...OR BROKER A member of stock exchange Stock Exchange INVESTOR KNOWN AS OVER THE COUNTER (OTC) TRADING COUNTERPARTY What’s a Stock Exchange ? 1. Stock trades conducted via centralized place. 2. Examples: NYSE, The Egyptian Exchange, London Stock Exchange… 3. Buy/ Sell is conducted through the exchange; no direct contact between seller & buyer; Exchanges acting as a counterparty to all trades. What’s an OTC? 1. No centralized place where trades are made. 2. Market is made up of all participants in the market trading among themselves. 3. Example FOREX/FX. Why Stock Exchange and not OTC? 1. Necessarily OTC is not the quickest means to trade. You may have to look for a suitable counterparty on your own. That may take time! 2. Can you trust your counterparty?? That’s a risk! 3. Pricing! How would you decide on the pricing? Do you have a reference based on which your are marking the price of your share?? Why Stock Exchange? 1. Removes counterparty risk; trade obligations guaranteed. 2. All trade flow through one central place; price quoted for an instrument is always the same regardless of the size of trading entity. 3. All firms that offer exchange traded products must be members and registered with the exchange; greater regulatory, safer place for individuals trade. How Does A Stock Exchange Guarantee? Answer is through CCP: Central Counterparty Clearing House What’s CCP? CCP is the acronym for central (clearing)...
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...individuals decide how to allocate their money between different types of investments, they must weigh the trade-off between risk and return. The purpose of the next four chapters is to explore that trade-off in depth. We begin in Chapters 4 and 5 by describing two of the most common types of investments available in the market—bonds and stocks. The bond market is vast, and it plays an extremely important role in the economy. Federal, state, and local governments issue bonds to finance all kinds of public works projects and to cover budget deficits. Corporations sell bonds to raise funds to meet daily operating needs and to pay for major investments. Chapter 4 describes the basic bond features and explains how investors value bonds. Chapter 5 examines the stock market. Valuing stocks is more complex than valuing bonds because stocks do not promise fixed payment streams as do bonds. Therefore, Chapter 5 discusses methods that investors and analysts use to estimate stock values. The chapter also provides a brief explanation of how firms work with investment bank- ers to sell stock to the public and how investors can trade shares of stock with each other. With the essential features of bonds and stocks in hand, Chapter 6 explores the historical returns earned by different classes of investments. The data illustrate that a fundamental trade-off between risk and return confronts investors. Chaucer was right. Investors who want to get rich have to accept...
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...that will affect you monetarily and possibly credit wise. Funding a Business Venture The pros and cons to starting-up a business have been weighed. I do not have the money to start-up a business and neither the patience or time to see a business venture through. I weighed my options in starting a business: borrow money, sell stock, or license the technology. I have decided to license my technology. By doing this, I will have freed up my time and will not have to worry about incurring the expense in manufacturing, marketing, distributing, and selling a product. (Jackim, 2009) Nothing is easy in business. Sacrifices have to be made and deciding in which direction to go are major decisions. Go and talk with an investment banker. An investment banker is someone who specializes in different areas of economic growth. By hiring an investment banker, this person can assist in the legal and controlling obstructions in getting financed. He or she knows what to do in order to get the business the finances that are needed. The next step is to pay attention to the Stock Market. The Stock Market is an electronic public existence where...
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...about PIPEs was material inside information, Mark Cuban was not accused as traditional insider information. To qualify as traditional insider trading, there must involve true insiders buying or selling the company’s stock based on material inside information. We need to decide whether Mark Cuban is an insider or not. After buying 600,000 shares of Mamma.com, Mark Cuban became the largest individual shareholder but he actually just held 6.3% of the company. As stated in the securities exchange act of 1934, an insider means officers, directors, and large stockholders of Section 12 corporations (those owning 10% of the class of equity securities.) In this case, Mark Cuban’s share was not exceed 10%; therefore, he was not an insider. Therefore, he was not accused of traditional insider trading. 2. Why didn’t the SEC accuse Mark Cuban of tipper-tippee, illegal insider trading, since he sold his stock based on what Guy Faure told him on the phone on June 28th, 2004? If the CEO had “tipped” Cuban, with awareness he would sell his stock, both Cuban and the CEO would have engaged in tipper-tippee insider trading, provided the CEO received a personal benefit from “tipping” Cuban. If the CEO knowingly gave Cuban material, nonpublic information and arranged so he could trade on it, it would not be difficult for a court to infer that the CEO must have done so for some personal benefit. 3....
