Classification of security markets

There are many ways to classify security markets. One way is by the type of financial claim, such as debt markets and equity markets. Debt market is market in which financial instruments dealing in outstanding debts are bought and sold. The New York bonds exchange is debt market equity market is market in which financial instruments dealing in outstanding equity are bought and sold.
Another is by the maturity of the claim. For example, money market and capital market. Money markets are the markets for short-term debt securities. Examples of money markets securities are treasury bills, banker’s acceptance, commercial paper and negotiable certificate of deposit issued by government, business and financial institutions. These instruments are very liquid and considered extraordinary safe. Because they are extremely conservative, money market securities offer significantly lower return than most other securities. Capital market is the market for long term loans and equity capital. Companies and the government can raise funds for long term investments via the capital market. The capital market includes the stock market, the bond market and the primary market.
Security markets can be categorized as those dealing with financial claims that are newly, called the primary market and those for exchanging financial claims previously issued, called the secondary market or the market for seasoned instruments.
A market can be classified by its organizational structure.

MAJOR STOCK MARKETS

Most of the major securities markets are continuous. However, call market procedures are used when trading volume is low and orders have to accumulate over time in order to give depth to a market. Most organized markets use a mixture of both systems. For example, the NYSE generally is a continuous market. However, call market procedures are sued to set the opening prices of shares traded on the NYSE.


NEW YORK STOCK EXCHANGE (NYSE)
The New York stock exchange (NYSE), the largest organized securities market in the United States, was established in 1817 as the New York stock exchange board.
At the end of 2000, approximately, 3000 companies had issues listed on the NYSE, for a total of a about 3200 stock issues with a total market value of more than $13.0 trillion.
The average number of shares traded daily on the NYSE has increased steadily and substantially. The NYSE has dominated the other exchanges in the United States in trading volume. During the past decade, the NYSE has consistently accounted for about 85 percent of all shares traded on U.S. listed exchanges, as compared with about 5 percent for the American stock exchange and about 10 percent for all regional exchanges combined. Because shares prices on the NYSE tend to be higher than those on other exchanges, the dollar value of trading on the NYSE has averaged about 87 percent of the total value of U.S. trades, compared with less than 3 percent for the AMEX and about 10 percent for the regional exchanges.

American stock exchange (AMEX)

The American stock exchange (AMEX) is the second largest organized U>S. security exchange in terms of the number of listed companies, but in terms of dollar volume of trading, the AMEX is actually smaller than the two largest regional exchanges – the Midwest and the pacific. Its organization and procedures are quite similar to those of the New York stock exchange

NASDAQ stock market
NASDAQ is the largest U.S. electronic stock market. With approximately 3300 companies, it lists more companies and, on average, trades more shares per day than any other U.S. market. It is home to category-defining companies that are leaders across all areas of business including technology, retail, communications, financial services, transportation, media and biotechnology. NASDAQ is the primary market for trading NASDAQ-listed stocks. Approximately 54% of NASDAQ-listed shares traded are reported to NASDAQ systems.

The national association of security dealers automated quotation system NASDAQ is the largest OTC market.

NASDAQ stock market is divided into two sectors: NASDAQ national and NASDAQ small cap market. Share volume is higher than on the NYSE but dollar volume is slightly less than that on the NYSE; Microsoft, Intel are listed in the NASDAQ.

Foreign stock exchanges
In addition to the domestic stock exchanges there are a number of foreign stock exchanges. In Canada, the Toronto stock exchange and the Montreal stock exchange are the dominant exchanges. On the worldwide basis the Tokyo stock exchange, and the London stock exchange are first and third in dollar volume; respectively; the New York stock exchange is second. Other important foreign exchanges includes the Zurich stock exchange (Switzerland), Sydney stock exchange (Australia), Paris stock exchange (France), Frankfurt stock exchange (west Germany), Hong Kong stock exchange (china), and south African exchange. The foreign exchanges are organized in a fashion similar to those in the United States and create a marketplace in which the securities of companies based in the given country are traded. Often these companies are foreign subsidiaries of American companies.

