1.
Financial market
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A financial market is a market in which people trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural products, in economics, typically, the term market means the aggregate of possible buyers and sellers of a certain good or service and the transactions between them. The term market is used for what are more strictly exchanges, organizations that facilitate the trade in financial securities. This may be a location or an electronic system. Another common use of the term is as a catchall for all the markets in the financial sector, capital markets which to consist of, Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof. Bond markets, which provide financing through the issuance of bonds, commodity markets, which facilitate the trading of commodities. Money markets, which provide short term debt financing and investment, derivatives markets, which provide instruments for the management of financial risk. Futures markets, which provide standardized forward contracts for trading products at some future date, Foreign exchange markets, which facilitate the trading of foreign exchange. Spot market Interbanks market The capital markets may also be divided into primary markets, newly formed securities are bought or sold in primary markets, such as during initial public offerings. Secondary markets allow investors to buy and sell existing securities, the transactions in primary markets exist between issuers and investors, while secondary market transactions exist among investors. Liquidity is an aspect of securities that are traded in secondary markets. Liquidity refers to the ease with which a security can be sold without a loss of value, securities with an active secondary market mean that there are many buyers and sellers at a given point in time. Investors benefit from liquid securities because they can sell their assets whenever they want, Financial markets attract funds from investors and channel them to corporations—they thus allow corporations to finance their operations and achieve growth. Money markets allow firms to borrow funds on a term basis. Without financial markets, borrowers would have difficulty finding lenders themselves, intermediaries such as banks, Investment Banks, and Boutique Investment Banks can help in this process. Banks take deposits from those who have money to save and they can then lend money from this pool of deposited money to those who seek to borrow. Banks popularly lend money in the form of loans and mortgages, a good example of a financial market is a stock exchange. A company can raise money by selling shares to investors and its shares can be bought or sold
2.
Market (economics)
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A market is one of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers and it can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and allocation of resources in a society, Markets allow any trade-able item to be evaluated and priced. A market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights of services, Markets can also be worldwide, for example the global diamond trade. National economies can be classified, for example as developed markets or developing markets, in mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services, with or without money, is a transaction, a major topic of debate is how much a given market can be considered to be a free market, that is free from government intervention. However it is not always clear how the allocation of resources can be improved since there is always the possibility of government failure, a market is one of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers and it can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enables the distribution and allocation of resources in a society, Markets allow any trade-able item to be evaluated and priced. A market sometimes emerges more or less spontaneously but is often constructed deliberately by human interaction in order to enable the exchange of rights of services. Markets of varying types can spontaneously arise whenever a party has interest in a good or service that other party can provide. Hence there can be a market for cigarettes in correctional facilities, another for chewing gum in a playground, and yet another for contracts for the future delivery of a commodity. Markets vary in form, scale, location, and types of participants, as well as the types of goods and services traded, nevertheless, violence and they apply the market dynamics to facilitate information aggregation. However, market prices may be distorted by a seller or sellers with monopoly power, such price distortions can have an adverse effect on market participants welfare and reduce the efficiency of market outcomes. Also, the level of organization and negotiating power of buyers and sellers markedly affects the functioning of the market. Markets are a system, and systems have structure, the structure of a well-functioning market is defined by the theory of perfect competition. Market failures are often associated with time-inconsistent preferences, information asymmetries, non-perfectly competitive markets, principal–agent problems, externalities, among the major negative externalities which can occur as a side effect of production and market exchange, are air pollution and environmental degradation. There exists a popular thought, especially among economists, that markets would have a structure of a perfect competition
3.
Exchange (organized market)
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An exchange, or bourse /bʊərs/, is an organized market where tradable securities, commodities, foreign exchange, futures, and options contracts are sold and bought. The term bourse is derived from the 13th-century inn named Huis ter Beurze in Bruges, Belgium, the building, which was established by Robert van der Buerze as a hostelry, had operated from 1285. Its managers became famous for offering judicious financial advice to the traders and this service became known as the Beurze Purse which is the basis of bourse, meaning an organised place of exchange. Eventually the building became solely a place for trading in commodities, during the 18th century, the façade of the Huis ter Beurze was rebuilt with a wide frontage of pilasters. However, in 1947 it was restored to its medieval appearance. In the twelfth century, foreign exchange dealers in France were responsible for controlling and regulating the debts of agricultural communities on behalf of banks and these were actually the first brokers. They met on the Grand Bridge in Paris, the current Pont au Change and it takes its name from the forex brokers. In the thirteenth century, the Lombard bankers were the first to share state claims in Pisa, Genoa, in 1409, the phenomenon was institutionalized by the creation of the Exchange Bruges. It was quickly followed by others, in Flanders and neighboring countries and it is still in Belgium and the first building designed to house a scholarship was built in Antwerp. The first scholarship organized in France was born in Lyon in 1540, the first documented crash took place in 1636 in Holland. The prices of tulip bulbs reaching excessively high levels, known as the Tulip mania, the price collapsed on October 1. In the seventeenth century, the Dutch were the first to use the market to finance companies. The first company to issue stocks and bonds was the Dutch East India Company, the London Stock Exchange started operating and listing shares and bonds in 1688. In 1774, the Paris Stock Exchange, say the courts, in the nineteenth century, the industrial revolution enables rapid development of stock markets, driven by the significant capital requirements for finance industry and transport. Since the computer revolution of the 1970s, we are witnessing the dematerialization of securities traded on the stock exchange, in 1971, the NASDAQ became the primary market quotes computer. In France, the dematerialization was effective from November 5,1984, exchanges bring together brokers and dealers who buy and sell these objects. e. All derivatives, including financial derivatives, are traded at commodity exchanges. This has historical reasons, the first exchanges were stock exchanges, in the 19th century, exchanges were opened to trade forward contracts on commodities
4.
