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Securities markets4453


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  • 1. Securities Market Investments and Portfolio Management MB 72
  • 2. Outline  Meaning of Financial Markets  Role of Financial Markets  Types of Financial Markets – Primary Markets – Secondary • Stock Exchanges • Over-the-Counter Market • Third and Fourth Market  Mechanics of Trading – Types of Orders – Margin Trading
  • 3. Financial Markets A place where borrowers and lenders are brought in contact with one another Help in allocation of scarce resources in the economy Channeling savings into investments Provide an economy’s link with the future
  • 4. Primary Markets New issues market which brings together the supply and demand or sources and uses for new capital funds A market where securities are issued for the first time contributes directly to capital formation any increase in primary market activity leads to more investment, more capital formation
  • 5. Secondary Market  Deals in existing securities; market for buying and selling of existing securities  does not directly contribute to capital formation  increase in volume of business in the secondary market does not mean more capital formation  Indirectly helps in capital formation  Secondary markets can be classified as: – Auction Markets – Negotiated Markets  Stock Exchanges are classified as auction markets  Over-the-Counter Market  What is a third market?  What is a fourth market?
  • 6. Mechanics of Trading  Open a brokerage account – cash account – margin account  Types of Orders – Market order • buy/sell securities at the best available price in the market – limit order • specifies a particular price to be met or bettered – stop order • specifies a certain price at which a market order is to take over
  • 7. Margin Trading  A customer can pay part of the total amount due and borrow the remainder from the broker, who in turn typically borrows from a bank to finance customers.  Margin is that part of a transaction’s value that a customer must pay to initialize the transaction. It is part of the total value of the transaction that cannot be borrowed from the broker.  What is initial margin? – Part of a transaction’s value that a customer must pay to initialize a transaction  What is maintenance margin? – Minimum amount needed in the investors account at all times as compared to the market value  What is margin call? – A margin call is issued when the actual margin declines below the maintenance margin
  • 8. Market Value of securities minus Amount Borrowed Actual Margin = ----------------------------------------------------------- Market Value of Securities