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8/14/2019 Stocks Exchang
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Prepared by: Dr Mirwais Khaleel Safi
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Prepared by: Dr Mirwais Khaleel Safi12/15/08
Stock
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Stocks
Astockis a certificate thatcertifies ownership of acertain portion of a firm.
When a firm issues newshares of stock, it does notadd to its debt. Instead, it
brings in additionalowners who supply itwith funds.
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Stocks
Most stocksbought and soldon the stock
market daily arenot newly issuedbut issued longago, when the
firm goespublic.
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Astockis a certificate that certifies ownershipof a certain portion of a firm.
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Astockis a certificate that certifies ownershipof a certain portion of a firm.
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Stocks
Stockholders have a right to select themanagement of the firm and to share inits profits.
Unlike bonds or direct borrowing, stocksdo not promise a fixed annual payment.Returns depend on company
performance. If profits are high, the firmmay pay dividends=
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Types of Stocks
1. Common Stock:
2. Preferred Stock:
. 1.
.2 . )Dividends )
.
.3 .
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Stock exchange
A stock exchange, share market orbourse is acorporation or mutual organization which provides"trading" facilities forstock brokers and traders, to
trade stocks and othersecurities. Stock exchangesalso provide facilities for the issue and redemption ofsecurities as well as other financial instruments andcapital events including the payment of income and
dividends.
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Stock market
A stock market, or (equity market), is a private orpublic market for the trading of company stock and
derivatives of company stock at an agreed price;these are securities listed on a stockexchange as well as those only traded privately.
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History of stock exchanges
In 11th century France the courtiers dechange were concerned with managingand regulating the debts of agriculturalcommunities on behalf of the banks. As
these men also traded in debts, they couldbe called the first brokers.
Some stories suggest that the origins ofthe term "bourse" come from the Latinbursa meaning a bagbecause, in 13th
century Bruges, the sign of a purse (orperhaps three purses), hung on the frontof the house where merchants met.
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The role of stock exchanges
Stock exchanges have multiple roles in the economy,this may include the following:[1]
1. Raising capital for businesses The Stock Exchange provides companies with the
facility to raise capital for expansion through sellingshares to the investing public.[2]
http://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchange8/14/2019 Stocks Exchang
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The role of stock exchanges
2. Mobilizing savings for investment
When people draw their savings and invest inshares, it leads to a more rationalallocation of resources because funds,which could have been consumed, or keptin idle deposits with banks, are mobilizedand redirected to promote business activitywith benefits for several economic sectorssuch as agriculture, commerce and
industry, resulting in a stronger economicgrowth and higher productivity levels andfirms.
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The role of stock exchanges
3. Facilitating company growth
Companies view acquisitions as anopportunity to expand product lines,
increase distribution channels, hedgeagainst volatility, increase its marketshare, or acquire other necessary
business assets. A takeover bid or amerger agreement through the stockmarket is one of the simplest and mostcommon ways for a company to grow
by acquisition or fusion.
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The role of stock exchanges
4. Redistribution of wealth
Stocks exchanges do not exist to
redistribute wealth. However, bothcasual and professional stock investors,through dividends and stock priceincreases that may result in capital
gains, will share in the wealth ofprofitable businesses
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The role of stock exchanges
5. Corporate governance
By having a wide and varied scope of
owners, companies generally tend toimprove on their managementstandards and efficiency in order tosatisfy the demands of these
shareholders and the more stringentrules for public corporations imposedby public stock exchanges and thegovernment
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The role of stock exchanges
6. Creating investment opportunities forsmall investors
As opposed to other businesses thatrequire huge capital outlay, investing inshares is open to both the large andsmall stock investors because a person
buys the number of shares they can
afford. Therefore the Stock Exchangeprovides the opportunity for smallinvestors to own shares of the samecompanies as large investors
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The role of stock exchanges
7. Government capital-raising for developmentprojects
Governments at various levels may decide to borrow money inorder to finance infrastructure projects such as sewage andwater treatment works or housing estates by selling another
category of securities known as bonds. These bonds can beraised through the Stock Exchange whereby members of thepublic buy them, thus loaning money to the government. Theissuance of such bonds can obviate the need to directly tax thecitizens in order to finance development, although by securingsuch bonds with the full faith and credit of the government
instead of with collateral, the result is that the government musttax the citizens or otherwise raise additional funds to make anyregular coupon payments and refund the principal when the
bonds mature.
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The role of stock exchanges
8. Barometer of the economy
At the stock exchange, share prices rise andfall depending, largely, on market forces.
Share prices tend to rise or remain stablewhen companies and the economy in generalshow signs of stability and growth. Aneconomic recession, depression, or financialcrisis could eventually lead to a stock market
crash. Therefore the movement of share pricesand in general of the stock indexes can be anindicator of the general trend in the economy.
