Module_9 - Module 9 Learning Goals To know the instruments...

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1 Module 9 ± Learning Goals To know the instruments and the issue process. To interpret an Equity Market according to their phases and characteristics. To understand and interpret the fundamental To understand and interpret the fundamental role that each of these characteristics plays in proper pricing, and therefore in the efficient allocation of resources. To define the criteria that allow us to critically evaluate the different structures of equity markets. 2 ± Overview Introduction Pricing Primary Market Secondary market •Key characteristics • Types of orders • Open Market • Suspended Market Stockmarket Indices ± Evaluation Do the exercises. 3
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2 Introduction Introduction ± The Stock Exchange is a financial market where savers and lenders meet, thus contributing to the growth of an economy, since this is a means of channelling savings toward productive investment. Two important characteristics ± Two important characteristics: The Stock Exchange provides liquidity. The Stock Exchange is increasingly efficient at resolving the problem of valuing financial instruments through free establishment of prices under transparent conditions. ± The instruments used for the financing companies are shares. 5 Introduction ± The concept of share value is subjective, and can have different meanings in different contexts. Nominal value: historical value at which the securities were formerly issued (in Spain 1€). Accounting value, or book value: the value on the company balance sheet (difference between net assets and liabilities outstanding) and represents a static value rather than the real one. Liquidation value, or the value of the instrument considered individually: the value the instrument would have without considering its contribution to the business activity. Intrinsic or fundamental value : the value the instrument would have according to the current value of future cash flows expected from this instrument. Market value : the value of the instrument resulting from the balance between supply and demand on the market for this instrument at a given time. ± The Market value reflects investors’ expectations on the prospects for the company. ± Purchasing shares means you acquire certain rights. Dividend rights: the dividend is the part of the profits that the company shares among its shareholders. The dividend depends on the company profits and company policy. Transfer rights: every shareholder has the right to receive the proportional share from of the winding-up of the society, and to sell (transferred) Preferential rights to subscriptions: the current shareholders have preferential rights to subscribe (commit to the purchase of) new shares when a limited company expands its capital.
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This note was uploaded on 02/03/2011 for the course ECON 101 taught by Professor Flora during the Spring '11 term at Universidad Carlos III de Madrid.

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Module_9 - Module 9 Learning Goals To know the instruments...

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