stocks exchang

8/14/2019 Stocks Exchang

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Prepared by: Dr Mirwais Khaleel Safi


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Prepared by: Dr Mirwais Khaleel Safi12/15/08

Stock

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Stocks

Astockis a certificate thatcertifies ownership of acertain portion of a firm.

When a firm issues newshares of stock, it does notadd to its debt. Instead, it

brings in additionalowners who supply itwith funds.


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Stocks

Most stocksbought and soldon the stock

market daily arenot newly issuedbut issued longago, when the

firm goespublic.


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Astockis a certificate that certifies ownershipof a certain portion of a firm.


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Astockis a certificate that certifies ownershipof a certain portion of a firm.


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Stocks

Stockholders have a right to select themanagement of the firm and to share inits profits.

Unlike bonds or direct borrowing, stocksdo not promise a fixed annual payment.Returns depend on company

performance. If profits are high, the firmmay pay dividends=


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Types of Stocks

1. Common Stock:

2. Preferred Stock:

. 1.

.2 . )Dividends )

.

.3 .


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Stock exchange

A stock exchange, share market orbourse is acorporation or mutual organization which provides"trading" facilities forstock brokers and traders, to

trade stocks and othersecurities. Stock exchangesalso provide facilities for the issue and redemption ofsecurities as well as other financial instruments andcapital events including the payment of income and

dividends.


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Prepared by: Dr Mirwais Khaleel Safi

Stock market

A stock market, or (equity market), is a private orpublic market for the trading of company stock and

derivatives of company stock at an agreed price;these are securities listed on a stockexchange as well as those only traded privately.


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History of stock exchanges

In 11th century France the courtiers dechange were concerned with managingand regulating the debts of agriculturalcommunities on behalf of the banks. As

these men also traded in debts, they couldbe called the first brokers.

Some stories suggest that the origins ofthe term "bourse" come from the Latinbursa meaning a bagbecause, in 13th

century Bruges, the sign of a purse (orperhaps three purses), hung on the frontof the house where merchants met.


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The role of stock exchanges

Stock exchanges have multiple roles in the economy,this may include the following:[1]

1. Raising capital for businesses The Stock Exchange provides companies with the

facility to raise capital for expansion through sellingshares to the investing public.[2]
http://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchange


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2. Mobilizing savings for investment

When people draw their savings and invest inshares, it leads to a more rationalallocation of resources because funds,which could have been consumed, or keptin idle deposits with banks, are mobilizedand redirected to promote business activitywith benefits for several economic sectorssuch as agriculture, commerce and

industry, resulting in a stronger economicgrowth and higher productivity levels andfirms.


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3. Facilitating company growth

Companies view acquisitions as anopportunity to expand product lines,

increase distribution channels, hedgeagainst volatility, increase its marketshare, or acquire other necessary

business assets. A takeover bid or amerger agreement through the stockmarket is one of the simplest and mostcommon ways for a company to grow

by acquisition or fusion.


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4. Redistribution of wealth

Stocks exchanges do not exist to

redistribute wealth. However, bothcasual and professional stock investors,through dividends and stock priceincreases that may result in capital

gains, will share in the wealth ofprofitable businesses


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5. Corporate governance

By having a wide and varied scope of

owners, companies generally tend toimprove on their managementstandards and efficiency in order tosatisfy the demands of these

shareholders and the more stringentrules for public corporations imposedby public stock exchanges and thegovernment


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6. Creating investment opportunities forsmall investors

As opposed to other businesses thatrequire huge capital outlay, investing inshares is open to both the large andsmall stock investors because a person

buys the number of shares they can

afford. Therefore the Stock Exchangeprovides the opportunity for smallinvestors to own shares of the samecompanies as large investors


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7. Government capital-raising for developmentprojects

Governments at various levels may decide to borrow money inorder to finance infrastructure projects such as sewage andwater treatment works or housing estates by selling another

category of securities known as bonds. These bonds can beraised through the Stock Exchange whereby members of thepublic buy them, thus loaning money to the government. Theissuance of such bonds can obviate the need to directly tax thecitizens in order to finance development, although by securingsuch bonds with the full faith and credit of the government

instead of with collateral, the result is that the government musttax the citizens or otherwise raise additional funds to make anyregular coupon payments and refund the principal when the

bonds mature.


