SouthUral State University The Department of Economic and Management Work on subject The Student Velichko O.S. Group E M-263 The Tutor Sergeeva L.M. Chelyabinsk 1998 Contents 1. Market place 2. Trading on the stock exchange floor 3. Securities. Categories of common stock 3.1 Growth stocks 3.2 Cyclical stocks 3.3 Special situations 4. Preferred stocks 4.1 Bonds-corporate 4.2 Bonds-U.S. government 4.3 Bonds-municipal 4.4 Convertible securities 4.5 Option 4.6 Rights 4.7 Warrants 4.8 Commodities and financial futures 5. Stock market averages reading the newspaper quotations 5.1 The price-earnings ratio 6. European stock markets-general trend 6.1 New ways for old 6.2 Europe, meet electronics 7. New issues 8. Mutual funds. A different approach 8.1 Advantages of mutual funds 8.2 Load vs. No-load 8.3 Common stock funds 8.4 Other types of mutual funds 8.5 The daily mutual fund prices 8.6 Choosing a mutual fund 1. MARKET PLACE The stock market. To some its a puzzle. To others its a source of profit and endless fascination.
The stock market is the financial nerve center of any country.
It reflects any change in the economy.
It is sensitive to interest rates, inflation and political events. In a very real sense, it has its fingers on the pulse of the entire world. Taken in its broadest sense, the stock market is also a control center. It is the market place where businesses and governments come to raise money so that they can continue and expend their operations. It is the market place where giant businesses and institutions come to make and change their financial commitments.
The stock market is also a place of individual opportunity. The phrase the stock market means many things. In the narrowest sense, a stock market is a place where stocks are traded - that is bought and sold. The phrase the stock market is often used to refer to the biggest and most important stock market in the world, the New York Stock Exchange, which is as well the oldest in the US. It was founded in 1792. NYSE is located at 11 Wall Street in New York City. It is also known as the Big Board and the Exchange.
In the mid-1980s NYSE-listed shares made up approximately 60 of the total shares traded on organized national exchanges in the United States. AMEX stands for the American Stock Exchange. It has the second biggest volume of trading in the US. Located at 86 Trinity Place in downtown Manhattan, the AMEX was known until 1921 as the Curb Exchange, and it is still referred to as the Curb today.
Early traders gathered near Wall Street. Nothing could stop those outdoor brokers. Even in the snow and rain they put up lists of stocks for sale. The gathering place became known as the outdoor curb market, hence the name the Curb. In 1921 the Curb finally moved indoors. For the most part, the stocks and bonds traded on the AMEX are those of small to medium-size companies, as contrasted with the huge companies whose shares are traded on the New York Stock Exchange. The Exchange is non-for-profit corporation run by a board of directors.
Its member firm are subject to a strict and detailed self-regulatory code. Self-regulation is a matter of self-interest for stock exchange members. It has built public confidence in the Exchange. It also required by law. The US Securities and Exchange Commission SEC administers the federal securities laws and supervises all securities exchange in the country. Whenever self-regulation doesnt do the job, the SEC is likely to step in directly.
The Exchange doesnt buy, sell or own any securities nor does it set stock prices. The Exchange merely is the market place where the public, acting through member brokers, can buy and sell at prices set by supply and demand. It costs money it become an Exchange member. There are about 650 memberships or seats on the NYSE, owned by large and small firms and in some cases by individuals. These seats can be bought and sold in 1986 the price of a seat averaged around 600,000. Before you are permitted to buy a seat you must pass a test that strictly scrutinizes your knowledge of the securities industry as well as a check of experience and character.
Apart from the NYSE and the AMEX there are also regional exchange in the US, of which the best known are the Pacific, Midwest, Boston and Philadelphia exchange. There is one more market place in which the volume of common stock trading begins to approach that of the NYSE. It is trading of common stock over-the-counter or OTC -that is not on any organized exchange.
Most securities other than common stocks are traded over-the-counter. For example, the vast market in US Government securities is an over-the-counter market. So is the money market-the market in which all sorts of short-term debt obligations are traded daily in tremendous quantities. Like-wise the market for long-and short-term borrowing by state and local governments. And the bulk of trading in corporate bonds also is accomplished over-the-counter.
