Asset Classes and Financial Instruments参考.ppt

CHAPTER 2 Asset Classes and Financial Instruments CHAPTER 3 How Securities are Traded * * * * * * Short Sales Purpose: to profit from a decline in the price of a stock or security Mechanics Borrow stock through a dealer Sell it and deposit proceeds and margin in an account Closing out the position: buy the stock and return to the party from which it was borrowed Short Sale:Initial Conditions Example 3.3 Dot Bomb 1000 Shares 50% Initial Margin 30% Maintenance Margin $100 Initial Price Sale Proceeds $100,000 Margin Equity $50,000 Stock Owed 1000 shares Example 3.3 (Ctd.)Dot Bomb falls to $70 per share Assets $100,000 (sale proceeds) $50,000 (initial margin) Liabilities $70,000 (buy shares) Equity $80,000 Profit = ending equity – beginning equity = $80,000 - $50,000 = $30,000 = decline in share price x number of shares sold short Short Sale - Margin Call How much can the stock price rise before a margin call? ($150,000* - 1000P) / (1000P) = 30% P = $115.38 * Initial margin plus sale proceeds Regulation of Securities Markets Major regulations: Securities Act of 1933 Securities Act of 1934 Securities Investor Protection Act of 1970 Self-Regulation Financial Industry Regulatory Authority CFA Institute standards of professional conduct Regulation of Securities Markets (Ctd.) Sarbanes-Oxley Act Public Company Accounting Oversight Board Independent financial experts to serve on audit committees of boards of directors CEOs and CFOs personally certify firms’ financial reports Boards must have independent directors Insider Trading Officers, directors, major stockholders must report all transactions in firm’s stock Insiders do exploit their knowledge Jaffe study: Inside buyersinside sellers = stock does well Inside sellersinside buyers = stock does poorly * * * * * * * * * * * * * * * * * * * * * * * * * How Firms Issue Securities Primary Market Firms issue new securities through underwriter to public Investors get new securitie