Lectures on the discipline of securities market. Lectures Securities market. Lectures. General characteristics of the main securities
MINISTRY OF EDUCATION OF THE RF
STATE EDUCATIONAL INSTITUTION OF HIGHER PROFESSIONAL EDUCATION
MOSCOW ENERGY INSTITUTE(TECHNICAL UNIVERSITY)
Humanitarian and Applied Institute (HPI)
Compiled by: Ph.D., Associate Professor
Moscow 2010
Lecture 1. Russian securities.
A security is a document that, according to current legislation, certifies property rights that can be exercised or transferred only upon presentation of this document. Securities include stocks, bonds, savings and deposit certificates, bills, and treasury bills.
Securities can exist in paper (in the form of a separate document) and non-cash form (entries in accounts). The non-cash form provides certain advantages to the owner of securities: they can be sold faster and at lower costs; they cannot be faked or lost. For the storage and accounting of securities, special accounts are opened - “custody accounts”. Securities can be stored at the enterprise itself - in the cash register along with cash and monetary documents or in a specialized storage facility - a depository. Depositories (independent organizations or divisions of credit institutions) can store securities, receive income from them, and resell them.
Based on their role in the formation of the authorized capital, securities are divided into capital (all types of shares) and debt (bonds, treasury bills, deposit and savings certificates).
Capital securities are issued, as a rule, for a long period in order to create or increase the capital of a legal entity. Income on shares depends on the performance of the organization that issued them (common shares) or is set at a certain percentage (preferred shares).
Debt securities can be either long-term or short-term; they are issued for the purpose of borrowing funds by legal entities, the state, and local authorities. At the end of the term of a debt security, the issuer is obliged to return the specified amount to the owner of the security. Income on debt securities is calculated in different ways. Depending on the method of calculating income, debt securities are divided into: interest-bearing - income is determined as a percentage of the nominal value; discount - income is defined as the difference between the purchase price and redemption price of a security; winning – draws are held regularly and winnings are paid to owners.
A stock exchange is an institution specifically created for trading securities. In addition to the function of organizing securities trading, it can also carry out depository (storage of securities) and clearing (determination and offset of mutual obligations of investors to purchase and settle for securities) activities.
The stock exchange is formed in the form of a non-profit organization. Only companies that are professional participants in the securities market can be members of the stock exchange.
Only its members can carry out transactions on the exchange. It acts only as an intermediary between sellers and buyers of securities who make decisions to sell or buy.
If an investor wants to sell or buy securities on an exchange, then he enters into an appropriate agreement with a company that is a member of the exchange, which will provide him with brokerage services. The company acts on the basis of orders given to it by the client. These orders can be of several types:
market order - an order to immediately execute a purchase transaction at a price that suits the client;
limit order - an order to buy or sell securities, respectively, not higher and not lower than a certain price;
stop sell order - an order to sell a security as soon as its price drops to a certain price;
stop order to buy - an order to buy a security as soon as its sale price reaches a certain level;
stop-limit order – an order that simultaneously includes a limit order at one price and a stop order at another price.
The stock exchange is a place where only transactions for buying and selling securities are made. Securities are not physically present on the exchange. Trading of securities is carried out according to orders from clients based on information provided by the exchange about current prices for them. At the same time, the exchange is obliged to ensure openness and publicity of ongoing trading in terms of volumes and prices of offers and other conditions.
The stock exchange is only one of the participants in the securities market. In general, it is a rather complex organizational structure with its own specific economic, legal and other connections.
All participants in the securities market are conventionally divided into two groups. The first group includes professional participants in the securities market. These include firms and companies that provide intermediary and consulting services to market clients, as well as firms and companies that act as active players in the stock market, purchasing and reselling securities at their own expense in order to make a profit. Professional participants can operate in the securities market only if they have a license issued by the Federal Commission for the Securities Market or organizations authorized by it.
The main actor in the securities market is a broker, which can be a brokerage company (firm) or an individual entrepreneur, if he is registered in the prescribed manner as an entrepreneur. A broker is an intermediary acting on the basis of instructions from clients to carry out transactions for the purchase or sale of securities. The broker's responsibilities include faithful execution of clients' orders. At the same time, they are obliged to give preference to clients' transactions over their own transactions. For services provided, the broker receives commissions, which are usually set as a percentage of the transaction amount. The broker acts on the client’s orders and does not have the right to guarantee him high income from the purchase of securities. The client is responsible for the consequences of the purchase or sale.
