1 THE STOCK EXCHANGE Agócs Adrienne
2 OUTLINE The stock exchange shares, bonds and securities The main roles of the stock exchange Bulls and bears Types of securities Different information about the performance of shares The best known stock exchanges The Hungarian Stock Exchange Commodity exchange
3 A company can raise money for expansion and development on the stock market or stock exchange (which is a place for buying and selling securities) in two different ways. 1. It can issue shares (US stocks), or units of its capital, to institutional investors or the general public. Different types of shares or equities are available, but the most common are known as ordinary or common shares (US common stock). When an investor buys a share, using the services of a specialist company or broker, he or she becomes a shareholder (US stockholder) and has a stake in the company.
4 Shareholders can make money - by receiving dividends paid as a proportion of a company s annual profits - when the price of their shares increases 2. A company can also borrow money from investors by issuing bonds. These are loans for fixed periods with fixed interest rates.
5 Securities refers to both shares and bonds. Each year billions of shares and bonds are bought and sold on the world s major stock exchanges. The price of stocks and shares varies according to supply and demand so the volume and price of the securities on the stock exchange are important indicators of the economy.
6 The main roles of the stock exchange: It is a place where: Funds to finance companies and government projects can be found Surplus money can be invested The standing of companies can be evaluated People can limit their financial risks and lose or gain money by speculation.
7 Bulls: speculators who hope that the price of stocks and shares will rise and buy them in large quantities to sell them later. A market in this general mood is called bullish. Bears: speculators who sell securities and believe that the price is about to fall. A market in this mood is called bearish.
8 Types of securities and forms of investment: a. Ordinary shares/equities: represent an equal share of the capital and an equal division of the profit with not fixed return. Shareholders have some power in running the company. They are the last in the line for distributed profits. This is the most risky form of investment but it can give the highest rate of return when the company is successful. b. Government stocks or bonds (gilt-edged securities) are used to raise money for the government projects. Safe forms backed by the government. They are issued for a fixed period of time and receive a fixed rate of interest.
9 c. Local authority bonds: can be bought by the public. Safe forms of investment with a fixed rate of interest. d. Debentures: a loan to a company with a fixed rate of interest. It must be paid even if the company does not make a profit. Holders have no involvement in the management of the company. They are redeemable at a fixed date or even before. e. Preference shares: holders have a priority to call on the profits after debenture holders. They pay a fixed rate of dividends but only if sufficient profits are available.
10 Brokers are agents. They are the link between the client and the exchange. They act as financial advisers to their clients and carry out their orders. They must ensure that they buy at the most advantageous price at the time of dealing. They are paid on a commission basis for deals.
11 If you want to get information about the performance of shares, you can find their list on the Internet, on the pages of Teletext and in financial newspapers. The information includes: - Price: the price of the share as it stood at the close of business yesterday. - Change: shows how much the closing price of the share changed in comparison with the previous day s closing price. - Yield: shows how much shareholders can expect to receive as a dividend. - Price-Earning ratio: this figure refers to the relationship between the current market price of a share and the profit earned by the company over the most recent year.
12 The best known stock exchanges are in London, New York and Tokyo and the most widely quoted indicator of the US stock market is the Dow Jones Industrial Average, which consists of 30 well established shares on New York Stock Exchange. The FT (Financial Times) index is the London Stock Exchange indicator, and the Nikkei index reflects the mood of the Tokyo exchange. The Hungarian Stock Exchange was established in During the economic crisis of the early 1930s it was closed, then reopened in 1990 as the result of the political and economic changes in the late 80s. BUX, Budapest Stock Index is its official stock index.
13 Commodity exchange: a place where raw materials and some manufactured goods are bought and sold for immediate or future delivery, e.g. Baltic Exchange, London Commodity exchange.
14 Vocabulary: to raise money securities equity to issue interest rate supply bull gilt-edged securities loan preference share price-earning ratio commodity exchange expansion share stock (AmE) dividend bond surplus demand bear debenture redeemable link earn a profit raw material