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...of relevant information in regard to investment options is easily accessed and reliable ("What Is An Efficient Market?", 2013). Anyone who is involved in trade is able to make use of the information to assess the past performance of the security in question. They can accurately identify the reasons for the current unit price and can responsibly project the future performance of the security based on current indicator. Primary Market Primary Market is a market in which new, as opposed to previously issued, securities are bought and sold for the first time (Titman, Keown, Martin, 2011, Pg.26). This market is used for firms to issue new securities to raise money that they can then use to finance their business. Secondary Market A secondary market is where previously used securities are subsequently traded. In this market, the issuing firm does not receive any new finances on the securities already sold; it is just transferred from one investor to another (Titman, Keown, Martin, 2011, pg. 26). Risk Risk in finance simply means that the probability that an actual return on an investment will be lower than the expected return ("Risk", 2013). Security Securities are negotiable instruments that represent a financial claim. It takes the form of ownership or debt agreement. They allow business and individual investors to trade in public market (Titman, Keown, Martin,...
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...shareholders. Part B: Exercises 1. How much is added to a firm’s weighted average cost of capital for 50% debt financing with a required rate of return of 12% and a tax rate of 35%? We have to calculate the proportion of WACC that stems from debt. [pic] 2. What is the WACC for a firm with 60% debt and 40% equity that pays 12% on its debt, 20% on its equity, and has a 40% tax rate? [pic] 3. Company X has two million shares of common stock outstanding at a book value of $2 per share. The stock trades for $2.50 per share. It also has $1 million in face value of debt that trades at 120% of par. What is its ratio of debt to value for WACC purposes? $2 million shares ⋅ $2.50 = $5,000,000 $1 million debt ⋅ 20% = $1,200,000 Total Value = $6,200,000 [pic] 4. What is the after-tax cost of preferred stock that sells for $5 per share and offers a $0.75 dividend when the tax rate is 35%? [pic] Preferred stocks pay dividends, which use non–contractual payments, and...
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...Major Differences in Equity-financing and Debt-financing In Islamic Finance And Conventional Finance In equity financing, there are practically no major differences. The contract of al-Musharakah (Joint-Venture ProfitSharing) is, in essence, similar to the conventional concept of joint-stock company. Therefore - except for some minor to finance projects through equity participation, to float a company on the stock exchange, to organise a venture capital company, or to form an equity unit trust, would be generally the same under the Islamic equity-financing as under the conventional equity-financing. The contract of Al-Mudharabah (Trustee Profit-Sharing) - whereby one party (the owner of capital) provides fund for the other party (the entrepreneur) to invest or trade and generate profit and both share in the profit in pre-agreed proportions - while not widely practised is actually not totally unknown in the conventional financial system. A clear example is the occurrence of this type of contract sometimes in portfolio management business. However, major differences between the Islamic financial system and the conventional financial system prevail in debt financing. Debt financing in the conventional financial system is almost totally based on interest-based lending, while this contract is forbidden (that is, Haram) in the Islamic financial system. Conversely, the Islamic debt-financing instruments of Deferred Contracts of Exchange are not generally known in the conventional...
