<Student’s name>
<Professor’s name>
Introduction
Investment activity is risky, as a rule, long-term investment of resources in certain assets with a view to profit. Investments can be divided into real and financial.
Real investments are investments in physical capital (current assets, fixed assets, construction, etc.) and intangible (education, advertising, etc.) assets. Financial investments represent investments in the acquisition of financial assets (securities).
For many investors, the priority investment is just the financial investment, since it provides them with endless possibilities. Of course, what would be the most efficient disposition of capital, you need to know the theoretical fundamentals of investing and have some experience in making transactions on the stock market. But as they say, is not that hard, because if you want a certain zeal and anyone can become a good investor.
Securities Investment
In the past, securities exist only in a physically tangible, hard copy printed and typographic way on special paper forms. The securities are usually made with a high degree of protection against possible forgeries.
In world practice, there are different approaches to the definition of securities: different lists of securities that are included in this concept, different approaches to the content of economic relations that express the securities.
Securities are financial instruments representing rights or loan relationship of the document holder in relation to the person that issued the document, there may be in the form of separate documents or records in the accounts. They bring to their owners interest income (bonds) or dividend (shares). Securities are able to perform a variety of management functions, management of commodity- money, market relations, acting as a means of financing, lending redistribution of financial resources, investment of cash savings.
Called a security document certifying compliance with the prescribed form and mandatory requisites, property rights, the exercise and transfer shall be possible only upon its presentation.
It should be borne in mind that under the presentation in this case refers not simply to demonstrate the presence of a physical carrier of the security, and the proof of their ownership of a security.
The economic literature provides a lot of different definitions of security. Are the most accurate definitions, which emphasize that this document, which are the title of the property or the right to receive income, the fact that this is proof of the right to physical assets.
In order to give a complete characterization of such a category as a security, it is necessary to consider the basic inherent properties:
1) the security is evidence of the ownership of capital. These securities include shares;
2) the security of the loan reflects the relationship between the investor (the person who purchased this security) and the issuer (the person making the issue of securities). Such kind of securities are bonds, notes, etc.;
3) the security is entitled to receive certain income from the issuer;
4) securities in the form of shares are entitled to participate in the management of the corporation;
5) The securities are entitled to a share in the property of the issuing company at his disposal.
One of the significant features of the security is its ability to serve as traded on the stock market. Securities freely or with some restrictions apply on the market, providing a flow of capital from one issuer to another, as well as the extraction yield of the increase in market value, and others should be emphasized that security may serve as a guarantee of the loan, as collateral, be subject to other civil relations.
The ability to access the security features of other financial instruments. For example, the credit agreement is a purely individual and cannot be resold. If the loans are attracted by the issue of bonds, the lender that owns the bonds, can implement it to a third party, if necessary, to get the money before the end of the treatment of this security.
Securities Classification
All of the great family of the securities is usually divided into several types depending on the criteria.
According to a product form:
a) certificated securities whose owners are set on the basis of a certificate or record on the deposit account;
b) the book-entry securities, the owners of which are established on the basis of entries in the register of holders of securities or in the case of depositing securities, based on the deposit account records.
Depending on the subject of rights certified by a security release:
1) bearer securities, to implement and validate the rights of the owner of which is quite a simple presentation of the security;
2) registered securities holders' rights are confirmed as based on the name entered in the text of the paper, and in the corresponding entry in the book of registration of securities. Rights certified security shall be transferred in accordance with the requirements for the assignment (cession);
3) a warrant securities. Rights to order security transferred by making this paper endorsement - an endorsement. An endorsement transfers all rights evidenced by a security on the person to whom or to whose order the rights are transferred, - the transferee.
The endorsement may be in blank (without indicating the person who is to be made) or order (with the person to whom or to whose order should be made).
Depending on the nature of economic relations expressed are distinguished:
- Equity;
- Debt;
- Hybrid;
- Derivatives;
- Commodity securities.
Equity securities certify the right of the owner to share in the capital of the enterprise. These securities include shares and units of investment funds.
Debt securities certify the rights of a specific monetary claim. These include bonds, bills of exchange, checks and certificates of indebtedness.
Also distinguish between primary and derivative securities.
The primary securities are the shares, bonds, notes, commercial paper, certificates of deposit and other instruments, which are rights to property, money, production, land and other primary resources. Derivative securities - any securities certifying the right of the holder to buy or sell primary securities (stocks, bonds, government bonds). Such securities include options, financial futures, subscription rights.
Securities can produce by corporation (stocks and bonds) and government (bonds).
Stocks
A stock is an issued security, fixes the rights of the owner (shareholder) of the receipt of the profits of the company in the form of dividends, to participate in management and on the part of the property remaining after the liquidation of the company.
