Corporate Stock.ppt

1、Money and Capital Markets,22,C h a p t e r,Eighth Edition,Financial Institutions and Instruments in a Global Marketplace,Peter S. Rose,McGraw Hill / Irwin,Slides by Yee-Tien (Ted) Fu,Corporate Stock, Learning Objectives ,To learn about the characteristics of common and preferred corporate stock. To

2、understand the organization and operation of the stock market today. To compare and contrast the roles and functions of the organized stock exchanges and the over-the-counter market. To explore the issue of market efficiency.,Characteristics of Corporate Stock,All corporate stock represents an owner

3、ship interest in a corporation, conferring on the holder a number of rights as well as risks. Common stock represents a residual claim against the assets of the issuing firm, entitling the owner to share in the net earnings of the firm when it is profitable and to share in the net market value (afte

4、r all debts are paid) of the companys assets if it is liquidated.,Characteristics of Corporate Stock,Preferred stock carries a stated annual dividend expressed as a percent of the stocks par value. Preferred stockholders have a prior claim over the firms assets and earnings relative to the claims of

5、 common stockholders, although creditors must still be paid first. Preferred shares generally provide less income but are less risky than common stock.,Stock Market Investors,22 - 5,Data Source: Board of Governors of the Federal Reserve System,Recent Movements in Common Stock Prices,Recent Movements

6、 in Common Stock Yields,Characteristics of the Corporate Stock Market,There are two main branches of the market for trading corporate stock. Organized exchanges Trading is governed by regulations and formal procedures designed to ensure competitive pricing and an active market for the stock of the l

7、argest firms. Over-the-counter (OTC) market This more informal market involves the trading of stock through brokers.,The Major Organized Exchanges,The New York Stock Exchange (NYSE) and Chicago Board of Trade (CBOT) are organized exchanges. They have: a physical location for trading trading posts fo

8、rmal trading rules listing requirements a board of directors member firms and seats,The Informal Over-the-Counter Market,There is no central trading location for the OTC market, but only an electronic communications network.,Many traders also act as principals, taking “positions of risk” by buying s

9、ecurities outright for their own portfolios in addition to the portfolios of their customers.,The Third Market,The market for securities listed on a stock exchange but traded over the counter is known as the third market. Broker and dealer firms that are not exchange members are active in this marke

10、t. The third market was set up to supply large blocks of shares to institutional investors, and it has been a catalyst in reducing brokerage fees and promoting trading efficiency.,The Structure of the Market for Corporate Stock,The Private Equity Market,New businesses, privately held companies and p

11、artnerships, troubled firms, and even larger publicly traded companies can conduct a private sale of stock in the private equity market to finance their acquisitions and other investments, as well as to support out-of-the-ordinary financial transactions.,The Private Equity Market,The Market for Stoc

12、k Options,Paralleling the exchange and OTC markets for stock are markets for stock options. Today, listed or exchange-traded call and put options are popular, along with OTC or negotiated options purchased through brokers and dealers. The options markets have also grown to include options and future

13、s contracts for stock indexes.,The Rise of Program Trading,Many analysts believe that stock markets have become more volatile due to the widespread use of computerized program trading. One type of program trading involves buying and selling stock index futures contracts for protection against stock

14、price declines. Another type involves dynamic hedging strategies that adjust a portfolio to limit its exposure to adverse market developments.,The Development of A Unified International Market for Stock,One of the most significant developments in recent decades has been a movement to weld all parts

15、of the equities market together into a single market for all traders and investors. The 1975 Securities Act Amendments instructed the Securities and Exchange Commission (SEC) to “facilitate the establishment of a national market system for securities.”,The Development of A Unified International Mark

16、et for Stock,The development of the Intermarket Trading System (ITS) enabled brokers and specialists to compare bid and ask prices on all the major U.S. exchanges for about 700 stocks. The National Association of Security Dealers (NASD) also moved to promote a broader market system by further automa

17、ting price quotations on OTC stock.,The Development of A Unified International Market for Stock,The 1982 Shelf Registration Rule allowed many large firms to sell new corporate stocks and bonds any time during the two years after the issue has been registered with the SEC.,The Development of A Unifie

18、d International Market for Stock,A rapid growth area in the internationalization of the stock market is the cross-listing of stocks on various exchanges around the globe across different time zones. In response, U.S. exchanges have announced plans for extended trading hours as well as after-hours tr

19、ading.,The Development of A Unified International Market for Stock,The development of international financial instruments like the American depository receipts (ADRs) has also strengthened the links between U.S. and foreign stock markets. ADRs are dollar-denominated claims on foreign shares of stock

20、 that are kept in safekeeping by U.S. financial institutions.,Random Walk and Efficient Markets,One popular modern theory regarding the valuation of stocks is the random walk theory. According to the theory, successive changes in the price of a stock are random fluctuations around that stocks intrin

21、sic value, and these changes are independent of the sequence of price changes that occurred in the past. But of course, many analysts still subscribe to technical analysis.,Random Walk and Efficient Markets,The random walk notion is supplemented by the broader efficient markets hypothesis. In a perf

22、ectly efficient securities market, existing stock prices fully reflect the latest information available on the profitability and risk of business firms. Most researchers agree that financial markets are efficient, though they may disagree on the degree of efficiency.,Money and Capital Markets in Cyb

23、erspace,Find out more about the performance of corporate stock by visiting: ,Chapter Review,Characteristics of Corporate Stock Common Stock Preferred Stock Stock Market Investors Characteristics of the Corporate Stock Market The Major Organized Exchanges The Informal Over-the-Counter Market,Chapter

