Date post: | 06-May-2015 |
Category: |
Business |
Upload: | svs-college |
View: | 1,258 times |
Download: | 2 times |
CANARA FIRST GRADE COLLEGE,MANGALORE
SEPTEMBER 21, 2011
Stock Market Dynamics-B.V.Raghunandan, SVS College, Bantwal
Meaning & Definition
Stock Exchange is,
” an organised market for second-hand corporate and government securities”
A More Inclusive Definition
Stock Exchange is a regulated market for second-hand corporate securities, government securities, commodities, and foreign exchange
Characteristics of Stock Exchange
Organised Market
Securities Market
Secondary market
Part of Capital Market
Listed Securities
Restricted Membership
Dealing only by Members
Standardised Practices
FacilitatorSpeculation
Role and Functions of a Stock Exchange
Ready MarketLiquidity for
SecuritiesEvaluationPrice StabilityCapital FormationPromoting Saving
HabitsInvestor ProtectionCorporate
Governance
Public FinanceGrowth of Joint
Stock CompaniesEnabling Book-
Building RouteCapital MobilityForeign FundsTechnical AnalysisEconomic
Development
Members of a Stock Exchange: Jobber & His Characteristics
DealerSpecialistStability in the Market
Dealing with Brokers
Jobber’s Profit
Equalising Quantity
SpeculationTwo-way QuotesMatching Demand
and SupplyCompany
Sponsorship
Brokers & Their Characteristics
AgentGeneralistConduit between Jobber and the Public
Income in the form of Commission
Derivatives: Meaning
” a financial asset that derives its value from an underlying security”-used extensively for risk management attributed to holding and trading in securities”
Instruments of Financial Derivatives
Stock DerivativeIndex DerivativeInterest
DerivativeForeign Currency
Derivative
Types of Dealings in a Stock Exchange
Dealings in Cash Market
Dealings in Futures & Options Market
Cash MarketRolling Settlement
T+2 Settlement
Trading Day
Pay-In Day
Pay-Out Day
Futures & Options MarketMeant for Risk
Management Arising Out of Dealings in Cash Market
Exchange TradedBig Investors and
Institutions Take Positions
For Protecting the Value of Holding
Providing for the Risks Arising Out of Trading
Futures: Characteristics
Standardised FeaturesCounter-Party is the Clearing
HouseMargin RequirementTime SpreadThree Contracts for Settlement
Futures: Trading Mechanism
Trading Strategies
Uses: -Hedging -Speculation -ArbitrageTypes of Futures:
Stock Future and Index Future
HedgingA transaction in the cash
market is accompanied by a contra transaction in the futures market
Buyer in cash market protects against subsequent fall in the price through sale in the futures market
A seller in the cash market protects against subsequent increase through buying in the futures market
Objective is to maintain asset purchased at the latest value
Buyer in the Cash MarketBuys 1000 shares of L&T in cash market @ Rs.1,500He can protect against fall in price upto three
monthsIf he chooses protection for one month, he sells
1000 shares of L&T in September future. (Protection for two months, sell October future-for three months, sell November future)
Settlement of September future on the last Thursday of September i.e 29-09-2011
Around 27th, the price in the cash market is Rs.1400. He buys 1000 shares in the cash market and settles the September future sale at Rs. 1,500, making a profit of Rs. 100
Position of the Buyer on September 29th
Value of original purchase = Rs 1, 40,000Cost of original purchase = Rs.1,50,000Sale of September Future = Rs. 1, 50,000Purchase to settle = Rs. 1, 40,000--------------------------------------------------------------Value of Holding on September 29 th = 1, 40,000Cash at Bank (Profit) = 10,000 --------------- 1,50,000 --------------
Where the Price goes up to Rs. 1, 600
At any time before 29th September, Price of L&T goes upto Rs.1600
Cost of His original Purchase= 1500 x 100 = 1, 50,000Value of the original Purchase=1,600 x 100 =
1,60,000Sale of September Future = 1, 50,000Purchase for Sept Future = 1, 60, 000Loss on the Future Sale = 10,000--------------------------------------------------------------------- Value of Holding on 29th = 1, 60,000(-) Loss on September Future = (10,000) Net Value in Hand = 1,50,000
SpeculationOriginal purchase will not
be there in the cash market
A bull buys the September future
A bear sells the September future
Profit made the bull when the price goes up or loss is incurred when the price comes down
Profit made by bear when the price comes down and vice versa
ArbitrageBuying in low priced
market and selling in high-priced market
Between one stock exchange to another
Between cash market and futures market
Between future of one month and other months
Between future market and a call market
OptionA contract to buy or
sell without an obligation
European Option and American Option
Call Option and Put Option
Uses of Options: -Hedging -Speculation -Arbitrage
Advantages of OptionNo Big Investment
No Margin as in Futures
No Obligation
No Marked-to-Market
More Gain than Risk
Premium paid alone is the Disadvantage
Listing of Shares:: Procedure
Initial Public OfferSize of Public Offer: Not Less than 25% of Issued Capital & Post Issue Paid Up Capital is not less than Rs.10 CroreFiling Application: MA, AA, Prospectus, Directors Report, Specimen Copies of Share Certificates and Debenture Certificates-Wide Distribution of Shares: 5 for Each Rs.1 Lakh cap-Dividend & Bonus in the Past 10 years-Brief History of the Company-Management Pattern
Listing Procedure ….Continued
Payment of Listing Fees
Signing Listing Agreement
Screening the Application
Listing the Shares
THANK YOU