Security (finance)
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A security is a tradable financial asset. The term commonly refers to any form of instrument. In some jurisdictions the term specifically excludes financial instruments other than equities, in some jurisdictions it includes some instruments that are close to equities and fixed income, e. g. equity warrants. In the United States, a security is a financial asset of any kind. Securities are broadly categorized into, debt securities equity securities derivatives, the company or other entity issuing the security is called the issuer. A countrys regulatory structure determines what qualifies as a security, for example, private investment pools may have some features of securities, but they may not be registered or regulated as such if they meet various restrictions. Securities may be represented by a certificate or, more typically, non-certificated, region or country Market capitalization State Securities are the traditional way that commercial enterprises raise new capital. These may be an alternative to bank loans depending on their pricing. Another disadvantage of bank loans as a source of financing is that the bank may seek a measure of protection against default by the borrower via extensive financial covenants, through securities, capital is provided by investors who purchase the securities upon their initial issuance. In a similar way, a government may issue securities too when it needs to increase government debt, investors in securities may be retail, i. e. members of the public investing other than by way of business. The greatest part of investment, in terms of volume, is wholesale, i. e. by financial institutions acting on their own account, important institutional investors include investment banks, insurance companies, pension funds and other managed funds. The traditional economic function of the purchase of securities is investment, debt securities generally offer a higher rate of interest than bank deposits, and equities may offer the prospect of capital growth. Equity investment may also control of the business of the issuer. Debt holdings may also offer some measure of control to the if the company is a fledgling start-up or an old giant undergoing restructuring. In these cases, if interest payments are missed, the creditors may take control of the company, the last decade has seen an enormous growth in the use of securities as collateral. Purchasing securities with borrowed money secured by other securities or cash itself is called buying on margin, where A is owed a debt or other obligation by B, A may require B to deliver property rights in securities to A, either at inception or only in default. Collateral arrangements are divided into two categories, namely security interests and outright collateral transfers. Commonly, commercial banks, investment banks, government agencies and other investors such as mutual funds are significant collateral takers as well as providers
5.
Bond market
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The bond market is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the secondary market. This is usually in the form of bonds, but it may include notes, bills and its primary goal is to provide long-term funding for public and private expenditures. The bond market has largely dominated by the United States. The bond market is part of the market, with bank loans forming the other main component. The global credit market in aggregate is about 3 times the size of the equity market. Bank loans are not securities under the Securities and Exchange Act, bonds are typically not secured by collateral, and are sold in relatively small denominations of around $1,000 to $10,000. Unlike bank loans, bonds may be held by retail investors, bonds are more frequently traded than loans, although not as often as equity. Nearly all of the daily trading in the U. S. bond market takes place between broker-dealers and large institutions in a decentralized over-the-counter market. However, a number of bonds, primarily corporate ones, are listed on exchanges. Bond trading prices and volumes are reported on FINRAs Trade Reporting and Compliance Engine, an important part of the bond market is the government bond market, because of its size and liquidity. Government bonds are used to compare other bonds to measure credit risk. The yield on government bonds in low risk countries such as the United States or Germany is thought to indicate a rate of default. The primary way to default is to not pay in full or not pay on time, the Securities Industry and Financial Markets Association classifies the broader bond market into five specific bond markets. In the United States, approximately 10% of the market is held by private individuals, amounts outstanding on the global bond market increased by 2% in the twelve months to March 2012 to nearly $100 trillion. Domestic bonds accounted for 70% of the total and international bonds for the remainder, the United States was the largest market with 33% of the total followed by Japan. As a proportion of global GDP, the market increased to over 140% in 2011 from 119% in 2008. The considerable growth means that in March 2012 it was larger than the global equity market which had a market capitalisation of around $53 trillion. Growth of the market since the start of the slowdown was largely a result of an increase in issuance by governments
6.
Bond valuation
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Bond valuation is the determination of the fair price of a bond. As with any security or capital investment, the fair value of a bond is the present value of the stream of cash flows it is expected to generate. Hence, the value of a bond is obtained by discounting the bonds expected cash flows to the present using a discount rate. In practice, this discount rate is determined by reference to similar instruments. Various related yield-measures are then calculated for the given price, if the bond includes embedded options, the valuation is more difficult and combines option pricing with discounting. Depending on the type of option, the price as calculated is either added to or subtracted from the price of the straight portion. This total is then the value of the bond, as above, the fair price of a straight bond is usually determined by discounting its expected cash flows at the appropriate discount rate. The formula commonly applied is discussed initially, although this present value relationship reflects the theoretical approach to determining the value of a bond, in practice its price is determined with reference to other, more liquid instruments. The two main approaches here, Relative pricing and Arbitrage-free pricing, are discussed next, where the market price of bond is less than its face value, the bond is selling at a discount. Conversely, if the price of bond is greater than its face value. For this and other relationships between price and yield, see below, under this approach — an extension of the above — the bond will be priced relative to a benchmark, usually a government security, see Relative valuation. Here, the yield to maturity on the bond is determined based on the bonds Credit rating relative to a government security with similar maturity or duration, the better the quality of the bond, the smaller the spread between its required return and the YTM of the benchmark. This required return is used to discount the bond cash flows, replacing i in the formula above. Thus, rather using a single discount rate, one should use multiple discount rates. Here, each cash flow is separately discounted at the rate as a zero-coupon bond corresponding to the coupon date. Under this approach, the price should reflect its arbitrage-free price, as any deviation from this price will be exploited. Here, we apply the rational pricing logic relating to Assets with identical cash flows, in detail, the bonds coupon dates and coupon amounts are known with certainty. Therefore, some multiple of zero-coupon bonds, each corresponding to the bonds coupon dates, thus the bond price today must be equal to the sum of each of its cash flows discounted at the discount rate implied by the value of the corresponding ZCB
7.
