BusMan sem 2 notes :
Chapter 1:
___________________________________________________________________________
Investment concepts :
Gambling : no knowledge of outcome of decision
Investment : Speculation :
reasonable return (less risky) promise of great return (still very risky)
buying assets w/ aim to generate income
- Long term (5+ yrs)
- Reasonable return - Short term (1-2 yrs)
- Considerable return
Investment Objectives :
- Speculation
- Income
- Capital growth: buy house and sell for significantly more
(Purpose : protect purchasing power of capital)
- Takeovers/mergers
- Control over raw material or distribution channel
Financial instruments :
• Collective term: all assets or units of capital that are tradable
• Emphasis is on tradability of the value paper (ability to transfer ownership)
Financial securities :
• Financial instrument that represents:
• investment as an owner in corporation (stock), or
• creditor relationship with corporation or governmental body (bond),
or
• rights to ownership (option)
• Emphasis is on the guarantee function of the value paper
Businesses sell shares bc:
- Seek large amounts of $$$
- Seek limited liability (loan =much bigger liability)
Share certificate :
- Document (paper) = proof of share ownership
- Disappeared due to dematerialization (2001)
, - Now in electronic record
Bonds :
- tradeable debt instruments
- like share but don’t get voting power
Issued by:
• Corporations (debentures)
• Governments or quasi-government institutions (gilts – governmental bond)
Characteristics:
• Loans that must be repaid on future date (maturity date)
• Fixed interest must be paid periodically to owner
• Market price dependent on fluctuations in interest rates
Securities exchange/stock exchange :
e.g. JSE
- connect potential buyers and sellers for trading
STRATE - ‘Share Transactions Totally Electronic’
- safekeeping of legal, digital ownership records
Trading of securities on JSE facilitated by stockbroker
When 'deal is struck' ownership must be transferred between buyer and seller
Strate (Pty) Ltd performs this function
South Africa’s Central Securities Depository (CSD)
- Electronic settlement system
- Works with Central Securities Depository Participants (CSDP’s)
Money Market
• short-term funds traded
• e.g. money market funds
• Surplus or shortfall influences money market interest rates
Capital Market
• long-term funds traded
• E.g. Fixed deposits, mortgages, debentures
• Influences long-term interest rates
Primary market
- first time selling shares
- Initial issue value = nominal value / par value
Additional capital required : additional shares issued through a rights issue
Prospectus : information on new issue of shares and invitation to subscribe
Chapter 1:
___________________________________________________________________________
Investment concepts :
Gambling : no knowledge of outcome of decision
Investment : Speculation :
reasonable return (less risky) promise of great return (still very risky)
buying assets w/ aim to generate income
- Long term (5+ yrs)
- Reasonable return - Short term (1-2 yrs)
- Considerable return
Investment Objectives :
- Speculation
- Income
- Capital growth: buy house and sell for significantly more
(Purpose : protect purchasing power of capital)
- Takeovers/mergers
- Control over raw material or distribution channel
Financial instruments :
• Collective term: all assets or units of capital that are tradable
• Emphasis is on tradability of the value paper (ability to transfer ownership)
Financial securities :
• Financial instrument that represents:
• investment as an owner in corporation (stock), or
• creditor relationship with corporation or governmental body (bond),
or
• rights to ownership (option)
• Emphasis is on the guarantee function of the value paper
Businesses sell shares bc:
- Seek large amounts of $$$
- Seek limited liability (loan =much bigger liability)
Share certificate :
- Document (paper) = proof of share ownership
- Disappeared due to dematerialization (2001)
, - Now in electronic record
Bonds :
- tradeable debt instruments
- like share but don’t get voting power
Issued by:
• Corporations (debentures)
• Governments or quasi-government institutions (gilts – governmental bond)
Characteristics:
• Loans that must be repaid on future date (maturity date)
• Fixed interest must be paid periodically to owner
• Market price dependent on fluctuations in interest rates
Securities exchange/stock exchange :
e.g. JSE
- connect potential buyers and sellers for trading
STRATE - ‘Share Transactions Totally Electronic’
- safekeeping of legal, digital ownership records
Trading of securities on JSE facilitated by stockbroker
When 'deal is struck' ownership must be transferred between buyer and seller
Strate (Pty) Ltd performs this function
South Africa’s Central Securities Depository (CSD)
- Electronic settlement system
- Works with Central Securities Depository Participants (CSDP’s)
Money Market
• short-term funds traded
• e.g. money market funds
• Surplus or shortfall influences money market interest rates
Capital Market
• long-term funds traded
• E.g. Fixed deposits, mortgages, debentures
• Influences long-term interest rates
Primary market
- first time selling shares
- Initial issue value = nominal value / par value
Additional capital required : additional shares issued through a rights issue
Prospectus : information on new issue of shares and invitation to subscribe
