3. securities and investment


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3. securities and investment

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