Corporate bond
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A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, M&A, or to expand business. The term is applied to longer-term debt instruments, with maturity of at least one year. Corporate debt instruments with maturity shorter than one year are referred to as commercial paper, the term corporate bond is not strictly defined. Sometimes, the term is used to include all bonds except those issued by governments in their own currencies, in this case governments issuing in other currencies will be included. The term sometimes also encompasses bonds issued by supranational organizations, strictly speaking, however, it only applies to those issued by corporations. The bonds of local authorities are not included, Corporate bonds trade in decentralized, dealer-based, over-the-counter markets. In over-the-counter trading dealers act as intermediaries between buyers and sellers, Corporate bonds are sometimes listed on exchanges and ECNs. However, vast majority of trading volume happens over-the-counter, by far the largest market for corporate bonds is in corporate bonds denominated in US Dollars. US Dollar corporate bond market is the oldest, largest, as the term corporate bond is not well defined, the size of the market varies according to who is doing the counting, but it is in the $5 to $6 trillion range. The second largest market is in Euro denominated corporate bonds, other markets tend to be small by comparison and are usually not well developed, with low trading volumes. Many corporations from other issue in either US Dollars or Euros. Foreign corporates issuing bonds in the US Dollar market are called Yankees, Corporate bonds are divided into two main categories High Grade and High Yield according to their credit rating. Bonds rated AAA, AA, A, and BBB are High Grade, while bonds rated BB and this is a significant distinction as High Grade and High Yield bonds are traded by different trading desks and held by different investors. For example, many pension funds and insurance companies are prohibited from holding more than an amount of High Yield bonds. The distinction between High Grade and High Yield is also common to most corporate bond markets, the coupon is usually taxable for the investor. It is tax deductible for the corporation paying it, for US Dollar corporates, the coupon is almost always semi annual, while Euro denominated corporates pay coupon quarterly. In this case the bond, a bond, is sold at a discount. The investor benefits by paying $80, but collecting $100 at maturity, the $20 gain is in lieu of the regular coupon
8.
Fixed income
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Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a rate once a year. Fixed-income securities can be contrasted with equity securities - often referred to as stocks and shares - that create no obligation to pay dividends or any other form of income. In order for a company to grow its business, it often must raise money - for example, to finance an acquisition, to buy equipment or land, the terms on which investors will finance the company will depend on the risk profile of the company. The company can give up equity by issuing stock, or can promise to pay regular interest, fixed-income securities also trade differently than equities. Whereas equities, such as stock, trade on exchanges or other established trading venues. The term fixed in fixed income refers to both the schedule of payments and the amount. Fixed income securities can be distinguished from inflation-indexed bonds, variable-interest rate notes, in contrast, if a company misses a quarterly dividend to stock shareholders, there is no violation of any payment covenant, and no default. The term fixed income is also applied to an income that does not vary materially over time. This can include income derived from investments such as bonds. Governments issue government bonds in their own currency and sovereign bonds in foreign currencies, local governments issue municipal bonds to finance themselves. Debt issued by government-backed agencies is called an agency bond, companies can issue a corporate bond or obtain money from a bank through a corporate loan. Preferred stocks share some of the characteristics of fixed interest bonds, securitized bank lending can be structured into other types of fixed income products such as ABS – asset-backed securities which can be traded on exchanges just like corporate and government bonds. Some of the used in connection with these investments is, The issuer is the entity who borrows the money by issuing the bond. The principal of a bond – also known as maturity value, face value, the coupon is the annual interest that the issuer must pay, expressed as a percentage of the principal. The maturity is the end of the bond, the date that the issuer must return the principal, the issue is another term for the bond itself. The indenture, in cases, is the contract that states all of the terms of the bond. Investors in fixed-income securities are typically looking for a constant and secure return on their investment, for example, a retired person might like to receive a regular dependable payment to live on like gratuity, but not consume principal
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Government bond
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A government bond is a bond issued by a national government, generally with a promise to pay periodic interest payments and to repay the face value on the maturity date. Government bonds are denominated in the countrys own currency. Government bonds are referred to as sovereign bonds. If a government or sovereign is close to default on its debt the media often refer to this as a debt crisis. The terms on which a government can sell bonds depend on how creditworthy the market considers it to be, international credit rating agencies will provide ratings for the bonds, but market participants will make up their own minds about this. The first general government bonds were issued in the Netherlands in 1517, because the Netherlands did not exist at that time, the bonds issued by the city of Amsterdam are considered their predecessor which later merged into Netherlands government bonds. The average interest rate at that time fluctuated around 20%, the first ever bond issued by a national government was issued by the Bank of England in 1694 to raise money to fund a war against France. It was in the form of a tontine, later, governments in Europe started issuing perpetual bonds to fund wars and other government spending. The use of perpetual bonds ceased in the 20th century, a Government bond in a countrys own currency is strictly speaking a risk-free bond, because the government can if necessary create additional currency in order to redeem the bond at maturity. There