Another professional participant in the securities market is a dealer who carries out transactions for the purchase and sale of securities on his own behalf and at his own expense on the basis of public announcement of quotations. Only a legal entity can act as a dealer. A dealer operating in the securities market generates income in two ways. Firstly, he constantly announces quotes at which he is ready to buy and sell securities. As a result, due to the difference in the prices of selling and buying securities, he generates income, which is called spread or margin. Secondly, the dealer receives income from a possible increase in the market value of the securities he purchases. Large organizations act as dealers, and therefore they usually combine the activities of both a dealer and a broker.
Investment funds also participate in the stock market. An investment fund is a joint-stock company that issues its shares and sells them to individuals and legal entities. The investment fund places the proceeds from the sale either in banks for deposit interest or in other securities of highly profitable companies and firms. Investment funds are organized as open-end and closed-end. An open-end fund places shares with the obligation to subsequently repurchase them at the request of the shareholders. The repurchase is made at a price determined based on the market value of the shares. A closed-end fund offers shares without the obligation to repurchase them. The owner can receive money for shares of an investment fund only by selling them on the secondary securities market.
Investment funds are designed primarily to accumulate available funds for real investment in the economy. The services of investment funds are used primarily by small and medium-sized investors, who rely on stock market professionals. In addition to professionalism in the efficient use of funds, investment funds have the opportunity to reduce the level of investment risk by placing them in various financial instruments, securities of various enterprises and industries.
An element of the stock market infrastructure are clearing organizations that carry out: determination and offset of mutual obligations of investors to purchase and settle for securities; collection, reconciliation, adjustment of information on transactions with securities and prepare accounting documents for them; formation of special funds to reduce the risk of non-execution of transactions with securities.
An integral and important element of the stock market infrastructure are the registry holders, also called registrars. Register holders are organizations that, under an agreement with the issuer, carry out the activities of maintaining and storing a register of registered securities, which is a list of registered owners indicating the category, quantity and par value of the securities they own. The holder of the register can be the issuer himself, but if the number of securities is up to 500 pieces. The register may include not only the names of the owners of securities, but also their nominal holders - proxies of the true owners of the securities.
The securities market is a complex system. The further development of market relations in Russia will be accompanied by its further development and complication both in terms of the development of derivative financial instruments and in terms of the mechanism of organizational and economic functioning.
In order for the securities market to function in the interests of the effective development of the national economy and ensure the protection of the rights of investors, its state regulation is carried out, which is ensured by:
establishing mandatory requirements for the activities of issuers and professional market participants;
registration of securities issues and monitoring compliance with the terms of the issue;
licensing the activities of professional stock market participants;
creating a system for protecting the rights of securities owners.
The leading role in the field of state regulation of the stock market belongs to the Federal Commission for the Securities Market. Her responsibilities include determining standards for the issuance of non-government securities and monitoring the activities of professional participants in the securities market.
Lecture 3. Valuation of securities.
When determining the value of securities, it should be borne in mind that they have a nominal price - printed on paper. However, it cannot be the price of a security at the time of assessing its value, since the actual price is determined by both the amount of costs for its purchase and the amount of income that should be received on it from the moment of purchase to the time of assessment. In its most general form, the current market value of a security Tst is determined by the formula:
When valuing shares, the following types of prices are distinguished: nominal, issue, balance sheet, liquidation, exchange rate.
The par price of a share is the price indicated on the share form.
Issue price – the price at which it is issued, i.e. sold on the primary securities market. It is far from the nominal value.
Since the capital of joint-stock companies in the process of their production and economic activities changes in volume, degree of physical and moral deterioration, etc., its ratio to the number of shares also changes. From the standpoint of filling shares with real capital, they can be characterized by their book value, which is defined as the ratio of “net” assets (the total value of assets on the balance sheet minus debt to creditors) to the total number of issued shares.
The liquidation price can only be determined at the time of liquidation of the joint stock company. It shows what part of the assets at the prices of possible sale, minus the amounts required to pay creditors, falls on one share.
The greatest importance for owners and buyers of shares is their market value, i.e. the current market price at a certain point in time. It is at this price that shares are quoted (valued) on the secondary securities market.
The market price of shares depends on a number of factors: market conditions, market rate of return, the size and dynamics of the dividend paid on shares, etc. It can be determined in various ways, but they are based on a single principle - the correlation of the income generated by the share with the market rate of return on capital . A dividend or profit per share can be taken as an indicator of income.
Due to the constant income on them, the price of preferred shares is determined by the formula:
where: d - the amount of annual income per share;
r is the market rate of return on capital.