Releasing the outstanding shares entitled enterprises established as joint stock companies. The peculiarity of joint stock companies is that their share capital is divided into parts and one share corresponds to one of the authorized capital.
Depending on the stage of the issue of shares in circulation and payment, the following types of shares:
- Declared,
- Posted,
- Fully paid.
Authorized shares - is the maximum number of shares of the corresponding type, which can be released by addition to the already outstanding shares. The number of shares is fixed in the Articles of Association or accepted by the general meeting of shareholders by a qualified majority (3/4) of those present on the number of shares. In practice, the corporation can never put into circulation such number of shares, which are declared in the statute. The number of authorized shares is not related to the size of the share capital and may be more or less than its value.
Outstanding shares are shares that are acquired by the shareholders. At the time of establishment of the joint-stock company, all the shares are to be placed between the founders, ie This period can not be open sale of shares. In subsequent emissions are considered placed the shares that are implemented to shareholders. Only when the shares purchased by shareholders, they fall into the category of outstanding and included in the authorized capital.
Fully paid - it's outstanding shares for which the holder is made 100 % payment and the funds credited to the accounts of the company. Not all the issued shares are fully paid, as may be provided for payment of shares in installments. In particular, the founders to create the company can pay for the shares in installments. Thus, the shares are placed, acquired by the founders, but may not be fully paid.
Allocate common (ordinary) and preferred shares.
Holders of preferred shares have preference in receiving dividends to holders of common shares, but usually do not have voting rights.
There are several types of preference shares:
1) cumulative - any amounts due but not declared dividends accumulated and paid on these shares before the announcement of dividends on common stock;
2) non-cumulative - the holders of these shares are losing dividends for any period in which there was no announcement on their payment;
3) preference shares with an interest - give the holders the right to receive additional dividends declared in excess of the amount, if the dividends on common shares exceeding the declared sum
4) convertible preferred stock - can be exchanged for a fixed number of ordinary shares at a pre- agreed proportions;
5) preferred shares with an adjustable dividend rate - paid on these shares are adjusted to reflect current market interest rates;
6) callable preferred stock - contain the right of recall, ie the issuer may redeem them at the agreed price.
Ordinary shares. In the formation of the financial resources of the ordinary shares of joint stock companies play a crucial role.
Common share - is a perpetual security, it is not issued by a specified period. Life campaign stops with the termination of the existence of a joint-stock company. The most important property of common stock - this right to vote on decisions at shareholders' meetings.
Bonds
A bond is issued security, fixes the rights of the holder to receive from the issuer provided in the bonds of its face value or other property equivalent.
Bond type of securities issued by the state, municipalities, companies, banks, corporations, as debt to raise additional funds. The borrower, issuer of the bond, is obliged to pay the lender (bondholder) through bonds due to the time and the loan itself (face value bonds), and the cost of borrowing, which is a part of the profits generated through the loan.
A bond is a debt equity security, reflecting loan relationship between the investor and the issuer. Investors who buy bonds are creditors.
Issuers are companies, banks, governments, issuing bonds - are borrowing. Currently bonds as a financial instrument, are commonplace. According to experts, the global bond market is more than 36 trillion. And the U.S. is superior in terms of its market share.
Issuers produce various kinds and types of bonds, each of which has specific properties. Therefore, the investors should have sufficient knowledge of the properties of each type of bond in order to make educated decisions when buying specific bonds. According to the method of bond -specific assets of the company are classified into secured and unsecured bonds.
Mortgages (secured) bonds are issued now on bail specific property available in the enterprise (buildings, machinery, equipment, etc.)
Depending on the type of collateral are several types of mortgage bonds. Called mortgage bonds issued under the mortgage of land or real estate. These bonds are the most reliable, as with the passage of time, these objects do not lose in price. Therefore, laying the property, the company can raise funds for an amount close to the value of the collateral.
For bonds with a variable (floating) pledge as security are the machinery, equipment and materials. The term " variable " (floating) pledge emphasizes that the value of the property is subject to significantly more volatile than the land and real estate.
Bonds backed by securities secured by stocks, bonds and other securities owned by the issuer. The value of collateral is determined by the market price of these securities. Depending on the quality of the pledged securities is determined by the amount by which the bonds may be issued.
Unsecured bonds are the direct debt of a company that is not secured by any collateral.
Claims of holders of debentures carried out in a general manner, along with the claims of other creditors. The actual provision of such bonds is the total solvency of the company. Typically, the release of unsecured bonds resorted large and well known companies with high ratings and good credit history. The names of those companies have already serves as a guarantee refund.
Occasionally the release of unsecured bonds resorted young rapidly progressing firms that do not have real physical assets that could serve as collateral.