have however been instances where a government has chosen to default on its domestic currency debt, currency risk is the risk that the value of the currency a bond pays out will decline compared to the holders reference currency. A bond paying in a currency that does not have a history of keeping its value may not be a deal even if a high interest rate is offered. Inflation risk is the risk that the value of the currency a bond pays out will decline over time, investors expect some amount of inflation, so the risk is that the inflation rate will be higher than expected. Many governments issue inflation-indexed bonds, which protect investors against inflation risk by linking both interest payments and maturity payments to a consumer prices index. If a central bank purchases a government security, such as a bond or treasury bill, it increases the money supply, in the UK, government bonds are called gilts. Older issues have names such as Treasury Stock and newer issues are called Treasury Gilt, inflation-indexed gilts are called Index-linked gilts
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High-yield debt
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In finance, a high-yield bond is a bond that is rated below investment grade. These bonds have a risk of default or other adverse credit events. Sometimes the company can provide new bonds as a part of yield which can only be redeemed after its expiry or maturity. Interest rate risk refers to the risk of the value of a bond changing due to changes in the structure or level of interest rates or credit spreads or risk premiums. A credit rating agency attempts to describe the risk with a rating such as AAA. In North America, the five agencies are Standard & Poors, Moodys, Fitch Ratings, Dominion Bond Rating Service. Bonds in other countries may be rated by US rating agencies or by credit rating agencies. Rating scales vary, the most popular scale uses ratings of AAA, AA, A, BBB, BB, B, CCC, CC, C, Bonds rated BBB− and higher are called investment grade bonds. Bonds rated lower than investment grade on their date of issue are called speculative grade bonds, the lower-rated debt typically offers a higher yield, making speculative bonds attractive investment vehicles for certain types of portfolios and strategies. Many pension funds and other investors, however, are prohibited in their by-laws from investing in bonds which have ratings below a particular level, as a result, the lower-rated securities have a different investor base than investment-grade bonds. The value of bonds is affected to a higher degree than investment grade bonds by the possibility of default. These bonds are called fallen angels, the investment banker Michael Milken realized that fallen angels had regularly been valued less than what they were worth. His time with speculative grade bonds started with his investment in these, only later did he and other investment bankers at Drexel Burnham Lambert, followed by those of competing firms, begin organizing the issue of bonds that were speculative grade from the start. Speculative grade bonds thus became ubiquitous in the 1980s as a mechanism in mergers. In a leveraged buyout an acquirer would issue speculative grade bonds to pay for an acquisition. In 2005, over 80% of the amount of high-yield debt issued by U. S. companies went toward corporate purposes rather than acquisitions or buyouts. The corporate bond market has been developing in line with the trend of capital market. High-yield bonds can also be repackaged into collateralized debt obligations, thereby raising the credit rating of the senior tranches above the rating of the original debt
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Municipal bond
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A municipal bond is a bond issued by a local government or territory, or one of their agencies. It is generally used to public projects such as roads, schools, airports and seaports. The term municipal bond is used in the United States. As of 2011, the bond market was valued at $3.7 trillion. Municipal bonds may be general obligations of the issuer or secured by specified revenues, the state and local exemption was the subject of recent litigation in Department of Revenue of Kentucky v. Davis,553 U. S.328. Unlike new issue stocks that are brought to market with price restrictions until the deal is sold, professional traders regularly trade and re-trade the same bonds several times a week. A feature of this market is a proportion of smaller retail investors compared to other sectors of the U. S. securities markets. Some municipal bonds, often with higher risk credits, are issued subject to transfer restrictions, outside of the United States, many other countries in the world also issue similar bonds, sometimes called local authority bonds or other names. The key defining feature of such bonds is that they are issued by an entity at a lower level of government than the sovereign. Such bonds follow similar market patterns as U. S. bonds and that said, the U. S. municipal bond market is unique for its size, liquidity, legal and tax structure and bankruptcy protection afforded by the U. S. Constitution. Historically, municipal debt predates corporate debt by several centuries—the early Renaissance Italian city-states borrowed money from major banking families, borrowing by American cities dates to the nineteenth century, and records of U. S. municipal bonds indicate use around the early 1800s. Officially the first recorded municipal bond was a general obligation bond issued by the City of New York for a canal in 1812, during the 1840s, many U. S. cities were in debt, and by 1843 cities had roughly $25 million in outstanding debt. In the ensuing decades, rapid urban development demonstrated a correspondingly explosive growth in municipal debt, the debt was used to finance both urban improvements and a growing system of free public education. Years after the Civil War, significant local debt was issued to build railroads, railroads were private corporations and these bonds were very similar to todays industrial revenue bonds. Construction costs in 1873 for one of the largest transcontinental railroads, around the same time, the largest bank of the country of the time, which was owned by the same investor as that of Northern Pacific, collapsed. Smaller firms followed suit as well as the stock market, the 1873 panic and years of depression that followed put an abrupt but temporary halt to the rapid growth of municipal debt. Responding to widespread defaults that jolted the municipal market of the day. Several states wrote these restrictions into their constitutions, railroad bonds and their legality were widely challenged, and this gave rise to the market-wide demand that an opinion of qualified bond counsel accompany each new issue
12.