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...discuss the various issues regarding the options market and how it affects U.S. markets and institutions. This includes a breakdown of the options market, the market makers’ role, and how the options market affects the equity market. Options Market Nowadays, many investors’ portfolios include investments such as mutual funds, stocks, and bonds. But that is not all there is for investors to invest in. Another method of investment is called options, and it brings a world of opportunities for investors. However, options are complex securities and can be extremely risky. Options, as the name implies, give the option to the buyer to either sell or buy a stock for a given price. The right to buy stock at a given price is called a “call option” and the right to sell it is called “put option”. Options were designed to take advantage of the volatility in the market and are used by investors to speculate on the price movements of the underlying stock, to adjust risk and returns of their portfolios, and even for hedging purposes (Milton 2014). There are investors that go even further and exclusively trade options rather than a combination of options and stock. This allows them to save on transaction costs, avoid tax exposure, and market restrictions. Over the years, options have been getting...
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...Overview From September 3rd, 2015 to October 28th, 2015, our group was given the opportunity to manage an investment portfolio, with the goal of maximizing the value of the portfolio through acquiring, holding, and selling stock. The beginning cash balance of the portfolio was $100,000, and our group had the ability to make up to 500 trades. During this time period, our group made 20 stock purchases and sold stock twice. At the close of business on October 28, 2015, the value of our group’s portfolio increased from $100,000 to $106,785.33, yielding a return of 6.78% (((106785.33/100,000)-1) x 100)). In comparison to the S&P 500 returned at 7.16% and the Dow Jones having a return of 8.65% (Yahoo). Strategy We attempted to build a diverse portfolio whilst being observant of any news regarding public companies so as to take advantage of any current events that may have impacted a company’s value. Further, rather than being fickle with our stocks, attempting to time the market, and racking up brokerage fees, we mostly stuck to a buy-and-hold approach. Diversification is an important component of creating a profitable investment portfolio, as Markowitz demonstrated mathematically in the 1950s, because it reduces uncertainty. The group focused on making sure we held securities in as many different industry sectors as possible. We were able to diversify into 15 companies across eight different industries: • Auto • Ford (F) Financial • A.I.G. (AIG) • Citigroup (C) ...
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...great new product that the research company has invented so he can buy up all of the company's stocks that he can get his hands on and sure enough after the announcement, shares soar from $10 to $50 a share. Issue: What law if any did Aquaman violate and what remedy should the shareholders seek? Rule of Law: Securities and Exchange Act of 1934 17 C.F.R. § 240.10b-5 Employment of manipulative and deceptive devices. It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,(a) To employ any device, scheme, or artifice to defraud,(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. SEC v. Antar, 15 F. Supp. 2d 477 (D.N.J. 1998) dealt with whether corporate insiders traded in the securities of his corporation on the basis of material and nonpublic information. The defendants participated in multifaceted fraud schemes for the purpose of artificially inflating the price of stock, selling their substantial stock holdings to an unwitting public, and profiting in excess of $20 million. The court stated...
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...all operational entities are a 60/40 owned by the two holding vehicles. The equity listings of the companies I am familiar with are more like a merger of two companies. In a merger, both companies would become one sharing everything that they own. The two listed organizations have entered into profitsharing agreements with each other, and equalizationratios exist to keep the economic performances of the two stocks linked to each other. ADRs: An ADR is an American Depository Receipt which is a stock that trades in the United States but represents a specified number of shares in a foreign corporation. ADRs are bought and sold just like stocks through a bank or brokerage. Investors usually find it more convenient to own an ADR since ADRs allow easy comparison to securities of similar companies as well as access to price and trading information. Companies may find it attractive to issue ADRs if they want a significant amount of investors in a foreign market. ADRs are common among large corporations and allow companies to offer their stock without being listed on the U.S. stock exchange. ADRs are a way for company to...