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Determining ( ( the Price of a Stock
Things that are likely to affect the priceof a stock include:
What people expect its future dividends willbe
When the dividends are expected to be paid
The amount of risk involved
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Determining ( ( the Price of a Stock
The amount by which future dividends( (are discounted depends onthe interest rate. The larger the interestrate, the more will expected futuredividends be discounted.
Pays one yearfrom now
Amount todayInterest rate
$110
$104.765%
$110
$10010%
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Determining ( ( the Price of a Stock
Thus we can say that the price of a stockshould equal the discounted value ( ( of its expected futuredividends, where the discount factorsdepend on the interest rate and risk.
Announcements of higher expected
future dividends or perceived lower riskshould increase the firms stock price.
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Determining ( ( the Price of a Stock
The price of a stock may also be drivenup not by the discounted value ofexpected future dividends, but by
peoples views of what others will payfor the stock in the future.
One might call this a bubble because thestock price depends on what people
expect that other people expect, etc.
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Major stock exchanges
$1.66$1.26Korea Exchange
$1.70$2.97Hong Kong Stock Exchange
$0.263$1.61Bombay Stock Exchange
$1.003$1.453Australian Securities Exchange
$28.7$20.7NYSE Euronext
$1.36$2.29Toronto Stock Exchange
$0.476$1.40So Paulo Stock Exchange
$12.4$4.39NASDAQ
$0.349$0.940JSE Securities Exchange
)trillions of USdollars(
)trillions of USdollars(
Total ShareTurnoverMarket ValueStock Exchange
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The Stock Market Since 1948
Dow Jones Industrial AverageIndex:
An index based on the stock prices of 30actively traded large companies. The oldest
and most widely followed index of stockmarket performance.
:
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The Stock Market Since 1948 NASDAQ Composite Index:
An index based on the stock prices of over5,000 companies traded on the NASDAQstock market. The NASDAQ market takes isname from the National Association ofSecurities Dealers Automated QuotationSystem.
() NASDAQ .
No. of listings 3,200
Currency USD
Key people Robert Greifeld )CEO(H. Furlong Baldwin )Chairman(
Owner the NASDAQ OMX Group
Location Times street New York City, United States
Type Stock exchange
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NYSE
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The Stock Market Since 1948
Standard and Poors 500 (S&P 500)Index:
An index based on the stock prices of thelargest 500 firms traded on the New YorkStock Exchange )NYSE(, the NASDAQstock market, and the American StockExchange.ASE
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The Stock Market Since 1948
From a macroeconomic perspective, the DowJones Industrial Average and theNASDAQ indexcover too small a sample of firms.
A better measure of the market value of all firms inthe economy is the Standard and Poors 500 stock
price index, called the S&P 500.
h S k k
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The Stock Marketand the Economy
boom( ( =
The stock market boom of the last half of
the 1990s had a large impact on theeconomy.
How much of the economic growth was due
to the stock market boom? Did the economy in fact enter a new age?
Th S&P 500 S k P i I d
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The S&P 500 Stock Price Index,1948 I 2002 III
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The Stock Market Since 1948
Between 1995 and 2000, the S&P 500index rose 226 percent, an annual rate of25 percent!
This is by far the largest stock marketboom in U.S. history. Thisboom added $14 trillion to household wealth, about $2.5 trillion per year.(25,000,000,000,000)
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The Stock Market Since 1948
The stock market boom cannot beexplained by a large fall in interest rates,higher profits, or a fall in the perceived
riskiness of stocks. This led manypeople to the view that it was simply abubble.
Millions of lives were affected by theeuphoria of the boom andthe correction that followed.
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Stock Market Effects on the Economy
An increase in stock prices causes anincrease in wealth, and consequently anincrease in consumer spending.
Investment is also affected by higherstock prices. With a higher stock price,a firm can raise more money per share to
finance investment projects.
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Poor Millionaires of ZimbabweA period of continuous uncontrolled rise in
prices of goods in an economy is called inflation.
P Milli i f Zi b b
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Poor Millionaires of Zimbabwe( money inflation )
P Milli i f Zi b b
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Poor Millionaires of Zimbabwe( money inflation )
P Milli i f Zi b b
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Poor Millionaires of Zimbabwe( money inflation )
Poor Millionaires of Zimbab e
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Poor Millionaires of Zimbabwe( money inflation )
Poor Millionaires of Zimbabwe
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Poor Millionaires of Zimbabwe( money inflation )
Poor Millionaires of Zimbabwe
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Poor Millionaires of Zimbabwe( money inflation )
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Poor Millionaires of Zimbabwe
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Poor Millionaires of Zimbabwe( money inflation )
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Thank You forAttention