Common stock prices can be determined by various methods. The most commonly used method is based on an estimate of future earnings. Specific calculation formulas depend on the nature of the expected change in dividend values, which can be:
permanent;
increasing with a constant growth rate;
increasing with a changing growth rate.
At a constant dividend value, the market value of the stock is determined by the formula.
T 2 - projected period of the new rate of growth (change) of dividend d 2;
I is the rate of change of dividend by period;
r1 and r2 are market rates of return on capital predicted by period.
In all countries, with the development of the securities market, they monitor the general trend in changes in stock prices. These changes generally characterize the state of the pace of economic development of countries. For this purpose, special indicators are used - stock indices. The most famous of them are: in the USA – the Dow Jones Industrial Average; in the UK – Footsie indices (Financial Times Stock Indices, “footsie”); in Japan – Nikkei 225 Index; in Canada – the Toronto Stock Exchange index (TSE 300 Composite Index).
These indices are calculated on the basis of data from major companies representing the main industries and forming the basis of the country's economy. Thus, the Dow Jones index is calculated based on a set of 500 companies covering 80% of the value of securities on the New York Stock Exchange.
Lecture 4. The concept of a securities portfolio and its management.
It is impossible to find a security that is both highly profitable, highly reliable and highly liquid. Each individual paper can have a maximum of two of these qualities. The essence of portfolio investment precisely implies the distribution of investment potential between different groups of assets. A securities portfolio is a certain selection of individual types of securities. Depending on what goals and objectives are initially set when forming a particular portfolio, a certain percentage ratio is selected between the various types of assets that make up the investor’s portfolio. The goals of forming securities portfolios can be: generating income, preserving capital, ensuring capital growth based on an increase in the price of securities. Properly taking into account the needs of the investor and forming a portfolio of assets that combines reasonable risk and acceptable profitability is the main task of the manager of any financial institution.
Typically, a portfolio contains two or more types of securities and is compiled for the purpose of diversification, which means using financial instruments of different properties to reduce the risk of loss. As a rule, the portfolio is a certain set of corporate shares, bonds with varying degrees of collateral and risk, as well as securities with fixed income guaranteed by the state, i.e. with minimal risk of loss of principal and current income.
For example, before the financial crisis, banks, based on foreign experience, when forming a portfolio of securities, accumulated it in the following ratio: in the total amount of securities, about 70% are government securities, about 25% are municipal securities and about 5% are other securities. Thus, the stock of liquid assets is approximately 1/3 of the portfolio, and investments for profit - 2/3. As a rule, this portfolio structure is typical for a large bank, while in the portfolio of small banks 90% or more are government and municipal securities.
Theoretically, a portfolio can consist of securities of one type, and also change its structure by replacing some securities with others. However, each security individually cannot achieve this result. The main task of managing a portfolio of securities is to give a set of securities such characteristics that are unattainable from the position of an individual security and are possible only with their combination. Only in the process of portfolio formation is a new quality with specified characteristics achieved. Thus, a securities portfolio is the instrument with which the required stability of income is ensured with minimal risk. The minimum risk is due to its nature.
If insurance is possible, all risks are divided into diversifiable risk and non-diversifiable risk. Diversifiable risk is the unique risk of an individual investment vehicle that can be eliminated through diversification. Non-diversifiable risk is a risk inherent in all investment instruments and therefore cannot be eliminated through diversification.
Proper portfolio formation allows you to reduce diversifiable risk to zero. A feature of the Russian market is a very large part of non-diversifiable risk. The most significant uninsurable risk in Russia is political; its reduction in the future will allow us to talk about a strong reduction in the riskiness of stock transactions in Russia.
It is believed that the ability to carry out operations to form a portfolio of securities indicates the maturity of the market, and this, in our opinion, is absolutely fair. Back in 1994 in Russia, the controversy regarding the methods of forming and managing a portfolio of securities was purely theoretical, although even then there were banks and financial companies that took client funds into trust management. However, only a few of them approached the formation and management of a securities portfolio as a complex financial object with subtle specifics and subject to the corresponding theory.
Practice shows that today two types of securities market participants are interested in the problems of forming and managing a securities portfolio. The first includes those who are faced with an acute problem of placing temporarily available funds (large and inert state corporations that grew out of former ministries, various funds created under ministries, and other similar structures, as well as clients from those regions where the market is not able to absorb large funds). The second type includes those who, having sensed this need for “money bags” and in dire need of working capital, put forward the idea of a portfolio as a “bait” (not very large banks, financial companies and small brokerage houses).
