1、Unit Seven Securities,1. Professional Terms 2. Major Characteristics of Securities 3. Money Market 4. Capital Market 5. Stock Market in the US,Professional Terms,primary market, issuance market secondary market aftermarket 次级市场 main board market 主板市场 second board market 二板市场 adjusted debit balance 调
2、整后借方余额 ask-bid system 竞价系统 bear raiders 大量抛空者,block, 大宗股票，冻结 block positioner 大宗头寸商 blocked deposits 冻结存款 blue chip stocks 蓝筹股 underwrite, underwriter 承销，承销商 board of arbitration bullish 行情看涨 cash dividend 现金股利 common stock 普通股 preferred stock 优先股,cumulative preferred stock 累积优先股 convertible preferr
3、ed stock 可转换优先股 manipulate the market 操纵市场 corner the market 操纵市场 cum dividend 附息 cum right 含权 delivery date 交割日 diversification 分散投资 Dow Jones average 道琼斯平均指数 downgrade 降级,dumping 抛售 early warning system 预警系统 offering date，issuing date 发行日 exercise date 执行日 expiration date, expiry date 到期日 hit the
4、bid 拍板成交 hot issue, 抢手证券 hot stock 抢手股票 institutional investor 机构投资者 intraday 当天的，一天内的 liquidation 清仓,liquidity 流动性 marketability 可销售性 maturity date 到期日 rate of return 回报率 default risk, 违约风险 market risk, 市场风险 risk of inflation 通胀风险 rating service 评级机构 listed stock 上市股票 listed company 上市公司,long posit
5、ion, 多头地位，价格看好 short position 空头地位，短缺的头寸 major market index 主要市场指数 over the counter market, OTC market 柜台市场 over the counter broker, 场外经纪商 floor broker 场内经纪商,notional sum 名义金额 notional principal 名义本金 undervalued stock 价值低估的股票 overvalued 估价过高 margin 保证金 initial margin maintenance margin outstanding b
6、onds 未偿还的债券 outstanding balance 未偿还的余额 outstanding stocks 已发行的股票,hypothecation, 抵押 mortgage, collateral proprietary 所有者，所有权，自有资本 prospectus 募股说明书 proxy 代理 rigged market 受操纵的市场 screen stocks 选股 subscription 认股，认缴股款 gilt edged securities 金边证券 consols 统一公债,negotiable order of withdrawal account (NOW ac
7、count) New York Stock Exchange (NYSE) American Stock Exchange (AMEX) the Securities and Exchange Commission (SEC) the National Association of Securities Dealer (NASD) the National Association of Securities Dealer Automated Quotation (NASDAQ) NASDAQ index,China Securities Regulatory Commission (CSRC)
8、 gross domestic product (GDP) gross national product (GNP) stamp taxes 印花税 B-share B股 London Inter-Bank Offered Rate (LIBOR) direct finance, indirect finance Chicago Mercantile Exchange (CME),commercial paper federal funds repurchase agreement public sale, 公募 private placement 私募 real asset, 实际资产，不动
9、产 capital asset, 固定资产 capital goods 固定资产,diversify business risks spread 买卖价差 corporate bonds municipal bonds debt securities equity securities asset structure criteria for listing 上市标准 redemption price 赎回价 annual rate of return coupon 息票,Major Characteristics of Securities,1. Maturity: Term to matu
10、rity is the length of time between the date the issuer acquires funds from the purchaser and the date the issuer must repay the funds. The maturity of securities (in general sense) ranges from immediate to infinite. Immediate maturity means the issuer must repay the funds on demand . Checking accoun
11、ts such as demand deposits and NOW accounts are examples of securities with immediate maturity.,On the other hand, a security with infinite maturity never matures. Equity security such as common stock is an example. Unless a firm buys back some of its outstanding common stock, the stock remains in t
12、he market forever. Among debt securities, a particular type of bond called consol also has infinite maturity. Consols are promises to pay interest indefinitely, but they are never repaid principal. The British government first introduced consols in 1751.,By the early 20th century, most of the Britis
13、h national debt was in consols, but now they account only a very small part. Between securities with immediate maturity and those with infinite maturity are short-term, medium-term and long-term securities. Their length of term ranges from overnight to over ten years.,2. Marketability: Marketability
14、 refers to whether an existing security can be sold to a third party before maturity. Some securities such as bank CDs in domination of less than $ 100,000, are not marketable. Nonmaketable securities can be redeemed only with the issuer at maturity and at a prescribed price; or they can be redeemed
15、 at an earlier date but subject to some penalty if the contract so specifies. In contrast, marketable securities can be sold to a third party before maturity with ease and convenience.,New issues of security are sold in the primary market and so are known as primary securities. Existing securities a
16、re sold in secondary market and are thus named as secondary securities. Secondary market increases the liquidity of financial instrument. The two markets are closely interrelated because primary securities and secondary securities are substitutes for each other in the portfolios of investors.,3. Rat
17、e of Return: The return of an asset is the reward of the asset holder, it comes from two sources. One is annual receipts, which can be interest, dividend or rent, depending on whether the asset is a bond, shares of common stock or an apartment building. The other source is an one time capital gain o
