drop during unprofitable years BUT offer high growth potential  Market capitalization: the dollar value (market value) of stocks listed on a stock exchange=number of outstanding shares X value of each share (# X $) Preferred Shares  Usually issued with a stated value and are expressed as a percentage of the stated value fixed dividend  Preferred shares are callableissuing firms can require the preferred shareholders to surrender their shares in exchange for cash payment amount of cash payment known as the call price (agreed upon by shareholders + firm)  Investment traits of preferred shares: less risky due to presence of dividends, they are cumulative (cumulative preferred shares: preferred shares on which dividends not paid in the past must first be paid up before the firm may pay dividends to common shareholders), but income is still not as certain as corporate bonds of the firm share price of preferred share can still fluctuate and growth potential is limited due to fixed dividend Stock Exchanges  Stock exchange: a voluntary organization of individuals formed to provide an institutional setting where members can buy and sell stock for themselves and their clients in accordance with the exchanges rules  Hands most of the secondary market for stocks  To become a member an individual must purchase one of a limited number of membership called seats  bought and sold as assets as well  Only members or their representatives are allowed to trade on the exchange and all orders must flow through members (have legal monopoly)  Trading floor: physical location of trading equipped with lots of electronic communications equipment needed for conveying orders within minutes  Broker: individual licensed to buy and sell securities to customers in the secondary market and may provide other financial services o Discount brokers: offer well-informed individual investors a fast, low cost way to participate in the market services are low cost (no commission_ and don’t offer investment advice or person to person sales consultations (automated research services available) o Online trading: fast nonsense transactions and the opportunity for self-directed investors to manage their own portfolios while paying low fees for trading o Full service brokers: provide many services such as consulting, personal or estate planning, tax strategies, investment products, etc  Canadian stock exchanges: TSX (largest in Canada) made up of 100 individual members who hold seats. CDNX (Canadian venture exchange) involves stock markets from Vancouver and Alberta and shifted all derivate trading to Montreal stock exchange and consolidated all senior equity trading at TSE CDNX now focuses on junior companies  Foreign stock exchanges o New York Stock Exchange: located on wall street in NY and is largest of all US exchanges and is a worldwide model(largest by value) o Regional stock exchanges: Chicago stock exchange, pacific stock exchange trade on NYSE or AMEX o London stock exchange o Bombay stock exchange: most companies traded o NASDAQ: busiest by volume o Largest Stock exch
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