Of course, many securities market participants do not always clearly understand what an asset portfolio is. However, the growing interest in the problems of forming and managing a portfolio of securities is now obvious, which is quite consistent with the radical changes that have occurred in the economies of industrialized countries.
In place of separate isolated regional financial markets, a single international financial market emerged. To the traditional set of basic financial instruments (foreign exchange, government bonds, stocks and corporate bonds), new "derivative" instruments are constantly being added, such as depositary receipts, futures, options, warrants, indices, swaps, etc. These instruments allow for more complex and subtle strategies for managing the profitability and risk of financial transactions that meet the individual needs of owners and managers of securities portfolios.
Traditional portfolio management is based on the idea of a balanced portfolio. Following this concept, managers include a wide variety of financial instruments in the portfolio, with special attention paid to cross-industry diversification. Note that the traditional approach to the securities portfolio, which prevailed before the advent of the classical (modern) theory, has two disadvantages. First, it is “atomistic” because it focused on analyzing the behavior of individual assets (stocks, bonds). Secondly, it is “one-dimensional”, since the main characteristic of an asset is exclusively profitability, while another factor - risk - does not receive a clear assessment in investment decisions.
The current level of development of portfolio theory overcomes both of these shortcomings. The central problem becomes the choice of the optimal portfolio, i.e., determining the set of assets with the highest level of profitability at the lowest or specified level of investment risk. This approach is “multidimensional” both in terms of the number of assets involved in the analysis and the characteristics taken into account. An essential point in modern theory is the consideration of mutual correlations between asset returns, which allows for effective portfolio diversification, which significantly reduces the risk of the portfolio compared to the risk of the assets included in it.
The presence of well-developed management methods and the development of computer technology have made it possible to put into practice modern methods for constructing securities portfolios with many tens, or even thousands of assets. And although the process of creating a modern portfolio theory is far from over and active discussion and debate continues about its basic principles and results, the influence of this theory in the modern financial world is constantly growing.
1. The relationship between the financial market and the securities market. Functions of the securities market
2. Types of securities market
3. Securities market participants
4. Evolution of the Russian and development trends of the global securities market
The relationship between the financial market and the securities market. Functions of the securities market
In modern economies, there are different types of markets. One of them is the financial market. Financial market is a market that mediates the distribution of financial resources between participants in economic relations. With its help, free financial resources are mobilized and directed to those people who need them. Funds are sought mainly in the financial market for the development of new or existing production, services, and to cover temporary cash gaps.
A financial market is a set of economic relations and financial institutions that, with the help of financial instruments traded on a given market, contribute to the redistribution of financial resources. In this market, the purchase and sale of securities, cash, and loans takes place.
The financial market has a complex structure and includes various types of markets (credit market, foreign exchange market, securities market, precious metals market, etc.).
In the economic literature, depending on the timing of circulation of financial resources, it is customary to divide it into the money market and the capital market. The money market circulates funds that ensure the movement of short-term loans (up to one year). The capital market carries out the movement of long-term savings with a period of more than one year.
The securities market is part of the financial market where securities are traded. The securities market serves both the money market and the capital market (Fig. 1). It should be emphasized that securities cover only part of the movement of financial resources. In addition to securities, there are other financial instruments on the financial market.
Rice. 1. Place of the securities market in the financial market system
The emergence and development of the securities market is associated with the growing need to attract financial resources due to the expansion of production and trading activities. As the scale of production increased, the funds of one or several entrepreneurs became insufficient for its development. Therefore, there was a need to attract financial resources from a wide range of people.
Also, as a rule, attracting financial resources through the issue of securities led to a reduction in the cost of attraction (Fig. 2).
Rice. 2. Scheme of the movement of financial resources from the investor to the final borrower (enterprise)
One of the main benefits of this system is that borrowers can borrow significantly larger amounts than before, and lending can be done by pooling the investment resources of different investors.
Rice. 3. Financial flows in the securities market
In the above diagram, enterprises and the state can be considered as the primary borrowers, and financial institutions (institutions) and individuals as the main providers of capital.
However, it must also be taken into account that a company, as a financial institution, can also act as a borrower in order to finance its operations.
Let us highlight some terms necessary for studying the securities market:
Stocks and bods market– a set of economic relations that arise in the process of issue (issue), circulation on the secondary market and redemption of securities, allowing to mobilize capital for investment in the economy.
Security- a special kind of document or the rights of the owner of a security, or the obligation of the person who issued it, to a certain amount of money, goods, other property or to perform actions in order to realize their interests.
