Stock Market Teacher: Washington Macías R. ICHE - ESPOL

Overview of financial assets and financial markets

General: Financial Assets Financial Assets: –Intangible assets –Value depends on the legal obligation of a future advantage Elements of financial assets: –Issuer: who undertakes –Investor: who acquires the right –Members (in some cases): the intermediary

Overview: Financial Assets Examples of financial assets: –Bank loans: Inssuer: borrower Investor: Bank Subscriber: There isn´t –Bonds: Inssuer: Company who issuing the bond Investor: Juan X Subscriber: Lehman, SSB, Deutsche, etc.

Overview: Financial Assets Primary functions of financial assets: –Allow exchange between present consumption and future consumption –Channel funds from surplus to deficit participants –Transfer risk

Securities Values The securities values are the documents who representing holdings of a person in a society, as well as lender (assets financial debt), either as owner (financial assets owned), of the same

Securities Values Reasons to invest in securities: –Speculation –Profitability –Control

Types of Securities Values Securities Values of equity: shares. Recognize the owner as the owner of the issuing company, and therefore sharing in the results of the company. –Preferent shares –Ordinary shares Fixed income securities: private and public. The issuer of the security recognizes the title holder (investor) the amount of debt you have contracted with him. The title holder is entitled to an interest “coupon” and a “maturity date” is entitled to the nominal amount

Types of Securities Values Fixed income securities convertible into shares. Crediten to the holder as a lender but with the possibility to exchange them for shares in the terms and conditions that have been set if so desired by the lender. They are “hybrid” instruments

Overview: Financial Markets Virtual place where financial assets are traded. Economic Functions: –Pricing: interaction between demand and supply. –To provide liquidity. –Reduce transaction cost

Primary Market Vs. Secondary Primary: the issued securities are traded for the first time. Secondary: Traded securities previously issued

Role of Secondary Market Generate prices: regular trade asset generates informaiton reflected in price. Liquidity –The expected illequidity is reflected in the primary market through lower prices. Reduce search costs for traders likely

The Exchange in Financial Markets The Exchange in Financial Markets The existence of the Stock Exchanges are an evidence of the usefulness of the Secondary Market. They are organized and regulated markets where shares are traded and values.