While most of the common stocks traded over-the-counter are those of smaller companies, many sizable corporations continue to be found on the OTC list, including a large number of banks and insurance companies. As there is no physical trading floor, over-the-counter trading is accomplished through vast telephone and other electronic networks that link traders as closely as if they were seated in the same room. With the help of computers, price quotations from dealers in Seattle, San Diego, Atlanta and Philadelphia can be flashed on a single screen.
Dedicated telephone lines link the more active traders. Confirmations are delivered electronically rather than through the mail. Dealers thousands of miles apart who are complete strangers execute trades in the thousands or even millions of dollars based on thirty seconds of telephone conversation and the knowledge that each is a securities dealer registered with the National Association of Securities Dealers NASD , the industry self-regulatory organization that supervises OTC trading.
No matter which way market prices move subsequently, each knows that the trade will be honoured. 2.
When an individual wants to place an order to buy or sell shares, he c... They use their experience, judgment and execution skill to buy and sel... Competitive Traders trade for their own accounts, under strict rules d... The specialist does this by standing ready to buy shares at a price re... Some of the specialist firms are large and assigned to many different ...
This concept, known as limited liability, has made possible the growth... And if the corporation is sold or liquidates, he has a right to his pr... People who are willing to take greater-than-average risks often invest... The rationale is that the company s earnings will continue to grow rap... Their growth may not be rapid, but it usually is reasonably consistent.
4.1 . These are stocks of companies that do not show any clear growth trend,... Here the investor has to judge the odds of the expected developments a... As a result, such corporations generally bid the prices of preferred s... 3.3 Special Situations. Theres a type of investment that professionals...
4.3 . The major trading in corporate bonds, however, takes place in large bl... However, trades are also done in smaller amounts, and you can buy Trea... S. Treasury bonds long-term, notes intermediate-term and bills short-term...
Bonds-municipal. Tax-exempt bonds are attractive to individuals in higher tax brackets ... S. government or corporate bonds. Quality is usually high, but there are variations according to the fin...
Convertible securities. A convertible bond or convertible debenture is a corporate bond that c... In simplest form, these have become an extremely popular way to specul... 4.6 RightsWhen a corporation wants to sell new securities to raise add... The holder can use exercise the right or can sell it to someone else.
dollar. Financial futures are relatively new, but they have rapidly zoomed in ... . 5. Making the most headlines have been stock index futures, which permit ...
Here are some sample entries 52 Weeks Yld P-E Sales Net High Low Stock... Mobil actually was the 12th most active stock on the NYSE that day, me... America has eight stock exchanges, and seven futures and options excha... Of these, the market in London, Frankfurt, Paris, Amsterdam, Milan and... And finance is the multinational business par excellence electronics a...
A law to set up a federal securities regulator and make insider-dealin... Continental bourses claim, anyway, to be winning back business lost to... Big blocks of stock may be bought or sold through London, but broken a... In the case of an old established company, the stock may have been iss... Here the company and the stock have track records that you can study, ...
8.1 . For people who feel this way, there is an excellent alternative availa... But a brokerage account is not the only way to invest. For many invest... Mutual funds. Up until now, we have described the ways in which securities are bough...
The first is professional management. The size of the pool makes it possible to pay for the highest quality ... Because of the size of the fund, the managers can easily diversify its... The funds also give you convenience First, it s easy to put money in a... You can arrange to have dividends reinvested automatically. If the fun...
Load vs. In recent years, some successful funds that were previously no-load ha... Often, these low-load funds are still grouped together with the no-loa... There are funds that invest in energy or natural resource stocks sever... Formation of this type of specialized or sector fund has been on the i...
There are several types of mutual funds other than the money market fu... Other types of mutual funds. 8.5 .
Finally, there is a column on the far right which shows the change in ... One advantage of a mutual fund is the ease with which you can follow a... Stock funds and bond funds are listed together in a single alphabetica... it is each share s proportionate interest in the total market value of... 8.6 .
Even in this case, it may be useful to know something about sources of... It is issued weekly, with special quarterly issues showing longer-term... It is the legal document describing the fund s history and policies an... But a fund that has made its shareholders money grow favorably over a ... Dont be surprised.