Economics
Securities
Securities are financial instruments that represent ownership or debt. They can be traded on financial markets and include stocks, bonds, and derivatives. Securities provide a way for companies and governments to raise capital, and for investors to potentially earn returns on their investments.
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6 Key excerpts on "Securities"
eBook - PDF- Janette Rutterford, Marcus Davison(Authors)
- 2017(Publication Date)
- Red Globe Press(Publisher)
We now turn to Securities market products, to explore the different types of Securities on offer to investors in Securities markets, including shares, bonds and derivative prod-ucts. We then explore the risks of these products before describing the basics of stock markets, in particular the benefits of such markets and their classifications. The chapter then looks at the concept of market efficiency and the efficient market hypothesis before ending with a historical profile of the London stock market. Securities MARKET PRODUCTS The main investment products traded in the stock market – shares and bonds – are finan-cial claims on the companies, governments and other organisations that issue them in order to raise funds for their medium and long-term financing needs. These claims become the assets of investors who buy them, and liabilities of, or claims on, the entities that issue them. They form just a part (though a very important part) of the broader universe of products used by the financial markets to channel funds from economic sectors in financial surplus ( surplus sectors ) to economic sectors in financial deficit ( deficit sectors ). It is important to appreciate where marketable Securities fit into the wider financial markets, and how the financial markets as a whole fit into the real economy , where non-financial or real assets (goods and services) are produced and distributed. By contrast, a financial asset is one that consists solely of a claim on a future stream of cash. When governments, companies and other organisations raise money from investors to finance their activities, they create many different forms of financial claims for investors to Investment basics 4 purchase. Claims created in a form that can continue to be readily bought and sold after their original issues are known as Securities. If these Securities have been accepted for trad-ing on a recognised market such as a stock exchange, they are called marketable Securities.
No longer available |Learn more- (Author)
- 2014(Publication Date)
- College Publishing House(Publisher)
Financial regulators, such as the UK's Financial Services Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties. Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing Securities are sold and bought among investors or traders, usually on a Securities exchange, over-the-counter, or elsewhere. Stock Market A stock market or equity market is a public (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price; these are Securities listed on a stock exchange as well as those only traded privately. The size of the world stock market was estimated at about $36.6 trillion at the start of October 2008. The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy. The value of the derivatives market, because it is stated in terms of notional values , cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring). Many such relatively illiquid Securities are valued as marked to model, rather than an actual market price. The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and Securities together.
eBook - PDFFinancial Analytics with R
Building a Laptop Laboratory for Data Science
- Mark J. Bennett, Dirk L. Hugen(Authors)
- 2016(Publication Date)
- Cambridge University Press(Publisher)
This can happen. In the past few decades, Securities price discovery has gone from human conver- sations, often loud and dynamic, to quiet devices sending signals over a computer network. Securities are different from most products we encounter in that their prices fluctuate continuously during trading hours. Therefore, analyzing Securities prices is a study of random processes. The mathematical study of randomness predates our modern investment banks and computerized exchanges. We will distinguish between the most basic Securities whose prices are quoted – underlying Securities – and those Securities whose value is derived from those basic Securities – derivative Securities. Basic Securities include stocks, bonds, and spot com- modities which are priced in the present. Their prices can be found directly without much in the way of special algorithms, but derivative security prices introduce another level of complexity since they move relative to the underlying security prices, volatility, and time to expiry. The focus of this chapter will be on basic Securities. A large portion of stock market transactions use basic Securities, so establishing an analytical foundation with these is a priority. The most basic financial instruments and the most common investment Securities are bonds and stocks. With a bond, the purchaser of the bond – the bond holder – is holding 4.1 Bond Investments 45 a certain amount of debt of the bond issuer. The bond issuer owes the bond holder from the time of purchase until the time of maturity. The bond issuer can be a sovereign entity, such as a local or national government, or a corporation. The issuer may be obligated to pay the bond holder periodic payments, for example, semi-annually, which is a per- centage of the overall or “notional” amount in addition to a full payment at maturity. This type of bond is called a coupon bond. A zero-coupon bond, however, involves no periodic payments; only a repayment at the time of the bond maturity.
eBook - ePub- Jose Cartas, and Qi He(Authors)
- 2015(Publication Date)
- INTERNATIONAL MONETARY FUND(Publisher)
3. Financial Instruments Classified as Securities
3.1 This chapter describes the different financial instruments that are classified as debt and equity Securities, respectively. It also considers borderline cases and lists the financial instruments that are not classified as Securities.