Stock market
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Examples of the latter include shares of private companies which are sold to investors through equity crowdfunding platforms. Stock exchanges list shares of equity as well as other security types, e. g. corporate bonds. Stocks can be categorised in various way, one way is by the country where the company is domiciled. S. At the close of 2012, the size of the stock market was about US$55 trillion. By country, the largest market was the United States, followed by Japan, as of 2015, there are a total of 60 stock exchanges in the world with a total market capitalization of $69 trillion. Of these, there are 16 exchanges with a capitalization of $1 trillion or more. Apart from the Australian Securities Exchange, these 16 exchanges are based in one of three continents, North America, Europe and Asia, a stock exchange is a place where, or an organization through which, individuals and organisations can trade stocks. Many large companies have their stock listed on a stock exchange and this makes the stock more liquid and thus more attractive to many investors. It may also act as a guarantor of settlement, other stocks may be traded over the counter, that is, through a dealer. Some large companies will have their stock listed on more than one exchange in different countries, Stock exchanges may also cover other types of securities, such as fixed interest securities or derivatives, which are more likely to be traded OTC. Trade in stock markets means the transfer for money of a stock or security from a seller to a buyer and this requires these two parties to agree on a price. Equities confer an ownership interest in a particular company and their buy or sell orders may be executed on their behalf by a stock exchange trader. Some exchanges are physical locations where transactions are carried out on a trading floor and this method is used in some stock exchanges and commodity exchanges, and involves traders shouting bid and offer prices. The other type of exchange has a network of computers where trades are made electronically. An example of such an exchange is the NASDAQ, a potential buyer bids a specific price for a stock, and a potential seller asks a specific price for the same stock. Buying or selling at the means you will accept any ask price or bid price for the stock. When the bid and ask prices match, a sale takes place, on a first-come, the purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace. The exchanges provide real-time trading information on the securities, facilitating price discovery
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Common stock
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Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently in other parts of the world and they are known as Equity shares or Ordinary shares in the UK and other Commonwealth realms. This type of share gives the stockholder the right to share in the profits of the company, and to vote on matters of corporate policy and it is called common to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive any remaining funds after bondholders, creditors, as such, common stock investors often receive nothing after a liquidation bankruptcy Chapter 7. Common stockholders can also earn money through capital appreciation, Common shares may perform better than preferred shares or bonds over time, in part to accommodate the increased risk. Shareholder rights are more conceptual than technical or factual and their most common source is in the statutory and case law of the jurisdiction in which the company was formed. Some shareholders elect to enter into shareholder agreements that create new rights among the shareholders, some common stock shares have voting rights on certain matters, such as electing the board of directors. In practice, its questionable whether or not such actions can be organized or ruled in their favor, common/Equity stock is classified to differentiate it from preferred stock. Each is considered a class of stock, with different series of each issued from time to such as Series B Preferred Stock. Nevertheless, using Class B Common Stock is a label for a super-voting series of common stock. Capital surplus Equity Share capital Shares authorized Shares issued Shares outstanding Treasury stock Common Stock vs. Preferred Stock
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Registered share
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A Registered share is a stock that is registered on the name of the exact owner. If the owner of such a share sells his share, the new owner must register with name, Registered shares offer issuers the advantage, enabling them to always know exactly who their shareholders are. Surprises with active investors could be prohibited with that stock-vehicle, book-entry Dematerialization Insider trading Stock transfer agent
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Stock
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The stock of a corporation is constituted of the equity stock of its owners. A single share of the stock represents fractional ownership of the corporation in proportion to the number of shares. In liquidation, the stock represents the residual assets of the company that would be due to stockholders after discharge of all senior claims such as secured and unsecured debt. Stockholders equity cannot be withdrawn from the company in a way that is intended to be detrimental to the companys creditors, the stock of a corporation is partitioned into shares, the total of which are stated at the time of business formation. Additional shares may subsequently be authorized by the shareholders and issued by the company. In some jurisdictions, each share of stock has a certain declared par value, in other jurisdictions, however, shares of stock may be issued without associated par value. Shares represent a fraction of ownership in a business, a business may declare different types of shares, each having distinctive ownership rules, privileges, or share values. Ownership of shares may be documented by issuance of a stock certificate. A stock certificate is a document that specifies the amount of shares owned by the shareholder. Stock typically takes the form of shares of common stock or preferred stock. As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions, shares of such stock are called convertible preferred shares. New equity issue may have specific legal clauses attached that differentiate them from previous issues of the issuer. Some shares of stock may be issued without the typical voting rights, for instance, or some shares may have special rights unique to them. Often, new issues that have not been registered with a governing body may be restricted from resale for certain periods of time. Preferred stock may be hybrid by having the qualities of bonds of fixed returns and they also have preference in the payment of dividends over common stock and also have been given preference at the time of liquidation over common stock. They have other features of accumulation in dividend, Rule 144 Stock is an American term given to shares of stock subject to SEC Rule 144, Selling Restricted and Control Securities. Under Rule 144, restricted and controlled securities are acquired in unregistered form, investors either purchase or take ownership of these securities through private sales from the issuing company or from an affiliate of the issuer. Investors wishing to sell these securities are subject to different rules than those selling traditional common or preferred stock and these individuals will only be allowed to liquidate their securities after meeting the specific conditions set forth by SEC Rule 144
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Stock exchange