Investor- the owner (proprietor) of a security, who became the owner as a result of the exchange of a certain amount of money or things (property) belonging to him for it.
Issuer- a market participant who issued a security in exchange for funds or things (property) that belonged to the investor, and bears corresponding obligations on the security to the investor.
Issue of a security - alienation of a security by the issuer in favor of the investor.
Circulation of securities- its alienation from one investor to another investor.
Redemption (redemption) of a security - alienation of a security by the investor back to the issuer, accompanied by the termination of the existence of a specific security. Typically occurs when a security expires.
Withdrawal of a security from circulation - alienation of a security by an investor back to the issuer, not accompanied by the cessation of the existence of a specific security, but meaning only its temporary withdrawal from the sphere of circulation.
Alienation of a security - any market (usually purchase and sale or lending) or non-market (for example, gift, inheritance, confiscation) method of transferring a security from one market participant to another.
Stock market- this is part of the securities market on which financial instruments are traded that contribute to the creation of certain funds for the issuer or investor (authorized capital - shares, borrowed capital - bonds, investment fund - investment share). However, instruments that are designed to insure the risks of the investor and the issuer (forwards, futures and options), service the turnover of goods (commercial bill, bill of lading, warehouse certificate), service monetary relations between participants (check, savings and deposit certificates, bank bill), service relations related to real estate (certificate of participation, mortgage), etc. Thus, the securities market is a broader concept than the stock market. In practice, as a rule, the stock market is understood as that part of the securities market where relations arise regarding the issue, circulation and redemption of such securities as shares, bonds, investment shares.
The main purpose of the securities market is to attract and redistribute investments in the economy. To achieve this goal, the following conditions must be present:
freedom of movement of capital;
ensuring the liquidity of securities, which is achieved due to a large number of sellers and buyers and a small difference in sale and purchase prices;
the presence of trading systems that ensure contact between sellers and buyers;
information transparency of the market.
In order to understand the place and role of the securities market, it is necessary to highlight the functions of the securities market.
Here we should highlight the functions inherent in most markets for goods and services, other segments of the financial market or general market:
Commercial function. Investors are participants in the securities market and one of their goals is to make a profit, that is, to increase the initial amount of their investment. Objects (financial instruments) and infrastructure of the securities market contribute to achieving this goal.
Pricing function. As in most markets, the securities market is governed by the laws of supply and demand, which contribute to the formation of market prices for market objects (securities).
Information function. As a rule, organized markets allow entities entering into economic relations regarding transactions with certain objects to obtain complete and sufficient information about these objects. This allows you to make rational decisions. The securities market reacts very sensitively to ongoing and expected changes in the political, socio-economic, foreign economic and other spheres of society. Stock indices are the main indicators by which the state of the country's economy, individual industries and economic entities is judged.
Regulatory function. This function is to ensure order and rules, legislative framework and legal framework in the securities market both from the state and the market participants themselves. Also, this function of the securities market is ensured by the ability of securities to be an instrument of state financial policy. The main lever through which this function is implemented is the government securities market.
The securities market is characterized by specific functions:
Redistribution function. The securities market promotes the redistribution of financial resources between spheres and sectors of the economy; stimulates the transfer of savings into investments; allows you to finance the state budget.
Financial risk insurance function. This function allows for risk redistribution in time and space (hedging). The securities market creates the opportunity to use securities market instruments (primarily derivative financial instruments) to protect the owners of any assets from unfavorable changes in prices, value or profitability of these assets. This function is also implemented through a method of protecting capital by properly distributing it between different securities, including other possible investments in other instruments (diversification).
Types of securities market
The securities market can be classified by the type of securities traded on a given market, by the maturity of the securities, by territorial affiliation, as well as by the method of trading on it.
By type of securities
equity securities market (shares, shares);
debt securities market (bonds, bills);
derivatives market (futures and options);
secondary securities market (issuer options, depository receipts, bill of lading);
market for monetary securities (bills, bank certificates, checks).
P about the terms of application The securities market is divided into long-term securities, short-term, medium-term, and perpetual securities.
By territorial affiliation distinguished: global securities market, national securities market, regional securities market, European securities market.
Depending on the stage of the security circulation distinguish:
Primary and secondary securities markets
Primary market ensures the release of securities into circulation, promotes the accumulation and distribution of financial resources. Mediates relations regarding the issue of a security into circulation. This is a relationship between its issuer and the investor in which the movement of money and goods is directed from the investor to the issuer, and the movement of securities, on the contrary, is from the issuer to the investor.