18、r loss if the holder sells the asset at a price greater or less than the purchase price of the asset.,How do we calculate the rate of return on a security ? Suppose today, we pay $ 9,000 to buy a security that we plan to hold for five years. This asset yields expected annual receipts of $ 400 for ea
19、ch of the five years. And at the end of the fifth year we expect to receive $ 10,000 from the redemption of the security. We can divide the return into two components: an annual yield, (called the current yield) and an average annual capital gains rate.,The current yield is calculated as the years r
20、eceipt as a percentage of the purchase price of the security. In this example, the current yield is $ 400 divided by $ 9,000, it is 4.4 percent. Total capital gains are the difference between the redemption price and the current purchase price of the security. Dividing the total capital gains by the
21、 purchase price, we can get the total capital gains rate. To find the annual capital gains rate, we divide the total capital gains rate by the number of years that the investor holds the security.,In this example, the total capital gains rate is 11.1%, and the average annual capital gains rate is 2.
22、2%. Finally, adding the average annual capital gains rate to the current yield, we get the approximate annual rate of return, which is 6.6%. Here the rate of return is that before tax. After-tax rates of return vary according to the tax bracket of the investor. Special tax features are important for
23、 securities. For example, the interest payments on most debt securities issued by state or local governments are exempt from federal income taxes.,4. Risk: Holders of securities face three major types of risk: market risk, (also called interest rate risk) default risk and risk of inflation. When we
24、purchase a security, we are uncertain of the price of the security at future dates except the maturity date. Uncertainty brings about risk. Market risk refers to the likelihood that the market price of a security will fall between the time the security is purchased and sold, resulting in capital los
25、s for the holder.,The greater the potential for capital loss, the greater the market risk. Weve known that security prices fall when interest rates rise, and security price rise when interest rates fall. Therefore, market risk is also named as interest rate risk. Market risk depends on the strength
26、of the inverse relationship between security prices and interest rates. And the strength of relationship between interest rates and security prices depends on the maturity of a security.,Suppose other conditions remain the same, if the maturity is longer, the decrease in the price of a debt security
27、 because of a given rise in the interest rate will be greater. In other words, interest rate risk is greater the longer the maturity of a security. A second type of risk is default risk, which only applies to debt securities, and thus is also called credit risk. It is the risk that the issuer of a d
28、ebt security may not pay all of the specified interest or may not repay fully the face value at maturity.,Debt securities issued by the US government such as Treasury bills and bonds are default free. The US government can always raise funds to repay its debt because it has the power to levy taxes a
29、nd to print money. Therefore, US government security is the benchmark to which other debt securities are compared for default risk. Other things being equal, buyers of debt securities demand and receive a higher interest rate in the market to compensate for higher default risk.,Several private ratin
30、g services rate newly issued and existing debt securities for credit risk as a guide for potential investors. The two most prominent rating services are Moodys Investors Service and Standard & Poors Corporation. They divide bonds into two broad categories: investment-grade bonds and below-investment
31、-grade bonds. Inflation risk on a debt security is the risk to the holder that the periodic income or the ultimate redemption of the principal may be cheapened by inflation.,Inflation risk is related to interest rate risk, because increases in the inflation rate are generally accompanied by increase
32、s in the interest rate. As anticipated inflation rises, issuers of debt securities are willing to pay a higher interest rate, and investors demand a higher interest rate to compensate for the expected loss of purchasing power from inflation.,5. Liquidity: Another important characteristic of securiti
33、es is liquidity which means to convert an asset to its maximum cash value. To realize the maximum cash value of a security depends on its characteristics such as marketability, maturity and risk. The relationship between liquidity and marketability, maturity and risk can be stated as the following:
34、The more marketable a security, the more liquid the security is.,The shorter the maturity of a security, the more liquid the security is. The riskier a security, the less liquid the security is. We cant cash a security unless a secondary market exits for it. Transaction costs involved in converting