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A stock exchange or bourse is an exchange where stock brokers and traders can buy and/or sell stocks, bonds, and other securities. Stock exchanges may also provide facilities for issue and redemption of securities and other financial instruments, Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as continuous auction markets, with buyers and sellers consummating transactions at a central location, to be able to trade a security on a certain stock exchange, it must be listed there. Trade on an exchange is restricted to brokers who are members of the exchange, the initial public offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market, supply and demand in stock markets are driven by various factors that, as in all free markets, affect the price of stocks. There is usually no obligation for stock to be issued via the exchange itself. Such trading may be off exchange or over-the-counter and this is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a securities market. The idea of debt dates back to the ancient world, as evidenced for example by ancient Mesopotamian clay tablets recording interest-bearing loans, there is little consensus among scholars as to when corporate stock was first traded. Some see the key event as the Dutch East India Companys founding in 1602, economist Ulrike Malmendier of the University of California at Berkeley argues that a share market existed as far back as ancient Rome. One such service was the feeding of geese on the Capitoline Hill as a reward to the birds after their honking warned of a Gallic invasion in 390 B. C. Participants in such organizations had partes or shares, a concept mentioned various times by the statesman, in one speech, Cicero mentions shares that had a very high price at the time. Such evidence, in Malmendiers view, suggests the instruments were tradable, the societas declined into obscurity in the time of the emperors, as most of their services were taken over by direct agents of the state. Tradable bonds as a used type of security were a more recent innovation, spearheaded by the Italian city-states of the late medieval. While the Italian city-states produced the first transferable government bonds, they did not develop the other ingredient necessary to produce a fully fledged capital market, the Dutch East India Company became the first company to offer shares of stock. Control of the company was held tightly by its directors, with shareholders not having much influence on management or even access to the companys accounting statements. However, shareholders were rewarded well for their investment, the company paid an average dividend of over 16 percent per year from 1602 to 1650. Financial innovation in Amsterdam took many forms, by the 1620s, the company was expanding its securities issuance with the first use of corporate bonds
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Derivatives market
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The derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets. The market can be divided into two, that for exchange-traded derivatives and that for over-the-counter derivatives, the legal nature of these products is very different, as well as the way they are traded, though many market participants are active in both. Participants in a market can be segregated into four sets based on their trading motives. Hedgers Speculators Margin Traders Arbitrageurs Futures exchanges, such as Euronext. liffe and these are options contracts and futures contracts on a whole range of underlying products. The members of the hold positions in these contracts with the exchange. When one party goes long, another goes short, when a new contract is introduced, the total position in the contract is zero. Therefore, the sum of all the positions must be equal to the sum of all the short positions. In other words, risk is transferred from one party to another, the total notional amount of all the outstanding positions at the end of June 2004 stood at $53 trillion. That figure grew to $81 trillion by the end of March 2008 Tailor-made derivatives, not traded on an exchange are traded on over-the-counter markets. These consist of investment banks with traders who make markets in these derivatives, products that are always traded over-the-counter are swaps, forward rate agreements, forward contracts, credit derivatives, accumulators etc. The total notional amount of all the positions at the end of June 2004 stood at $220 trillion. By the end of 2007 this figure had risen to $596 trillion, OTC Markets are generally separated into two key segments, the customer market and the interdealer market. Customers almost exclusively trade through dealers because of the high search, dealers are large institutions that arrange transactions for their customers, utilizing their specialized knowledge, expertise, and access to capital. In order to hedge the risks incurred by transacting with customers, dealers turn to the interdealer market, dealers can also trade for themselves or act as market makers in the OTC market. Notional amounts outstanding of such instruments totalled $516 trillion at the end of June 2007, notional amounts outstanding provide useful information on the structure of the OTC derivatives market but should not be interpreted as a measure of the riskiness of these positions. Gross market values, which represent the cost of replacing all open contracts at the market prices, have increased by 74% since 2004. Notional amounts outstanding as of December 2012 are $632 trillion as per recent survey, the derivative markets have been accused for their alleged role in the financial crisis of 2007-2010. Specifically the Credit Default Swaps CDSs, financial instruments traded on the over the counter derivatives markets, and the Mortgage Backed Securities MBSs, a type of securitized debt
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Credit derivative
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Usually these contracts are traded pursuant to an International Swaps and Derivatives Association master agreement. Most credit derivatives of this sort are credit default swaps, in funded credit derivatives, transactions are often rated by rating agencies, which allows investors to take different slices of credit risk according to their risk appetite. The market in credit derivatives started from nothing in 1993 after having been pioneered by J. P. Morgans Peter Hancock, by 1996 there was around $40 billion of outstanding transactions, half of which involved the debt of developing countries. Credit default products are the most commonly traded credit derivative product and include unfunded products such as credit default swaps, on May 15,2007, in a speech concerning credit derivatives and liquidity risk, Geithner stated, “Financial innovation has improved the capacity to measure and manage risk. The ISDA reported in April 2007 that total notional amount on outstanding credit derivatives was $35.1 trillion with a market value of $948 billion. As reported in The Times on September 15,2008, the Worldwide credit derivatives market is valued at $62 trillion, although the credit derivatives market is a global one, London has a market share of about 40%, with the rest of Europe having about 10%. The main market participants are banks, hedge funds, insurance companies, pension funds, Credit derivatives are fundamentally divided into two categories, funded credit derivatives and unfunded credit derivatives. An unfunded credit derivative is a contract between two counterparties, where each party is responsible for making its payments under the contract itself without recourse to other assets. A funded credit derivative involves the protection seller making a payment that is used to settle any potential credit events. This product represents over thirty percent of the derivatives market. The product has many variations, including where there is a basket or portfolio of reference entities, although fundamentally, a powerful recent variation has been gathering market share of late, credit default swaps which relate to asset-backed securities. A credit linked note is a note whose cash flow depends upon an event, the definition of the relevant credit events must be negotiated by the parties to the note. A CLN in effect combines a credit-default swap with a regular note, given its note-like features, a CLN is an on-balance-sheet asset, in contrast to a CDS. Typically, an investment fund manager will purchase such a note to hedge against possible down grades, numerous different types of credit linked notes have been structured and placed in the past few years. Here we are going to provide a rather than a detailed account of these instruments. The most basic CLN consists of a bond, issued by a well-rated borrower, for example, a bank may sell some of its exposure to a particular emerging country by issuing a bond linked to that countrys default or convertibility risk. From the banks point of view, this achieves the purpose of reducing its exposure to that risk, however, from the point of view of investors, the risk profile is different from that of the bonds issued by the country. If the bank runs into difficulty, their investments will suffer if the country is still performing well