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...Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (Statement 140)). The specific topics, highlighted in the examples below, include (1) attached call options on specific assets and freestanding call options on specific assets readily obtainable elsewhere, (2) conditional call options on transferred assets, and (3) in-the-money put options on transferred assets. Example 1 DrugKing transfers two financial assets, its investments in the Series A and Series B preferred stock of Tip-Top, to InsureAll, a substantive third party (i.e., the transaction does not involve a qualifying special-purpose entity (QSPE)). The Series A and Series B preferred stock are traded publicly (i.e., they are readily obtainable in the marketplace). DrugKing holds a call option, written by InsureAll, on the Series A preferred stock, which will allow it to repurchase the asset from InsureAll two years after the transfer date. DrugKing attaches a call option directly to the Series B preferred stock that will allow it to repurchase the asset from whoever owns the asset up to two years after the transfer date. Both options have a fixed exercise price. Outside counsel for DrugKing concludes that both transfers isolate the transferred assets (i.e., the assets have been put presumptively beyond the reach of DrugKing and its creditors, even in bankruptcy or other receivership). Example 2 DrugKing transfers a financial asset, its investment in a debt security, to InsureAll, a substantive third...
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...Joint Stock Company A joint stock company is defined as a corporation having its own trade name and a predetermined amount of capital divided by shares. The liability of shareholders is limited to their capital. The structure and organisation of joint stock companies are subject to regulation by the Turkish Commercial Code. However, the founders of joint stock companies are afforded significant flexibility in drafting the articles of association, thereby serving the needs of the specific venture. Capital Market Board regulations also apply to joint stock companies whose shareholders number at least 250, or who have issued bonds or whose shares are quoted on the Istanbul Stock Exchange. A minimum of five shareholders, who may be either real persons or legal entities, are required for the formation of a joint stock company. The overall share capital must be a minimum of 50 billion TL . The capital of a joint stock company is divided into shares of equal value which are treated as negotiable commercial paper. The shares may be issued in either registered or bearer form. Registered shares are freely transferable subject to approval by the board of the company, unless prohibited by the company's articles of association. Bearer shares are freely transferable under the Code of Obligations, unless otherwise agreed by the parties. Decision making in a joint stock company is by majority vote; but the Turkish Commercial Code includes certain provisions to protect minority interests...
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...Question 1 Sources of finance of high-tech firm There are a number of ways of raising finance for a business. The type of finance chosen depends on the nature of the business. Large organizations are able to use a wider variety of finance sources than are smaller ones. Sources of finance can be classified into internal sources (raised from within the organisation) and external (raised from an outside source). There are five internal sources of finance, owner’s investment, retained profits, sale of fixed assets, sale of stock and debt collection. There are also five external sources of finance, bank loan or overdraft, additional partners, share issue, leasing, hire purchase mortgage, trade credit and government grants. For a high-tech company, firstly, long-term sources of finance should be used. For example, owner’s investment should become the first fund of the company. Owner’s investment is money which comes from the owner’s own savings. It is the form of start up capital - used when the business is setting up, it also can be used for business expansion. Owner’s investment is a long-term source of finance and there is no interest needs to be paid. But owner’s investment is a limit to the amount because of the owner has a limited amount that can be invest. The founder should look for more money from other aspects in order to start up a new company successfully. Bank loan is a good choice for the founder. Bank loan is money borrowed at an agreed rate of interest over a set...
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...businesses and investors to make the best investment decisions possible based off of current information. 3. Primary Market – The market where companies initially sell stocks that they have been authorized to sell. The primary market allows firms to raise available capital by going public and selling initial stocks. 4. Secondary Market – The market where investors sell and trade previously issued stock. The secondary market allows investors to buy, sell, and trade previously issued stock in the hope of earning money for them. The gain or loss is not absorbed by the company that issued the stock but rather the person who initially purchased the stock. 5. Risk – The chance that the actual return on an investment will be less than what was the projected return. Taking on risky investments that have a higher projected return can lure in investors. The projected returns are higher because the risk of failure, or loss of money, has a higher possibility. 6. Security – An instrument that is issued to show ownership. Common securities are bonds, notes, and stock shares. Securities are used by publicly traded companies to raise capital for further expansion of their existing company. 7. Stock – The capital raised by the selling of shares. Also, the proof of partial ownership in a publicly traded company. Stocks are used as an instrument for companies to raise money and for investors to purchase and sale in the hope of turning a...
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