35、securities into cash contain brokerage fees and the spread of a dealer and the investors time spent in arranging for the sale. The more efficient a market is, the lower the transaction costs ,and thus the higher the realized cash value for the seller.,In other words, the more efficient a market for
36、a security is, the more liquid the security is. Of course, the realized cash value of a security depends on other factors besides transaction costs. The value depends mainly on the market price of the security at the time the investor sells it. Market prices of long-term securities fluctuate more th
37、an short-term securities when interest rates change. This greater market risk is reflected in the liquidity of a security.,In general, the shorter the maturity of a security, the more liquid the security is . In addition to market risk, some securities may be subject to default risk. There exists a
38、negative relationship between default risk and liquidity. For example, when the rating services downgrade a companys bonds, the bonds will become difficult to sell, thus the liquidity decreases.,Money Market,How does money market acquire its name? Instruments transacted in money market are short-ter
39、m and highly liquid, most of them can be converted into cash upon demand, and transactions in the secondary market are active. Therefore, this market is termed as money market. In the money market, business firms, governments, commercial banks, and sometimes individuals borrow or lend funds for shor
40、t period of time- usually from one to 120 days.,Money market is where commercial banks and other businesses adjust their liquidity, where the central bank carries out its monetary policies, and where the government raises funds for its day-to day operations. The general public know little about mone
41、y market, because they rarely invest directly in it. Treasury bills are the dominant money market instrument, they are followed by negotiable certificates of deposit and commercial paper. Other money market instruments provide investment alternatives for money market participants.,Nature of the Mone
42、y Market: Unlike the New York Stock Exchange for the equity market, money markets have no formal organizations. Dealers and brokers are central to the activity of money market. Dealers buy securities for their own position or sell from their security inventories when a trade takes place. Brokers tra
43、de for their customers and charge them brokerage. Transactions, especially in the secondary market are always completed by telephone. In the US, the money market is centered in downtown Manhattan in New York city.,The major dealers and brokers are tied to each other and to their customers by direct
44、phone lines all over the US and in major European financial centers. Other communication devices such as teletypes and computers link large banks and other participants in the money markets. The money market is different from other financial markets mainly in that they are wholesale market. Although
45、 small transactions do take place, most transactions involve one million dollars or more.,Money market transactions are called open market transactions because they are impersonal and competitive. There are no established customer relationship in money markets. For instance, if a bank wants to trade
46、 in Federal Funds, it will ask for bid from many brokers, selling at the highest price and buying at the lowest.,Economic Role of the Money Market: As debt market, the primary function of money markets is to redistribute funds from economic units possessing surplus to those in deficit. In other word
47、s, the most important economic function of the money market is to provide an effective means for economic units to adjust their liquidity positions. Almost all economic units has a problem of liquidity management, they can bridge the gap between their cash receipts and cash expenditures by the purch
48、ase or sale of money market instruments, and thereby they solve their liquidity problems.,The money market operates through a national network of commercial banks and securities dealers, it holds the financial system together, it prevents appreciable differences in local or regional interest rates.
49、The existence of a national money market makes it possible to speak of a general level of interest rates.,Characteristics of Money Market Instrument: First, the issuer of money market instruments must have the highest credit rating and therefore, therere almost no risk of default on money market ins
50、truments. Second, money market instruments are short-term. Third, they are highly marketable so that investors can sell them before maturity.,Participants of the Money Market: 1. Commercial Banks: They are the largest participants. Commercial banks often have the problem of liquidity because most of
51、 their liabilities are short-term, there are many variations in demand for loans and they need to meet the reserve requirements determined by the central bank. 2.Central Bank: It is the most important participant in the money market. The central bank adjusts the nations money supply mainly by open market operations such as purchases and sales of Treasury bills in money market.,