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Futures exchange
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These types of contracts fall into the category of derivatives. The opposite of the market is the spots market, where trades will occur immediately after a transaction agreement has been made. Futures instruments are priced according to the movement of the underlying asset, the aforementioned category is named derivatives because the value of these instruments are derived from another asset class. Speculators absorb some of the risk but hedging appears to drive most commodity markets, the equilibrium futures price can be either below or above the expected future price. Rollover hedges can extend insurance from short-horizon contracts over longer periods. In Ancient Mesopotamia, around 1750 BC, the sixth Babylonian king, Hammurabi, created one of the first legal codes, the Code of Hammurabi. Hammurabi’s Code allowed sales of goods and assets to be delivered for a price, at a future date, required contracts to be in writing and witnessed. The code facilitated the first derivatives, in the form of forward, an active derivatives market existed, with trading carried out at temples. One of the earliest written records of futures trading is in Aristotles Politics and he tells the story of Thales, a poor philosopher from Miletus who developed a financial device, which involves a principle of universal application. Thales used his skill in forecasting and predicted that the olive harvest would be exceptionally good the next autumn. Confident in his prediction, he made agreements with local olive-press owners to deposit his money with them to guarantee him exclusive use of their olive presses when the harvest was ready, the first modern organized futures exchange began in 1710 at the Dojima Rice Exchange in Osaka, Japan. The London Metal Market and Exchange Company was founded in 1877, but the market traces its origins back to 1571, before the exchange was created, business was conducted by traders in London coffee houses using a makeshift ring drawn in chalk on the floor. At first only copper was traded, lead and zinc were soon added but only gained official trading status in 1920. The exchange was closed during World War II and did not re-open until 1952, the range of metals traded was extended to include aluminium, nickel, tin, aluminium alloy, steel, and minor metals cobalt and molybdenum. The exchange ceased trading plastics in 2011, the total value of the trade is around $US11.6 trillion annually. The United States followed in the early 19th century, Chicago has the largest future exchange in the world, the Chicago Mercantile Exchange. In March 2008 the Chicago Mercantile Exchange announced its acquisition of NYMEX Holdings, Inc. the parent company of the New York Mercantile Exchange, cMEs acquisition of NYMEX was completed in August 2008. For most exchanges, forward contracts were standard at the time, however, most forward contracts were not honored by both the buyer and the seller. In 1848 the Chicago Board of Trade was formed, Trading was originally in forward contracts, the first contract was written on March 13,1851
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Hybrid security
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Hybrid securities are a broad group of securities that combine the elements of the two broader groups of securities, debt and equity. Hybrid securities pay a rate of return or dividend until a certain date. Therefore, unlike a share of stock the holder has a cash flow. More common examples include convertible and converting preference shares, a hybrid security is structured differently and while the price of some securities behave more like fixed interest securities, others behave more like the underlying shares into which they convert. A convertible bond is a bond that can be converted into shares of the issuer. A convertible bond can be valued as a combination of a straight bond, an income security is a hybrid between a stock and a bond. The bond portion pays interest, and the stock portion pays dividends, income securities are popular in Canada. Discount, A discount is offered to the share price at the time of conversion. Reset/resettable, At the reset date the terms of the security may change, the holder can elect to accept the new reset terms or convert into shares. Cumulative/non-cumulative This refers to the event of missed dividend payments, cumulative, missed dividend payments are added to the next dividend payment. Non-cumulative, missed dividend payments are forgone, redeemable/non-redeemable Redeemable, At certain times the holder may have the option to sell the securities back to the company at the face value/issue price. Non-redeemable / irredeemable, The company is not offering to buy the securities back, traditional hybrids were usually structured in a way that leads the securities to react to the underlying share price. E. g.1 hybrid converts into 1 underlying share Note, in addition, some of these securities include minimum and maximum conversion terms, effectively giving the holder a put and call option if the share price reaches a certain prices. Most of the securities issued since 2005 are very bond-like. g. 5% the conversion ratio is into an amount of shares. E. g. Hybrid securities have skyrocketed in popularity since Moodys released a new set of guidelines for treating debt-equity hybrids in February 2005, the new guidelines establish a debt-equity continuum and allow institutions to classify part of the hybrid security as equity and part as debt. This change allowed companies to issue hybrid securities at a time of low interest rates. The most popular hybrid among financial institutions is the Basket D security, Basket D is a reference to a point on Moodys debt-equity continuum scale that treats the hybrid as 75% equity and 25% debt
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Foreign exchange market