On the secondary market previously issued securities are circulated. It promotes the redistribution of financial resources. Since the primary market does not involve relations regarding the movement from the investor to the issuer, that is, the reverse sale of a security to the issuer, and not all investors agree to transfer their temporarily free financial resources for a long period, and a secondary market arises on which investors can sell their securities to other investors, thereby returning their invested capital to the most liquid form - money.
Depending on the type of issuer The securities market is divided into
markets for government and corporate (non-government) securities.
Government securities– these are securities the issuer of which is the state represented by the relevant state executive authorities.
In turn, the government securities market in our country is divided into the federal securities market, the securities market of the constituent entities of the Federation and the municipal securities market.
Corporate securities market is a market for securities issued by commercial organizations.
In terms of having firmly established trading rules The securities market is divided into:
Organized and unorganized.
On the organized market circulation of securities occurs according to clearly established rules. Unorganized market is a market without clear rules.
Depending on the degree of concentration (concentration) of relations between issuers and investors in terms of place, time, processes and so on. The securities market is divided into:
Exchange and over-the-counter.
Exchange market can only be organized. An exchange market is a market licensed by an exchange. The economic basis of an exchange as a market is a high degree of concentration of similar transactions (purchase and sale transactions) with securities in a certain place (including in a certain electronic trading system) and over a discrete period of time.
OTC market can be either organized or unorganized. This is a market characterized by the chaotic process of concluding purchase and sale transactions with securities in time and space.
Depending on the method of concluding transactions The securities market can be:
Traditional and computerized.
Traditional market is built on the basis of public trading in a public place or closed negotiations during a direct meeting of counterparties (on the stock exchange this place is called “The Pit” (USA), “parquet” (Germany)).
Computerized market characterized by the absence of a physical meeting place for sellers and buyers of securities, the non-public nature of pricing, and automation of the trading process; continuity in time and space.
Depending on the type of transactions concluded The securities market is divided into:
Cash and urgent.
Cash (cash, spot market)– this is a market for immediate execution of transactions (within 1-2 days).
Urgent– a market with delayed execution of transactions (usually within several months).
Securities market participants
For the functioning of the securities market, parties (participants) of the relationship are necessary (these are investors, owners of securities, and those who issue securities (“issuers”), as well as intermediaries between them), instruments that are the subject of interest of participants, securities and related their issuance, circulation and redemption of services, as well as a developed regulatory environment, which includes market regulators.
Rice. 4. RCB participants
Evolution of the Russian and development trends of the global securities market
The evolution of the Russian securities market can be divided into 7 stages:
1. 1990-1992 The stage of creating prerequisites for the development of the securities market, the formation of stock exchanges, the formation of a market for shares and bonds of companies. There was no legislative framework and traditions of business turnover of securities.
2. 1993 - 1st half of 1994 It is characterized as a check stage of privatization. The main securities were privatization checks (vouchers), check privatization funds were actively functioning, financial pyramids were formed, and the stock market was flooded with surrogates of securities (MMM shares).
3. 2nd half of 1994 to August 1998 At this stage, trading in shares of existing joint stock companies is gaining momentum. A feature of this stage is the dominance in circulation of government securities (GKOs) and corporate bonds, extremely high yields of GKOs, the predominance of securities of companies in the raw materials sector and dependence on world prices for raw materials. At the same time, the development of the RCB infrastructure and legislative framework took place. The high excess yield of state bonds and the imbalance of the state budget led to the impossibility of servicing the state debt and to the declaration of default.
4. end of 1998 and until 2003 This stage is different in that the GKO market is frozen and is recovering at a slow pace after the crisis. The stock market initially fell behind the bond market. However, then there was a rise in the Russian stock market. A significant portion of shares of Russian companies are traded on foreign trading platforms in the form of ADRs and GDRs.
5. 2004 - 1st half of 2008 The stage is characterized by the active conduct of initial public offerings and additional issues of shares of joint-stock companies. Non-state pension funds, joint-stock and mutual investment funds are emerging and developing. The investment attractiveness of the Russian economy and securities of Russian companies is increasing.
6. 2nd half of 2008 - 1st quarter 2009 At this stage, the Russian securities market, as well as the financial system as a whole, was struck by a crisis. Characterized by a significant drop in stock quotes and stock indices. The indices fell to the levels of 2004-2005, the turnover of exchange trading decreased significantly, problems in the functioning of the market infrastructure emerged, imperfect legislation was revealed, and a collapse occurred in the repo market.