24、Review,The Third Market: Trading in Listed Securities Off the Exchange The Private Equity Market The Market for Stock Options The Growth of Options Markets The Rise of Program Trading,Chapter Review,The Development of a Unified International Market for Stock The National Market System NASD and Autom

25、ated Price Quotations The Advent of Shelf Registration Global Trading in Equities The Development of ADRs,Chapter Review,Random Walk and Efficient Markets The Efficient Markets Hypothesis Recent Research Findings about the EMH,Money and Capital Markets,23,C h a p t e r,Eighth Edition,Financial Insti

26、tutions and Instruments in a Global Marketplace,Peter S. Rose,McGraw Hill / Irwin,Slides by Yee-Tien (Ted) Fu,Consumer Lending and Borrowing, Learning Objectives ,To see the vital role played by consumers in supplying loanable funds through savings to the money and capital markets. To learn about th

27、e important role consumers play as major borrowers of funds. To explore the characteristics of consumer lending institutions. To understand the rights that consumers have with respect to financial services.,Consumers as Lenders of Funds,Consumers as a group are among the most important lenders of fu

28、nds in the economy. Loanable funds are supplied by consumers individuals and families (households) when they purchase financial assets from other units in the economy.,Financial Assets Purchased by Consumers,Source: Board of Governors of the Federal Reserve System,23 - 32,The Growing Menu of Savings

29、 Instruments Available to Consumers Today,One of the most important trends affecting consumer savings and lending today is the explosion of new financial instruments. Many of these new instruments offer the consumer greater financial flexibility, as well as the potential for higher rates of return.,

30、The Growing Menu of Savings Instruments Available to Consumers Today,Examples: NOW accounts / share drafts automatic transfer services (ATS) share accounts at money market mutual funds consumer cash management services universal life insurance individual and Keogh Plan retirement accounts Roth and E

31、ducation IRAs money market and market-index CDs variable-rate annuities and insurance plans,Consumers as Borrowers of Funds,Source: Board of Governors of the Federal Reserve System,Is Consumer Borrowing Excessive?,Categories of Consumer Borrowing,Financial analysts frequently divide the credit exten

32、ded to consumers into three broad categories. Residential mortgage credit used to support the purchase of homes Installment credit used primarily for long-term nonresidential purposes Noninstallment credit used for short-term cash needs,Home Equity Loans,Like traditional home mortgages, a home equit

33、y loan is secured by a borrowers home. Unlike traditional home mortgages however, many home equity loans consist of a revolving credit line that the borrower can draw on for purchases of any goods or services.,Credit and Debit Cards,A credit card permits the consumer to buy now and pay later, while

34、a debit card provides a convenient way of paying now. Convenience users substitute credit cards for cash, while installment users maintain large outstanding credit card balances. A smart card is closely related to the debit card.,The Determinants of Consumer Borrowing,The consumers decision about wh

35、en and how much to borrow is influenced by: the size of the individual or family income and accumulated household wealth the stage in life the business cycle price expectations interest rates,Consumer Lending Institutions,Financial intermediaries banks, savings and loan associations, credit unions,

36、and finance companies account for most of the loans made to consumers in the U.S. economy. However, a growing share of consumer loans are being sold off the balance sheets and placed in loan pools (securitization). In recent years, institutions also tend to diversify their lending operations.,Consum

37、er Lending Institutions,Source: Board of Governors of the Federal Reserve System,Consumer Lending Institutions,Commercial banks approach the consumer by direct lending, through purchases of installment paper from merchants, and by making loans to other consumer lending institutions. Finance companie

38、s have a long history of active lending in the consumer installment field, both directly and indirectly.,Consumer Lending Institutions,Savings and loans and savings banks have long been dominant in residential mortgage lending, though they are also aggressively expanding their portfolios. “Check cas

39、hing” companies, “title loan” companies, and “pawn shops” lend primarily to distressed borrowers.,Factors Considered in Making Consumer Loans,Consumer loans usually carry greater risk than most other kinds of loans, although they also tend to be more profitable. Hence, most loan officers carefully c

40、onsider the ratio of household debt to gross income the duration of employment of the borrower the past payment record (credit integrity) ownership of valuable properties the number of breadwinners in the family,Financial Disclosure and Consumer Credit,Important new laws have been designed in recent

41、 years to protect consumers in their dealings with lending institutions, especially with respect to financial disclosure. Consumer Credit Protection Act (1968) (Truth in Lending) Fair Credit Reporting Act (1970) Fair Credit Billing Act (1974) Consumer Leasing Act (1976),Financial Disclosure and Cons

42、umer Credit,Competitive Banking Equality Act (1987) Fair Credit and Charge Card Disclosure Act (1988) Truth in Savings Act (1991) Financial Services Modernization (Gramm-Leach-Bliley) Act (1999),Credit Discrimination Laws,The civil rights movement has had an impact on the granting of consumer loans.

43、 Equal Credit Opportunity Act (1974, amended 1976) Fair Housing Act (1968) Home Mortgage Disclosure Act (1975) Community Reinvestment Act (1977) Financial Institutions Reform, Recovery, and Enforcement Act (1989),Consumer Bankruptcy Laws,The right to declare bankruptcy is designed to give individuals and businesses a fresh start, helping them to work themselves out from under a crippling burden of debt.,Consumer Bankruptcy Laws,Consumers filin