Fundamentals Of The Financial Markets

An interest rate is the portion of the loan charged to a borrower. The interest rate is usually expressed as an Annual Percentage Rates or APR. A lower interest rate is better for a person receiving a loan because you don’t have to pay back a lot of money that you never got to use. That seems like common sense, right? For example, people would rather pay a credit union’s average APR of 2.64% than a bank’s traditional 4.78%

Financial Instruments A financial asset is something which is defined as an entitlement of future cash flows. However, a financial instrument is a broader term used to describe financial assets and other assets in which there are no organised secondary markets to trade them. However, a financial security is something that can be traded in a secondary market. Attributes of Financial Assets Financial assets are those that: • • • • Have a return of yield expressed in terms of percentage. Have risk in which there is probability the actual return will differ from the expected return. Are liquid in that they can be sold at current market prices with reasonable transaction costs. Are expected to have a set time-pattern of cash flows in or out.

capital gains for cash received, on the other hand, they can enjoy the profit when share

So what does this really mean? It means if a company puts their stock up for sale on the market you can buy a partial ownership of the company. Your portion of ownership depends on the amount of shares you purchase in a particular company. When you purchase a share of the company you own that percentage of everything the company owns and makes and can have a decision on the company. The two most common types of stock are common, the typical traded stock that everyone is use to and comes with voting rights, and preferred, doesn't usually come with voting rights and typically offers some form of guaranteed fixed dividend forever. Features of stocks are easy to buy and sell, no guarantee of return, may make huge profits fast or lose value just as quick, requires monitoring. Stocks are traded on "The Market", meaning they have to be bought and sold through a stock market. With regulations just anyone can't buy or sell on the market, it has to be a licensed broker to carry out the transaction. Stock buying and selling can take a lot of time and research to make the most profit. If you can find a broker, you trust they can really help you with your investment. Stocks are one area of investment, more so than bonds, you need to be sure you can stand to lose the money if the market doesn't work

For many people, the star market is a popular method for obtaining money quickly. Despite the risks, many people invest their money in stocks. The stock market allows the public to buy shares of a company, or a stock. These shares come in the form of an official document, and grants you a small fraction of the company you invested in. As companies do well, their stocks are worth more. Stocks can be bought and sold through the help of a stockbroker. The goal is to buy a share of a company, then later sell the share for more money than you bought it for. However, the market is risky; this is proven by multiple crashes in the market, resulting in loss of money.

Investors: These are people who invest money into an organisation to obtain a particular number of shares and earn dividends relative to their proportion of investment.

investors. The investors now share in the profit of the company and can exhange or buy more stocks in the

“Individuals and businesses lend their savings to borrowers. In exchange, borrowers give lenders a debt instrument, which is called bonds, representing a promise by borrowers to pay interest income to lenders on the principal (the amount of money borrowed) until the principal is repaid to the lenders” (Feldstein & Fabozzi, 2011).

Stocks, which allows investors  to own a percentage in a company, or in other words own

* The value of the stock may see an upward trend thus increasing the initial investor’s financial wealth

There are a few terms new stock investors should learn before actually beginning to put money into the stock market. You hear words like “shares”, “assets”, and even “earnings” when you watch or listen to people on the television. Shares are a percentage of the company, if you buy a share; you own a small percentage of it and its earnings. Earnings are all the money that the company makes. Assets involve all the company owns, for example, trademarks, equipment, and even the buildings their workers work in. Companies put their assets and

Financial markets are intertwined into the lives of everybody today. These markets set prices for food, gas, and various other items that people use often. There are even public cable television channels, such as CNBC, that exclusively cover financial markets. The worlds current financial events such as the US debt crisis, and the Federal Reserves’ quantitative easing have caused a rise in the public’s awareness of the financial markets. One of the most feared events in financial markets is a crash. A crash is a very steep drop in price of all securities in that market. Some recent crash events are the financial crisis of 2008, flash crash of May 2010, and August 2011. Flash crashes are a relatively new phenomenon to the markets, and these recent, unprecedented events have brought controversy to one of the newest forms of trading called High Frequency Trading(HFT). HFT is the act of executing millions of dollars worth of trades at sub second speed according to predictive software, or statistical models and algorithms. HFT allows hedge funds, and other types of financial companies the ability to trade in multiple markets faster than ever before. This incredibly broad and super fast ability to trade is one of the main reasons HFT has come under fire as a detrimental form of trading. Some of the controversy that HFT experiences consists of possible involvement in flash crashes and added

After the company has been approved the new shareholders have to elect a board of directors whom are going to run the company on their behalf. The directors are been elected to do the day to day running of a company, and because of their expertise and skills. After the broad of directors are elected of the shareholders they take over they responsible of the running of the company. Each share equals one vote, but in most cases small numbers of shares have little to say as in most cases large investors who hold the majority of shares have the power and saying in the company. The number of shares in one company, which equals 100% differ from company to company, and the price per share differ as well. There are two different types of companies: private limited companies and public limited companies. Shares cannot be traded without the approval of the board of directors in a private limited company. The shares are also only sold to friends or family member with a prior agreement and not to the general public. Normally a private limited company has the letters “Ltd” after its name, On the other hand a public limited company is selling their stocks on the Stock Market to the general public. Public limited companies sometimes carry the letters “PLC” after its name. The value of a company is all shares added together and have to equal 100% of the shares. This is how the value of a company constantly is change, as a result

Stocks (or shares), by definition, are shares of ownership in a company. By purchasing stocks in a company, the investor becomes a part owner, and thereby owns a percentage share of the company’s after tax profits. Stocks/shares have two key characteristics: 1) they can be issued in small denominations: an investor can purchase as many or as few shares in a company as he/ she wants, thereby becoming a

Gittman (2004, pp. 312) divided stock into two types, such as common stock and preferred stock. He also showed that dividends are the outcome of investment. So, common stocks are an ownership claim against primarily real or productive asset (Higgins, 1995), but he also said that if the company prospers, stockholders are the chief beneficiaries, if it falters, they are the chief losers. Smith (1988) presented that stocks are one of the most popular forms of investment. People buy stocks for various reasons: some are interested in the long-term growth of their investment by buying low priced stock of a new company in the hope of substantially growth of share price over the next few years. Another reason he suggested that in a well established firm stockholders expect the stock growth will be stable over the long run. (Smith,1988).