7. from the 2nd quarter of 2009 to this day vr. The stage is characterized by the post-crisis restoration of the Russian securities market, improvement of market infrastructure, improvement of legislation, consolidation of exchange infrastructure (merger of the MICEX and RTS exchanges, creation of a central depository), formation of a single mega-regulator of the financial market on the basis of the Bank of Russia, the process of creating an International Financial Center in Moscow is underway.
Among the main problems of the Russian securities market are political risks, insufficient development of infrastructure and legislation, insufficient information transparency, low liquidity and capitalization.
Among the trends in the development of the global securities market are:
concentration and centralization of capital;
internationalization and globalization of markets;
increasing the level of organization and strengthening government control;
computerization;
introduction of innovations;
securitization (the trend of transferring funds from their traditional forms (savings, deposits) into the form of securities).
Ministry of Education of the Russian Federation
Baikal State University of Economics and Law
STOCKS AND BODS MARKET
Short course of lectures
for students of economic specialtiesPublishing house BGUEP
Baikal State University of Economics and LawCompiled by Ph.D. econ. Sciences, Associate Professor I.V. Dubovik
(department of money circulation and credit)
Reviewer Ph.D. econ. Sciences, Associate Professor A.A. Ayushiev
Securities market: A short course of lectures for students of economic specialties./Compiled by. I.V. Dubovik - Irkutsk: Publishing house BGUEP, 2003. - 80 p.
Contains theoretical questions, analytical material, statistical data, examples of some calculations for bonds, shares and bills and test tasks on topics.
Designed for full-time, part-time and accelerated students.
© Dubovik I.V., 2003
© Publishing house BGUEP, 2003
Securities (introductory lecture) | 4 |
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Bonds | 7 |
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Government securities | 11 |
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Bonds of federal subjects | 18 |
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Corporate bonds | 24 |
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Eurobonds | 29 |
|
Stock | 35 |
|
Bill of exchange | 47 |
|
Test tasks | 52 |
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| 78 |
^ SECURITIES (introductory lecture)
Basic concepts and characteristics
Classification
Main regulatory documents:
Civil Code of the Russian Federation. Part one:
Civil Code of the Russian Federation. Part two: Federal Law of January 26, 1996 No. 14-FZ.
Conceptual apparatus:
Issuer - a person who issues securities and bears obligations under them;
Investor - a person purchasing securities on his own behalf and at his own expense;
Denomination is the face value of a security (the value indicated on the title of a documentary security).
Spread is the difference between the purchase and sale prices of a security.
Assignment is a assignment of the right to claim.
Assignor is a person who assigns the right of claim.
Assignee is a person who receives the right of claim.
Endorsement is an endorsement on a document certifying the transfer of rights under it.
Endorser is the person who makes the endorsement.
Endorser is the person in whose favor the endorsement is made.
1. As a category, a security is an economic relationship regarding property and non-property rights, certified in documentary or non-documentary form.
Expressing relations regarding the movement of capital, it is the title of ownership of actual capital. However, not representing wealth, it itself is fictitious capital, the movement of which is subject to the laws of the financial market.
That is, a security is an instrument (assets) of the financial market (securities market). In this capacity, the security has a commodity, and therefore value and monetary, form.
The list of Russian securities is given in the Civil Code of the Russian Federation, as well as in other legislative and regulatory documents. These are: government bonds, bonds, shares, deposit and savings certificates, bearer bank savings book, checks, bills, warehouse receipts, bills of lading, privatization securities, housing certificates, investment shares, mortgages, derivative securities.
Issue-grade securities are securities of mass issue, in which securities belonging to one issue give the owners an equal amount of rights, which indicates that they have a sign of homogeneity, the consequence of which is interchangeability, that is, market “suitability”. Issue-grade securities are subject to mandatory state registration. Bonds and shares are fully homogeneous.
Forms of securities issue:
documentary (cash), which presupposes the availability of paper for each security issue. One of its problems is compliance with legal requirements for the form and mandatory details of a security, the absence or non-compliance of which entails the nullity of the paper;
documentary with mandatory centralized storage, which involves issuing a global certificate and maintaining accounts at the place of its storage;
undocumented (cashless, paperless, balance sheet, electronic), involving the maintenance of accounts.
In addition, according to Russian legislation, the transfer and exercise of rights under securities is carried out only upon presentation of them.
The property of public reliability of securities means that the obligations under them are of an independent nature (if the form and details are observed, the person obligated under the security must fulfill his obligations and should not check the grounds on which the security was issued).
Main characteristics of securities
Liquidity is the ability to carry out trading operations with a security within the price range on the market (the ability to turn a security into money). Determined by market conditions. It is measured as a percentage of sales volume to supply volume; the size of the spread, as well as the time required to complete the transaction.
