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3. securities and investment

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ITB Accounting and Finance

ITB Accounting and Finance

Published in: Business, Economy & Finance

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  • 1. CHAPTER 19 Understanding Securities and Investments
  • 2. Chapter Outline
    • Securities Markets
    • Stocks
    • Bonds
    • Other Investments
    • Buying and Selling Securities
    • Securities Market Regulation
  • 3. What Are Securities? Stocks and bonds representing secured , or asset-based , claims by investors against issuers
  • 4. What is the Primary Securities Market? Market in which new stocks and bonds are bought and sold
  • 5. What is the Security and Exchange Commission (SEC)? Federal agency that administers Pakistan’s securities laws to protect the investing public and maintain smoothly functioning markets
  • 6. SECP
    • It Succeeded the Corporate law Authority and came into existence on Jan 01, 1999.
    • The SECP board is directly answerable to the parliament.
    • Consist of 06 division
      • Security market
      • Non-banking financial sector
      • Company law administration
      • Enforcement
      • Insurance
      • Support services
  • 7. What is an Investment Bank? Financial institution engaged in issuing and reselling new securities
  • 8. Investment Banking
    • Provides three important services:
    • They advise companies on the timing and financial terms of new issues.
    • By underwriting (buying) new securities, they bear some of the risks of issuing them.
    • They create the distribution networks for moving new securities through groups of other banks and brokers into the hands of individual investors.
  • 9. What is the Secondary Securities Market? Market in which stocks and bonds are traded
  • 10. Common Stock
    • Stock values are expressed in three different ways:
      • Par value is the face value of a share of stock at the time it is originally issued
      • Market value is the current price of a share in the stock market
      • Book value is the value of a common stock expressed as total shareholders’ equity divided by the number of shares of stock
  • 11. Investment Traits of Common Stock
    • Common stocks are among the riskiest of all securities.
    • Common stocks offer high growth potential.
      • Blue-chip stock is issued by a well-established company with a sound financial history and a stable pattern of dividend payouts
        • The “Old” Economy versus the “New”: What’s a “Blue Chip” Now?
  • 12. Preferred Stock
    • Preferred stock is usually issued with a stated par value.
      • Dividends are typically expressed as a percentage of par value.
    • Some preferred stock is callable .
      • Call price is the amount of payment specified in the purchase agreement between the firm and its preferred stockholders
  • 13. Investment Traits of Preferred Stock
    • Preferred stock has first rights to dividends.
    • Preferred stock is less risky than income from the same firm’s common stock.
      • Cumulative preferred stock is preferred stock on which any missed dividend payments must be paid as soon as the firm is able to do so
  • 14. What is a Stock Exchange? Organization of individuals formed to provide an institutional setting in which stock can be traded
  • 15. Stock Exchanges
    • The Trading Floor
      • Trading is allowed only at an actual physical location called the trading floor .
    • Brokers are individuals or organizations who receive and execute buy-and-sell orders on behalf of other people in return for commissions. Types include:
      • Discount Brokers
      • Online Trading
      • Full-Service Brokers
  • 16. The Karachi Stock Exchange
    • Established on 18 Sept, 1947.
    • At the beginning 90 members were registered
    • Listed Companies 690
    • Total 34 sectors
  • 17. Market Indices
    • KSE began with a 50 shares index.
    • On Nov 01, 1991 the KSE-100 was introduced.
    • KSE-100 is a capital weighted index
    • Consists of 100 companies
    • Represents 83% market capitalization.
    • All share index was introduced on Sept 18, 1995.
  • 18. What is a Bond? Security through which an issuer promises to pay the buyer a certain amount of money by a specified future date
  • 19. Types of Bonds
    • Government bond is issued by the federal government
    • Municipal bond is issued by a state or local government
    • Corporate bond is issued by a company as a source of long-term funding.
      • Registered and Bearer (or Coupon ) Bonds
      • Secured Bonds
      • Debentures
  • 20. The Retirement of Bonds
    • Callable bonds may be called in and paid for by the issuer before its maturity data
      • Sinking Fund provisions
    • Serial bonds are retired when the issuer redeems portions of the issue at different preset dates
    • Convertible bonds can be retired by converting it to common stock
    • Secondary Markets for Bonds
      • Nearly all secondary trading in bonds occurs in the OTC market rather than on organized exchanges.
  • 21. Government bonds in Pakistan
    • Issued By Government
      • Pakistan Investment Bonds
      • Euro Bond
      • Prize Bonds
  • 22. Corporate bonds in Pakistan
    • Issued By Corporations
      • Term Finance Certificates
        • 29 TFC’s are registered and traded on Karachi Stock Exchange
  • 23. Other Investments
    • Commodities market is a market in which futures contracts are traded
      • Futures Contracts
  • 24. Bull and Bear Markets