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The foreign exchange market is a global decentralized market for the trading of currencies. This includes all aspects of buying, selling and exchanging currencies at current or determined prices, in terms of trading volume, it is by far the largest market in the world, followed by the Credit market. The main participants in this market are the international banks. Financial centers around the function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market does not determine the values of different currencies. The foreign exchange market works through financial institutions, and operates on several levels, behind the scenes, banks turn to a smaller number of financial firms known as dealers, who are actively involved in large quantities of foreign exchange trading. Most foreign exchange dealers are banks, so this behind-the-scenes market is called the interbank market. Trades between foreign exchange dealers can be large, involving hundreds of millions of dollars. Because of the sovereignty issue when involving two currencies, Forex has little supervisory entity regulating its actions, the foreign exchange market assists international trade and investments by enabling currency conversion. It also supports direct speculation and evaluation relative to the value of currencies, in a typical foreign exchange transaction, a party purchases some quantity of one currency by paying with some quantity of another currency. The modern foreign exchange market began forming during the 1970s. e, as such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks.1 trillion per day in April 2016. This is down from $5.4 trillion in April 2013, Foreign exchange swaps were the most actively traded instruments in April 2016, at $2.4 trillion per day, followed by spot trading at $1.7 trillion. According to the Bank for International Settlements, as of April 2016 and this marks a decline of approximately 5% from the $5.355 trillion daily volume as of April 2013. Some firms specializing in the exchange market had put the average daily turnover in excess of US$4 trillion. Money-changers were living in the Holy Land in the times of the Talmudic writings and these people used city stalls, and at feast times the Temples Court of the Gentiles instead. Money-changers were also the silversmiths and/or goldsmiths of more recent ancient times, during the 4th century AD, the Byzantine government kept a monopoly on the exchange of currency. Papyri PCZ I59021, shows the occurrences of exchange of coinage in Ancient Egypt, Currency and exchange were important elements of trade in the ancient world, enabling people to buy and sell items like food, pottery and raw materials. If a Greek coin held more gold than an Egyptian coin due to its size or content, then a merchant could barter fewer Greek gold coins for more Egyptian ones, or for more material goods
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Currency
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A currency in the most specific use of the word refers to money in any form when in actual use or circulation as a medium of exchange, especially circulating banknotes and coins. A more general definition is that a currency is a system of money in common use, under this definition, US dollars, British pounds, Australian dollars, and European euros are examples of currency. These various currencies are recognized stores of value and are traded between nations in exchange markets, which determine the relative values of the different currencies. Currencies in this sense are defined by governments, and each type has limited boundaries of acceptance, other definitions of the term currency are discussed in their respective synonymous articles banknote, coin, and money. The latter definition, pertaining to the systems of nations, is the topic of this article. Currencies can be classified into two systems, fiat money and commodity money, depending on what guarantees the value. Some currencies are legal tender in certain jurisdictions, which means they cannot be refused as payment for debt. Others are simply traded for their economic value, digital currency has arisen with the popularity of computers and the Internet. Currency evolved from two basic innovations, both of which had occurred by 2000 BC, originally money was a form of receipt, representing grain stored in temple granaries in Sumer in ancient Mesopotamia, then Ancient Egypt. In this first stage of currency, metals were used as symbols to represent value stored in the form of commodities and this formed the basis of trade in the Fertile Crescent for over 1500 years. Trade could only reach as far as the credibility of that military and it is not known what was used as a currency for these exchanges, but it is thought that ox-hide shaped ingots of copper, produced in Cyprus, may have functioned as a currency. It is thought that the increase in piracy and raiding associated with the Bronze Age collapse, possibly produced by the Peoples of the Sea, brought the trading system of oxhide ingots to an end. In Africa, many forms of value store have been used, including beads, ingots, ivory, various forms of weapons, livestock, the manilla currency, the manilla rings of West Africa were one of the currencies used from the 15th century onwards to sell slaves. African currency is still notable for its variety, and in many various forms of barter still apply. These factors led to the metal itself being the store of value, first silver, now we have copper coins and other non-precious metals as coins. Metals were mined, weighed, and stamped into coins and this was to assure the individual taking the coin that he was getting a certain known weight of precious metal. Coins could be counterfeited, but they created a new unit of account. Most major economies using coinage had several tiers of coins, using a mix of copper, silver, gold coins were used for large purchases, payment of the military and backing of state activities, they were more often used as measures of account than physical coins
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Exchange rate
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In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one currency in relation to another currency. For example, an exchange rate of 119 Japanese yen to the United States dollar means that ¥119 will be exchanged for each US$1 or that US$1 will be exchanged for each ¥119. In this case it is said that the price of a dollar in relation to yen is ¥119, trading from 20,15 GMT on Sunday until 22,00 GMT Friday. The spot exchange rate refers to the current exchange rate, the forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date. In the retail currency exchange market, different buying and selling rates will be quoted by money dealers, most trades are to or from the local currency. The buying rate is the rate at which money dealers will buy foreign currency, the quoted rates will incorporate an allowance for a dealers margin in trading, or else the margin may be recovered in the form of a commission or in some other way. Different rates may also be quoted for cash, a form or electronically. The higher rate on documentary transactions has been justified as compensating for the additional time, on the other hand, cash is available for resale immediately, but brings security, storage, and transportation costs, and the cost of tying up capital in a stock of banknotes. Currency for international travel and cross-border payments is predominantly purchased from banks, foreign exchange brokerages and these retail outlets source currency from the inter-bank markets, which are valued by the Bank for International Settlements at 5.3 trillion US dollars per day. The purchase is made at the contract rate. Retail customers will be charged, in the form of commission or otherwise, to cover the providers costs, one form of charge is the use of an exchange rate that is less favourable than the wholesale spot rate. The difference between retail buying and selling prices is referred to as the bid-ask spread, in the foreign exchange market, a currency pair is the quotation of the relative value of a currency unit against the unit of another currency. The quotation EUR/USD1.3225 means that 1 Euro will buy 1.3225 US dollars, in other words, this is the price of a unit of Euro in US dollars. Here, EUR is called the Fixed currency, while USD is called the Variable currency, there is a market convention that determines which is the fixed currency and which is the variable currency. In most parts of the world, the order is, EUR – GBP – AUD – NZD – USD – others. Accordingly, in a conversion from EUR to AUD, EUR is the currency, AUD is the variable currency. Cyprus and Malta, which were quoted as the base to the USD, in some areas of Europe and in the retail market in the United Kingdom, EUR and GBP are reversed so that GBP is quoted as the fixed currency to the euro