Depending on how the income distinguishes coupon and zero-coupon bonds.
Discount bonds are called zero-coupon bonds, ie interest thereon is paid, and the owner receives revenue bonds due to the fact that the bond is sold at a discount, ie below par. Depending on the determination of the coupon bonds distinguish between fixed and floating (variable) coupon.
Coupon bonds may issue a fixed interest rate, the income that pays constant in a constant rate throughout the life of the bonds. The establishment of a fixed interest rate possible with a stable economy, the variation of prices and interest rates are very small. In conditions of high and rapidly changing interest rates setting a fixed nominal return carries a high risk for the issuer. By reducing the interest rate the issuer must pay income to investors at the rate fixed by the bond issue.
Therefore, to avoid interest rate risk issuers have resorted to the issue of bonds with floating interest rates. This type of bond has spread to the United States in the early 80 's, when interest rates were high enough and had a tendency to change. In these circumstances, the company chose to issue bonds with a variable interest rate linked to any or indicators that reflect the real situation on the financial market. Usually in the United States obligations with floating interest tied to the yield on three-month Treasury bills. When issuing such bonds set the interest rate for the first three months, and then every three months rate is adjusted according to the yield on Treasury bills.
Other Securities
Bill.
A bill is a written promissory note issued by a borrower of money (the drawer), your lender (note holder) attesting the right of the latter to demand after a certain period of payment of a sum of money by the drawer indicated in the bill. A bill is a monetary obligation as a debt may only perform the national currency or foreign currency. Bill is strictly prescribed by the law: is issued on a special form and contains certain details.
Check.
Check this kind of security, monetary instrument statutory forms containing the written order of the current owner, current or other account (the drawer) to the credit institution in which the account to pay the check holder a sum of money specified in this document. Typically, the payer of the check by the Bank. The bank can not pay back the money on the check if the signature is not legible on it, or if the check is issued on an unsecured bank account. Typically, a check is issued on a special form which is obtained from the depositor of the bank.
Deposit and savings certificates.
Deposit and savings certificates is written evidence of credit institutions receiving money from the depositor certifying the right of the depositor to obtain cash made with interest. Deposits are repayable on demand (given the right to withdraw certain amounts upon presentation of the certificate) and term (which contains the date of deposit and withdrawal amount owed per cent).
Warrants.
Warrants on the mechanism of action and its contents are very similar to human. Warrant - a security which gives its holder the right to purchase within a set period of time, a certain number of ordinary shares at a pre-fixed price. Unlike the warrant of law is in a period of action. If the right - this is a short-term securities, which operates in the market for 3-4 weeks, then the warrant is issued for a longer period of time and acting 3-5 years or more. Typically, warrants are sold together with the bonds in order to make the bond issue more attractive to investors.
Depositary receipts.
Depositary Receipt is freely circulating in the stock market derivative (secondary) security on a foreign company deposited in a large depository bank that issued the receipt in the form of certificates or book-entry form.
In world practice, there are two types of depository receipts:
1. ADR (American depositary receipt) - which are admitted to trading on the U.S. market;
2. GDR (global depositary receipt), operations which can be carried out in other countries.
Depositary receipts are divided into sponsored (sponsored ADR) and non-sponsored (non-sponsored ADR).
Unsponsored ADR annually by the major shareholder or group of shareholders owning a significant number of shares in the company. Unsponsored ADR advantage is the relative simplicity of their release. ADR sponsored annually by the issuer.
Works Cited
Hassett, Kevin A. (2008). "Investment". In David R. Henderson (ed.). Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty. ISBN 978-0865976658. OCLC 237794267.
Berezin, M. (2005). "Emotions and the Economy" in Smelser, N.J. and R. Swedberg (eds.) The Handbook of Economic Sociology, Second Edition. Princeton University Press: Princeton, NJ
Irwin, Douglas A. (December 1991). "Mercantilism as Strategic Trade Policy: The Anglo-Dutch Rivalry for the East India Trade". The Journal of Political Economy (The University of Chicago Press) 99 (6): 1296–1314.
Mithas, Sunil (January 2006). "Increased Customer Satisfaction Increases Stock Price". Research@Smith. University of Maryland. Retrieved 25 February 2012.
Stringham, Edward" ("2002"). "The Origin of the London Stock Exchange as a Self Policing Club". "Journal of Private Enterprise". Retrieved 16 August 2010.
Zimmermann, Reinhard. “The Law of Obligations: Roman Foundations of the Civilian Tradition” (Oxford: Oxford University Press, 1996)
Davis T. (2009). UCC Breach of Warranty and Contract Claims: Clarifying the Distinction, PDF, Retrived 25 December 2009.