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8. Barometer of the economy

At the stock exchange, share prices rise andfall depending, largely, on market forces.

Share prices tend to rise or remain stablewhen companies and the economy in generalshow signs of stability and growth. Aneconomic recession, depression, or financialcrisis could eventually lead to a stock market

crash. Therefore the movement of share pricesand in general of the stock indexes can be anindicator of the general trend in the economy.


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Determining ( ( the Price of a Stock

Things that are likely to affect the priceof a stock include:

What people expect its future dividends willbe

When the dividends are expected to be paid

The amount of risk involved


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The amount by which future dividends( (are discounted depends onthe interest rate. The larger the interestrate, the more will expected futuredividends be discounted.

Pays one yearfrom now

Amount todayInterest rate

$110

$104.765%

$110

$10010%


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Thus we can say that the price of a stockshould equal the discounted value ( ( of its expected futuredividends, where the discount factorsdepend on the interest rate and risk.

Announcements of higher expected

future dividends or perceived lower riskshould increase the firms stock price.


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The price of a stock may also be drivenup not by the discounted value ofexpected future dividends, but by

peoples views of what others will payfor the stock in the future.

One might call this a bubble because thestock price depends on what people

expect that other people expect, etc.


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Major stock exchanges

$1.66$1.26Korea Exchange

$1.70$2.97Hong Kong Stock Exchange

$0.263$1.61Bombay Stock Exchange

$1.003$1.453Australian Securities Exchange

$28.7$20.7NYSE Euronext

$1.36$2.29Toronto Stock Exchange

$0.476$1.40So Paulo Stock Exchange

$12.4$4.39NASDAQ

$0.349$0.940JSE Securities Exchange

)trillions of USdollars(

)trillions of USdollars(

Total ShareTurnoverMarket ValueStock Exchange


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The Stock Market Since 1948

Dow Jones Industrial AverageIndex:

An index based on the stock prices of 30actively traded large companies. The oldest

and most widely followed index of stockmarket performance.

:


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The Stock Market Since 1948 NASDAQ Composite Index:

An index based on the stock prices of over5,000 companies traded on the NASDAQstock market. The NASDAQ market takes isname from the National Association ofSecurities Dealers Automated QuotationSystem.

() NASDAQ .

No. of listings 3,200

Currency USD

Key people Robert Greifeld )CEO(H. Furlong Baldwin )Chairman(

Owner the NASDAQ OMX Group

Location Times street New York City, United States

Type Stock exchange


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NYSE


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Standard and Poors 500 (S&P 500)Index:

An index based on the stock prices of thelargest 500 firms traded on the New YorkStock Exchange )NYSE(, the NASDAQstock market, and the American StockExchange.ASE


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From a macroeconomic perspective, the DowJones Industrial Average and theNASDAQ indexcover too small a sample of firms.

A better measure of the market value of all firms inthe economy is the Standard and Poors 500 stock

price index, called the S&P 500.

h S k k


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The Stock Marketand the Economy

boom( ( =

The stock market boom of the last half of

the 1990s had a large impact on theeconomy.

How much of the economic growth was due

to the stock market boom? Did the economy in fact enter a new age?

Th S&P 500 S k P i I d


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The S&P 500 Stock Price Index,1948 I 2002 III


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Between 1995 and 2000, the S&P 500index rose 226 percent, an annual rate of25 percent!

This is by far the largest stock marketboom in U.S. history. Thisboom added $14 trillion to household wealth, about $2.5 trillion per year.(25,000,000,000,000)


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The stock market boom cannot beexplained by a large fall in interest rates,higher profits, or a fall in the perceived

riskiness of stocks. This led manypeople to the view that it was simply abubble.

Millions of lives were affected by theeuphoria of the boom andthe correction that followed.


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Stock Market Effects on the Economy

An increase in stock prices causes anincrease in wealth, and consequently anincrease in consumer spending.

Investment is also affected by higherstock prices. With a higher stock price,a firm can raise more money per share to

finance investment projects.


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Poor Millionaires of ZimbabweA period of continuous uncontrolled rise in

prices of goods in an economy is called inflation.

P Milli i f Zi b b


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Poor Millionaires of Zimbabwe( money inflation )

P Milli i f Zi b b


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P Milli i f Zi b b


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Poor Millionaires of Zimbab e


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Poor Millionaires of Zimbabwe


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12/15/08

Thank You forAttention

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