The document discusses various topics related to securities markets, including the different types of securities (common stock, preferred stock, bonds), how securities are issued and traded, and how markets are regulated. It also addresses investment strategies, brokers, and how individuals can participate in securities markets. The overall purpose is to provide an overview of key concepts regarding trading financial resources and investing.

1. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2. BUSN
10
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
Securities Markets:
Trading Financial Resources
• What are the different types of securities issued
by a corporation?
• How are securities issued in the primary market
and traded in the secondary market?
• How do the government and private organizations
regulate securities markets?
• What are the different types of investment
strategies that investors follow?
• What are the appeals of mutual funds and
exchange traded funds?
• How can investors track the performance of their
investments?
2

3. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Basic Types of Financial Securities
3
Three major types of securities that
are traded in markets:
Common Stock
Preferred Stock
Bonds

4. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Common Stock: Basic Ownership
4
• Voting Rights
• Right to Dividends
• Capital Gains
• Preemptive Rights
• Right to Residual
Claim on Assets
The basic form of ownership in a corporation

5. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Preferred Stock: Getting Preferential Treatment
5
Stock that gives its holder preference over common
stockholders
 No Voting Rights
 Claim on Assets
 Payment of Dividends
 Cumulative Feature

6. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Bonds: Earning Your Interest
6
Long-term debt issued by a corporation or government
• Maturity Date
• Par Value
• Premium
• Discount
• Coupon Rate
• Current Yield
Bonds are a legal obligation

7. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Could Your Best Investment Be a Piece of Junk?
• Junk bonds are bonds issued by companies with poor
credit ratings.
• Junk bonds offer a higher rate of interest (and risk).
• In 2007, only 22 companies in the world defaulted in
their bonds.
• During the recession in 2008, the number soared to 126.
• In late 2008, investing in junk bonds became a hot
strategy.
7

8. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Methods of Retiring Bonds
8
• Most bonds are secured with a pledge of specific
assets.
• Methods of retiring bonds:
 Serial bonds have unique maturity dates and help spread
out repayments.
 Companies may establish a sinking fund to assist in
repayment. Sinking funds allows the issuer to buy back
bonds each year.
• Callable bonds have provisions for early redemption.
• Convertible bonds allow bonds to be transferred into
shares of common stock.

9. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Trading Securities: The Primary Market
9
Public Offering:
• Initial Public Offering
(IPO)
• Select an Investment
bank (underwriter)
• Prepare paperwork
• Arrange for financing
• Carry out the offer
Private Placement:
• Quicker, simpler, less
expensive
• Investment bank
assistance
• No SEC registration
• Only available to
accredited investors

10. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Trading Securities: The Secondary Market
10
Security Exchanges
• New York Stock Exchange
Traditionally an “auction market”
• NASDAQ
Electronic exchange
Over the Counter Market
Electronic Communication Networks
Two largest
exchanges in
the United
States

11. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Major Global Stock Exchanges
11

12. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Big Changes at the NYSE
12
• The Hybrid Market changed more in 2008
• NYSE replaced its specialists with designated market
makers (DMMs) who have more freedom to participate in
the market for specific stocks.
NYSE Hybrid Market - a new trading system
to allow investors to execute trading through an
automated trading system called NYSE Direct+

13. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Over-the-Counter Market (OTC)
• Small corporations or those without
satisfactory business performance are listed on
the OTC.
• Some corporations choose OTC to avoid listing
fees and charges.
• The market for most OTC is much less active
than stocks listed on the major exchanges.
13

14. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Penny Stocks:
Finding Something Pretty in the Pinks?
1,000 shares of stock for under a hundred bucks!
• Penny stocks are low-priced speculative stocks issued by
small corporations.
• They are not traded on major exchanges
• Listed on online services called Pink Sheets
• Investing in penny stocks is risky
• The companies lack the resources to survive setbacks
• Limited reliable information
• Little SEC oversight
• The market is not active – it make be hard to find buyers
if you want out
14

15. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Electronic Communications Networks
 A new completely computer-based securities market
 ECNs automatically match buyers and sellers
 Investors can trade “after hours”
 Both NYSE and NASDAQ have bought into ECNs
15

16. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Regulation of Securities Markets:
Establishing Confidence in the Market
16
• State Regulations
• Federal Legislation
• Securities Act 1933
Require firms to file registration when issuing stock
• Securities Exchange Act of 1934
• Securities and Exchange Commission
• Established report filing
• Registration of brokers and dealers
• Prosecution power
• Individual and Company Fraudulent Activity
(i.e. insider trading)

17. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Symbolic Logic: Do You LUV this HOG’s DNA?
Every publicly traded corporation is identified by a
unique combination of letters known as stock symbols.
Can you Guess These?
17
GOOG HOG
MMM DNA
JAVA LUV
Google Harley-Davidson
3M Genentech
Sun Microsystems Southwest Airlines

18. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Personal Investing
18
 What are your short-term and long-term goals?
 Given your budget, how much are you able to
invest?
 How long can you leave your money invested?
 How concerned are you about the tax
implications of your investments?
 How much tolerance do you have for risk?
 DIVERSIFICATION

19. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Choosing a Broker: Access to the Markets
19
• Individuals must use a broker
to trade stocks on the organized
exchanges and OTC market.
• Full Service Brokers
Provide a range of services
• Discount Brokers
Basic buy/sell capabilities
• The competition between
brokers is intense and both
attempt to offer more services.

20. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Buying Securities: Let’s Make a Deal
20
Market Orders –
buy or sell a security
at the current
market price
Limit Orders –
place limits on the price
at which orders
are executed

21. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Strategies for Investing in Securities
21
• Investing for Income
• Market Timing
• Value Investing
• Investing for Growth
• Buying and Holding

22. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
How Do You like Them Apples?
• In the first years of the iPod, Apple’s stock went to
the moon
• Shares rose 1600% between 2003 and 2007
• Many investors missed out—they had bailed on
Apple at the turn of the century
• The fast rise of the stock even shocked Apple insiders
 Steve Jobs, the company CEO, had renegotiated his stock
options
 Although his stock was worth over a billion dollars in
mid-2007, they would have been worth over $5 billion
22

23. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Other Investment Options:
Mutual Funds and Exchange Traded Funds
Mutual Funds
• Diversification
• Professional Management
• Variety
• Liquidity
23
Exchange Traded Funds
•Features of stocks and a
mutual fund
•Purchasing ownership in a
“market basket” of stocks
•You can buy and sell ETFs
any time of the day, unlike
Mutual Funds

24. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Does Green Investing Earn Green Returns?
• The New Alternatives Fund which was established in
1982 selected stocks based on environmental
considerations.
• The number of green funds has grown
• Over the long haul, these funds are making money
• The Winslow Green Growth Fund has an annual
return of 8.45%
24

25. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Stock Indices: Tracking the Trends
25
Stock Index :
Tracks how the prices of
a specific set of stocks
have changed
Dow Jones Industrial Average (DJIA) – most widely
followed index. Tracks 30 stocks picked by the Wall
Street Journal editors.
Standard and Poor’s 500:
Tracks 500 stocks and
weighs the total market
value of each stock

26. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Major Stock Price Indices
26

27. BUSN
10 Securities Markets: Trading Financial Resources
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Tracking the Performance of Specific Securities
27
Source: Yahoo! Finance stock quote accessed April 2, 2009. Reproduced with permission of Yahoo!
Inc. YAHOO! and the YAHOO! logo are registered trademarks of Yahoo! Inc.
Source: Yahoo! Finance stock quote accessed April 2, 2009. Reproduced with
permission of Yahoo! Inc. YAHOO! and the YAHOO! logo are registered
trademarks of Yahoo! Inc.

28. BUSN
10
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
Looking Back
• What are the different types of securities issued
by a corporation?
• How are securities issued in the primary market
and traded in the secondary market?
• How do the government and private organizations
regulate securities markets?
• What are the different types of investment
strategies that investors follow?
• What are the appeals of mutual funds and
exchange traded funds?
• How can investors track the performance of their
investments?
28