London stock exchange (LSE)
The London stock exchange is a stock exchange located in London. Founded in 1801, it is one of the largest stock exchanges in the world, with many overseas listings as well as UK companies.

The former stock exchange tower, based in Threadneedle Street/old Broad Street was opened by Queen Elizabeth II in 1972 and housed the trading floor where traders would traditionally meet to conduct business. This became largely redundant with the advent of the “big bang” on 27 October 1986, which deregulated many of the stock exchanges activities. It eliminated fixed commissions on security trades and allowed securities firms to act as brokers and dealers. It also enabled an increased use of computerized systems that allowed dealing rooms to take precedence over face to face trading.

In July 2004 the London stock exchange moved from thread needle street to paternoster square (EC4) close to st pauls cathedral, still within the “square mile”. It was officially opened by Queen Elizabeth II once again, accompanied by the duke of Edinburgh, on 27 July 2004. The new building contains specially commissioned dynamic sculpture called “the source”, by artists Greyworld.

Security markets

A market is the means by which products and services are bought and sold, directly or through an agent. a market need not be a physical location. There is no requirement of ownership by those who establish and administer and market they need only provide a cheap, smooth transfer of goods or services for a diverse clientele.

A market should provide accurate information on the price and volume of past transactions and current supply and demand. Clearly, there should be rapid dissemination of this information. Adequate liquidity is desirable so that participants may buy and sells their goods and services rapidly, at a price reflecting the supply and demand. The costs of transferring ownership and middleman commissions should be low. Finally, the prevailing price should reflect all available information.
a securities market can be defined as a mechanism bringing together buyers and sellers of financial assets in order to facilitate trading alternatively, security market is a place where securities are bought and sold, the facilities and people engaged in such transactions, the demand for and availability of securities to be traded, and the willingness of buyers and sellers to reach agreement on sales. Over the counter markets the New York stock exchange (NYSE), the Chicago board of trade (CBT), the American stock exchange (AMEX) and Nepal stock exchange (NEPSE) are the example of security markets.

The investment environment

The environment is the context in which firms or companies operate and which insist on the firms operation. Investment environment refers to the financial assignment in which investors operate, consisting of the kinds of marketable securities available for purchase or sale of securities and how and where these securities are bought and sold. To state differently, investment environment refers to all the internal as well as external sources that have a bearing on the functioning of investment decisions.
Investment environment encompasses securities, security markets and intermediaries. The following section includes a brief description of each of these elements.



Securities
In general a security is a legal document that shows an ownership interest. In other words, security is a piece of paper evidencing the investor’s right to the assets. it is the legal representation of the right to receive prospective future benefits under stated conditions and to acquire or sell ownership interests. Share, bond, preferred stock, Treasury bill, commercial paper etc are the examples of securities.

Security markets
A security market (alternatively a financial market) is a mechanism designed to facilitate the exchange of financial assets or securities by bringing buyers and sellers of securities together. Precisely speaking, a security market allows suppliers and demanders of funds to make transactions.
There are various ways of categorizing security markets. The following classification predominant.
(i) Money market and capital market
This categorization is made on the basis of life span of securities. Money market refers to that financial market in which securities with a short term (one year or less) and highly liquid debt securities are traded. Thus, money market comprises the securities that have short in comparison to other securities. Money market facilitates flow of short term fund. The participants of money market are short term deficit units and surplus units. Instrument traded in the money market are Treasury bill, commercial paper, certificate of deposits etc.
In contrast to money market, capital market refers to the financial market in which long-term securities are traded. Specifically speaking, securities having life spans of more than one year are traded in the capital market. Long-term financial instruments such as stocks issued by corporations are basically traded in a capital market. Capital market facilitates flow of long term fund. The participants of capital market are long term surplus units and deficit units. Instruments traded in the capital market are common stock, treasury bonds, corporate bonds etc.

