Stock
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SouthUral State University
The Department of Economic and Management
Work on subject
The Student: Velichko O.S.
Group: E&M-263
The Tutor: Sergeeva L.M.
Chelyabinsk
1998
Contents
Market place
Trading on the stock exchange floor
Securities. Categories of common stock
Growth stocks
Cyclical stocks
Special situations
Preferred stocks
Bonds-corporate
Bonds-U.S. government
Bonds-municipal
Convertible securities
Option
Rights
Warrants
Commodities and financial futures
Stock market averages reading the newspaper quotations
The price-earnings ratio
European stock markets-general trend
New ways for old
Europe, meet electronics
New issues
Mutual funds. A different approach
Advantages of mutual funds
Load vs. No-load
Common stock funds
Other types of mutual funds
The daily mutual fund prices
Choosing a mutual fund
1. MARKET PLACE
The stock market. To some its a puzzle. To others its a source of profit and endless fascination. The stock market is the financial nerve center of any country. It reflects any change in the economy. It is sensitive to interest rates, inflation and political events. In a very real sense, it has its fingers on the pulse of the entire world.
Taken in its broadest sense, the stock market is also a control center. It is the market place where busi-nesses and governments come to raise money so that they can continue and expend their operations. It is the market place where giant businesses and institutions come to make and change their financial commitments. The stock market is also a place of individual opportunity.
The phrase “the stock market” means many things. In the narrowest sense, a stock market is a place where stocks are traded – that is bought and sold. The phrase “the stock market” is often used to refer to the biggest and most important stock market in the world, the New York Stock Exchange, which is as well the oldest in the US. It was founded in 1792. NYSE is located at 11 Wall Street in New York City. It is also known as the Big Board and the Exchange. In the mid-1980s NYSE-listed shares made up approximately 60% of the total shares traded on organized national exchanges in the United States.
AMEX stands for the American Stock Exchange. It has the second biggest volume of trading in the US. Located at 86 Trinity Place in downtown Manhattan, the AMEX was known until 1921 as the Curb Exchange, and it is still referred to as the Curb today. Early traders gathered near Wall Street. Nothing could stop those outdoor brokers. Even in the snow and rain they put up lists of stocks for sale. The gathering place became known as the outdoor curb market, hence the name the Curb. In 1921 the Curb finally moved indoors. For the most part, the stocks and bonds traded on the AMEX are those of small to medium-size companies, as con-trasted with the huge companies whose shares are traded on the New York Stock Exchange.
The Exchange is non-for-profit corporation run by a board of directors. Its member firm are subject to a strict and detailed self-regulatory code. Self-regulation is a matter of self-interest for stock exchange members. It has built public confidence in the Exchange. It also required by law. The US Securities and Exchange Commission (SEC) administers the federal securities laws and supervises all securities exchange in the coun-try. Whenever self-regulation doesnt do the job, the SEC is likely to step in directly. The Exchange doesnt buy, sell or own any securities nor does it set stock prices. The Exchange merely is the market place where the public, acting through member brokers, can buy and sell at prices set by supply and demand.
It costs money it become an Exchange member. There are about 650 memberships or “seats” on the NYSE, owned by large and small firms and in some cases by individuals. These seats can be bought and sold; in 1986 the price of a seat averaged around $600,000. Before you are permitted to buy a seat you must pass a test that strictly scrutinizes your knowledge of the securities industry as well as a check of experience and character.
Apart from the NYSE and the AMEX there are also “regional” exchange in the US, of which the best known are the Pacific, Midwest, Boston and Philadelphia exchange.
There is one more market place in which the volume of common stock trading begins to approach that of the NYSE. It is trading of common stock “over-the-counter” or “OTC”-that is not on any organized ex-change. Most securities other than common stocks are traded over-the-counter. For example, the vast market in US Government securities is an over-the-counter market. So is the money market-the market in which all sorts of short-term debt obligations are traded daily in tremendous quantities. Like-wise the market for long-and short-term borrowing by state and local governments. And the bulk of trading in corporate bonds also is accomplished over-the-counter.
While most of the common stocks traded over-the-counter are those of smaller companies, many sizable corporations continue to be found on the “OTC” list, including a large number of banks and insurance compa-nies.
As there is no physical trading floor, over-the-counter trading is accomplished through vast telephone and other electronic networks that link traders