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Debt Securities
3.2 The most common types of debt security include bills, bonds, notes, negotiable certificates of deposit, commercial paper, debentures, asset-backed Securities, and similar instruments normally traded in the financial markets that serve as evidence of a debt.3.3 Common types of debt security are those sold on:- A coupon basis , stipulating that periodic interest, or coupon payments will be made during the life of the instrument and that the principal will be repaid at maturity.
- An amortized basis , stipulating that interest and principal payments will be made in installments during the life of the instrument.
- A discount , or zero coupon basis, whereby a debt security is issued at a price that is less than its face (or par) value, and the interest and principal are paid at maturity.
- A deep discount basis , whereby a debt security is issued at a price that is less than face value, and the principal and a substantial part of the interest are paid at maturity.
- An indexed basis , which ties the amount of interest and/or principal payment to a reference index, such as a price index or an exchange rate index, or to the price of a commodity (e.g., gold).
Bills
3.4
eBook - PDF- Nicholas L. Georgakopoulos(Author)
- 2017(Publication Date)
- Cambridge University Press(Publisher)
As we saw in Chapter 4, the function of the definition of a security is the separation of goods that are primarily subject to the buyer’s inspection and future control from those that buyers tend not to inspect or control. The focus on inspection matches the subjective valuation of supply and demand versus the objective valuation of the CAPM. The focus on control aligns with active use of real goods versus the passive investment in Securities. Noting this agreement of the economic and legal understandings of Securities, we can turn to a jurisprudential moment where they appear to have deviated. 42 Pricing Mechanisms 6 From the Sale-of-Business Doctrine to Gustafson The legal definition of a security – a presumed intent to invest in a common enterprise with an expectation of profits mostly from the effort of others – and its analysis as an investment with neither access to information nor control are consistent with the economic understanding of a security as a passive investment. The courts, however, have followed a tortured path in applying this analysis to sales of controlling blocks of shares and to private transactions generally. According to the “sale-of-business doc- trine,” sales of controlling blocks of shares were not sales of Securities; therefore, the buyer had neither the rescission remedy nor other Securities law protections. Then, in 1985, the US Supreme Court overturned the sale-of-business doctrine with Landreth and Ruefenacht, 1 giving buyers of control the right to rescind remedy and other Securities law protections. A few years later, in a move of legal whiplash, the Court in Gustafson granted a reprieve from the remedies of Securities law to a seller of a controlling block of shares. 2 This reprieve was both broader and narrower than that of the sale-of-business doctrine. It exempted all private transactions from the rescission remedy of Securities law, but buyers retained all other Securities law protections.
eBook - PDF- Louis E. Boone, David L. Kurtz, Brahm Canzer(Authors)
- 2021(Publication Date)
- Wiley(Publisher)
1.2 In the financial system, who are the borrowers and who are the savers? Savers and borrowers are individuals, businesses, and governments. Generally, individuals are net savers, meaning they spend less than they make, whereas businesses and governments are net borrowers. 1.3 List the two most common ways in which funds are transferred between borrowers and savers. The two most common ways funds are transferred are through the financial markets and through financial institutions. LEARNING OBJECTIVE 2 List the various types of Securities. Securities, also called financial instruments, represent obligations on the part of issuers—businesses and governments—to provide purchas- ers with expected or stated returns on the funds invested or loaned. Securities can be classified into three categories: money market instru- ments, bonds, and stock. Money market instruments and bonds are debt instruments. Money market instruments are short-term debt Securities and tend to be low-risk Securities. Bonds are longer-term debt Securities and pay a fixed amount of interest each year. Bonds are sold by the U.S. Department of the Treasury (government bonds), state and local governments (municipal bonds), and corporations. Mortgage pass-through Securities are bonds backed by a pool of mortgage loans. Most municipal and corporate bonds have risk ratings. Common stock represents ownership in corporations. Common stockholders have voting rights and a residual claim on the company’s assets. Assessment Check Answers 2.1 What are the major types of Securities? The major types of Securities are money market instruments, bonds, and stock. 2.2 What is a government bond? A municipal bond? A government bond is one issued by the U.S. Treasury. Municipal bonds are issued by state and local governments. 2.3 Why do investors purchase common stock? There are two primary motives for purchasing common stock. One is to receive div- idends, cash payments to shareholders by the company.
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