(ii) Primary market and secondary market
On the basis of the economic function, capital markets can be categorized into primary and secondary markets. The markets through which the funds are transferred from savers to investors are called primary market. Hence, the transferred of securities issued for the first time take place in the primary market. Primary market facilitates direct transfer of funds. The participants of primary market are issuing company, investment bankers and investors. The institutions that perform the role of an export in issuing new securities are called investment bankers. These bankers make a available advice to the business firms regarding the nature of security, maturity, interest rate and underwrite the issue of securities


Financial intermediaries
Financial intermediaries or institution are the organizations that channel the savings of governments, businesses, and individuals into loans or investments. Thus, financial intermediaries position themselves between providers and users of funds. the role of the financial intermediaries is to accumulate funds from various savers and lend those funds to borrowers and thus they actively participate in the money market and the capital market. Savings and loan associations, mutual funds, pension funds, credit unions, life insurance companies etc are the examples of financial intermediaries.

Concept of investment

The income receives by a person may be used to purchasing goods and services that he currently requires or it may be saved for purchasing goods and services that he may require in the future. In other words, income can be spent for consumption or saved for the future consumption. Savings are generated when a person or an organization abstains from present consumption for a future use. Investment is an activity that is engaged in by people who have savings, i.e. investment is made from savings. But all savers are not investors. Investment is an activity which is different from saving. Let us see what is meant by investment.

If you have ever deposited money in a savings account, you already have at least one investment to your name. An investment is simply any alternative into which funds can be placed with the expectations that they will generate positive income and/or that their value will be preserved or increased. If one person has advanced some money to another, he may consider his loan as an investment. He expects to get back the money along with interest at a future data. A person may purchase an insurance plan for the various benefits it promises in future.

In all these case it can be seen that investment involves employment of funds with the aim of achieving additional growth in values. The essential quality of an investment involves waiting for a reward.

Forms of investment
Assets can be categories into two forms financial assets and real assets. Accordingly, there are two forms of investment

i) Financial investment
ii) Real investment

Financial investment
Investment in financial assets like common stocks, bond etc is called financial investment. A financial asset represents a financial claim. It is an asset that is usually documented by some forms of legal representation. Although tangible certificates of ownership typically represent financial assets, the financial asset itself is intangible. They are also called securities. Financial assets themselves do not directly posses productive capacity. Financial assets can be viewed as claims to the income generated by real assets. In this context, the value of financial assets is derived from the value of the underlying real assets. Financial assets are also called ‘paper assets’.

The entity that agrees to make future cash payments is called the issuer of the financial asset; the owner of the financial asset is referred to as the investor.

Real investment
A real asset represents an actual tangible asset that may be seen, felt, held or collected e.g. real estate, gold etc. investment in such tangible assets is called real investment. Real assets have productive capacity. The capital formation is the direct outcome of this productive investment.

Although the importance of real assets can’t be overlooked, I use the term investment in this book strictly with reference to financial investment.

However, it is noted that the real investment and financial investment are complimentary to each other. For instance, a company issues shares of common stock to finance the plant and machinery. Here, the purchase of plant and machinery is area investment by the firm and on the other hand, investment in common stock by the investor is a financial investment. Because of the divisibility, marketability and availability of information, financial investment is getting much more popular nowadays.

Concept of investment

The income receives by a person may be used to purchasing goods and services that he currently requires or it may be saved for purchasing goods and services that he may require in the future. In other words, income can be spent for consumption or saved for the future consumption. Savings are generated when a person or an organization abstains from present consumption for a future use. Investment is an activity that is engaged in by people who have savings, i.e. investment is made from savings. But all savers are not investors. Investment is an activity which is different from saving. Let us see what is meant by investment.

If you have ever deposited money in a savings account, you already have at least one investment to your name. An investment is simply any alternative into which funds can be placed with the expectations that they will generate positive income and/or that their value will be preserved or increased. If one person has advanced some money to another, he may consider his loan as an investment. He expects to get back the money along with interest at a future data. A person may purchase an insurance plan for the various benefits it promises in future.

