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Securities Market

Securities Market . Investments and Portfolio Management MB 72. Outline. Meaning of Financial Markets Role of Financial Markets Types of Financial Markets Primary Markets

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Securities Market

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  1. Securities Market Investments and Portfolio Management MB 72

  2. Outline • Meaning of Financial Markets • Role of Financial Markets • Types of Financial Markets • Primary Markets • Secondary • Stock Exchanges • Over-the-Counter Market • Third and Fourth Market • Mechanics of Trading • Types of Orders • Margin Trading

  3. Financial Markets • A place where borrowers and lenders are brought in contact with one another • Help in allocation of scarce resources in the economy • Channeling savings into investments • Provide an economy’s link with the future

  4. Primary Markets • New issues market which brings together the supply and demand or sources and uses for new capital funds • A market where securities are issued for the first time • contributes directly to capital formation • any increase in primary market activity leads to more investment, more capital formation

  5. Secondary Market • Deals in existing securities; market for buying and selling of existing securities • does not directly contribute to capital formation • increase in volume of business in the secondary market does not mean more capital formation • Indirectly helps in capital formation • Secondary markets can be classified as: • Auction Markets • Negotiated Markets • Stock Exchanges are classified as auction markets • Over-the-Counter Market • What is a third market? • What is a fourth market?

  6. Mechanics of Trading • Open a brokerage account • cash account • margin account • Types of Orders • Market order • buy/sell securities at the best available price in the market • limit order • specifies a particular price to be met or bettered • stop order • specifies a certain price at which a market order is to take over

  7. Margin Trading • A customer can pay part of the total amount due and borrow the remainder from the broker, who in turn typically borrows from a bank to finance customers. • Margin is that part of a transaction’s value that a customer must pay to initialize the transaction. It is part of the total value of the transaction that cannot be borrowed from the broker. • What is initial margin? • Part of a transaction’s value that a customer must pay to initialize a transaction • What is maintenance margin? • Minimum amount needed in the investors account at all times as compared to the market value • What is margin call? • A margin call is issued when the actual margin declines below the maintenance margin

  8. Market Value of securities minus Amount Borrowed Actual Margin = ----------------------------------------------------------- Market Value of Securities

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