In all these case it can be seen that investment involves employment of funds with the aim of achieving additional growth in values. The essential quality of an investment involves waiting for a reward.

Forms of investment
Assets can be categories into two forms financial assets and real assets. Accordingly, there are two forms of investment

i) Financial investment
ii) Real investment

Financial investment
Investment in financial assets like common stocks, bond etc is called financial investment. A financial asset represents a financial claim. It is an asset that is usually documented by some forms of legal representation. Although tangible certificates of ownership typically represent financial assets, the financial asset itself is intangible. They are also called securities. Financial assets themselves do not directly posses productive capacity. Financial assets can be viewed as claims to the income generated by real assets. In this context, the value of financial assets is derived from the value of the underlying real assets. Financial assets are also called ‘paper assets’.

The entity that agrees to make future cash payments is called the issuer of the financial asset; the owner of the financial asset is referred to as the investor.

Real investment
A real asset represents an actual tangible asset that may be seen, felt, held or collected e.g. real estate, gold etc. investment in such tangible assets is called real investment. Real assets have productive capacity. The capital formation is the direct outcome of this productive investment.

Although the importance of real assets can’t be overlooked, I use the term investment in this book strictly with reference to financial investment.

However, it is noted that the real investment and financial investment are complimentary to each other. For instance, a company issues shares of common stock to finance the plant and machinery. Here, the purchase of plant and machinery is area investment by the firm and on the other hand, investment in common stock by the investor is a financial investment. Because of the divisibility, marketability and availability of information, financial investment is getting much more popular nowadays.

Meaning characteristics of organization

Today’s, more and more people are employed by organization. We need so many services to sustain life. Which are provided by them. Hence, organizations are processing units, which transform certain inputs from the environment into specified outputs desired by society. They have become instruments of work that produce essential goods and services for the greater society.
An organization comes into existence when there are a number of persons willing to contribute towards a common goal.
First, an organization is a collection of people. Their combined effort produces synergy or a total effort that is greater than the sum of the individual efforts. Second, through division of labor or specialization the work is subdivided which permits individuals to develop expertise in their assigned task. As a result, they improve their own and the group’s effectiveness. Third, these specialized tasks must be coordinated as the people work together towards the fourth component, a common goal. Thus, an organization is a group of people who come together to attain a common goal.

Characteristics of organization are as under:
Social composition: organization is a social unit which consists of two or more people. They work together and develop social relations and patterns of interactions. They set and pursue common goal.
Goal orientation: an organization is deliberately created to achieve certain goals. Without a goal no organization would have a reason to exist. They provide direction and guide actions of the organization. A typical organization seeks to accomplish three primary goals: profit, growth, and survival. Goal can be multiple and confliction. Thus, organizations exist for stated and sometimes unstated goal/purposes.
Differentiated functions: organizations must have people with different skill and knowledge to perform varied types of functions to achieve the common goals. For efficiency, organization typically divides the work so member can specialize in one or two areas. Every function is assigned to the employee who is the most fit to perform the particular function.
Rational coordination: the efforts of various people working in different functional areas need to be coordinated. Work activities are coordinated in some rational manner to achieve common goal. If different departments work independently, it may lead to chaos and make uncertain to achieve common goal.
Continuity: members may join and leave the organization. But organization continues and enjoys eternal equity. Most organizations are born with the intention of staying alive, although that does not always happen.
Structure: an organization is a structure, in which jobs to be performed are arranged in a hierarchy. It is the skeleton around which an organization is built. The coordination and integration of human activities requires a structure where various people are fitted. Within the structure, people work to achieve the common goal.
Environment: organization exists and operates in a dynamic environment. Their internal as well as external environments such as economic, social, political-legal and technical environment influence every organization. Hence, organizations have to maintain a close relationship with them.