Reliability is an assessment of a security from the perspective of its risk, which is reflected in its official rating. It is directly dependent on liquidity.
Yield is the income generated by a security relative to the cost of its acquisition. It is in an inverse linear relationship with reliability and liquidity, therefore, in a direct linear relationship with the risk of the security.
Volatility is the degree of mobility of a security's exchange rate. High volatility of securities negatively affects their liquidity and, consequently, the stability of the entire market.
tax on income on securities, differentiated by type of securities;
exchange rate profit tax, the rate of which for legal entities is equal to the profit tax rate;
tax on transactions with securities, paid in the amount of 0.8% of the volume of issue at par by issuers of issue-grade securities upon their state registration (exceptions are issues of government securities, bonds of the Bank of Russia. Also see No. 36-FZ of March 23, 1998 .).
2. Main features of securities classification:
1 – by issuer.
There are government securities, non-government securities and securities of foreign issuers. The latter do not currently apply to the Russian Federation.
2 – by type of income.
There are securities with fixed and variable income.
3 - according to the method of certification and transfer of rights.
Bearer securities (to the bearer), for which the transfer of rights is carried out by simple delivery of the security. Always issued in documentary form.
Registered, in which the rights belong to the person named in the paper. The transfer of rights is carried out in accordance with the procedure established by law through assignment, where the assignor is responsible for the validity of the corresponding requirement, but not for its non-fulfillment.
Orders, according to which the rights belong to the person named in the document, who himself exercises them, or appoints another person by order (order). The transfer of rights is carried out through an endorsement, according to which the endorser is responsible both for the existence of the rights and for their implementation. Always issued in documentary form.
5 – by economic content and type of law.
A distinction is made between securities expressing co-ownership relationships and giving the right to participate, and securities expressing credit relationships and giving the right to claim.
BONDS
general characteristics
Basic calculations
Conceptual apparatus:
Discount (disagio) - discount from face value;
Bonus (agio) - premium to the nominal value;
Coupon - coupon for receiving interest;
Strip - a coupon separated from the bond and independently traded on the stock market;
Rate is the market price of the bond, calculated as a percentage of the par value;
Point is a unit of measurement of exchange rate dynamics. The accepted ratio is: 1 point = 1 percent; 1 basis point = 1/100 percent.
1. Bond is an issue-grade security expressing a credit relationship, giving the right to claim, for which the issuer is the debtor and the investor is the creditor.
The volume of the global bond market today is about $40 trillion, including $30.8 trillion. ― domestic market bonds, the rest ― Eurobonds. 50% of the bond market is in the USA (75% of the corporate bond market), 20% in Japan, 10% in Germany. France and Italy each occupy 5% of the world bond market, Great Britain - 3%. Russia's share is 0.13% of the global bond market.
A bond is an obligation of the issuer to return to the investor the amount of money received from him within a specified period of time (repay the bond) and pay the agreed income.
There are market and non-market bonds. The latter do not have the right to free circulation on the market.
The amount of income, as well as other conditions for the placement, circulation and redemption of bonds, is set by the issuer and determined by a number of factors:
reliability of the issuer (reverse relationship, see topic “Securities”);
maturity of the bond (the relationship is direct, determined by the direct relationship between the maturity of the bond and the risk on it);
inflation rate (taken into account in the amount of income);
income from previous loans of the issuer;
income set by competitors;
income on the government securities market and the capital market;
income in alternative markets (alternative opportunities for potential investors), etc.
Based on the type of income, bonds are divided into interest-bearing and non-interest-bearing.
Interest-bearing bonds are bonds for which the income is the interest rate, which is charged on the face value (nominal rate).
A typical interest-bearing bond is purchased and redeemed at par.
Depending on the method of payment of interest, bonds can be coupon or zero-coupon.
Coupon - documentary bearer bonds issued with a coupon sheet consisting of coupons, the number of which corresponds to the number of income payments. Coupon bonds are the basis for the formation of the strip market in the country.
The interest rate on bonds can be either fixed or variable.
A fixed rate in the form of a constant does not change during the circulation period of the bond. A fixed rate in the form of a fixed rate changes during the bond's circulation period, but is established in advance and is known to market participants.
The variable interest rate reflects changes in the market rate and is the result of issuers adapting to an unstable economic situation. Increasing, in conditions of inflation, the risk of failure by the issuer to fulfill its obligations, the variable interest rate requires the establishment of additional parameters for the bond:
frequency of interest revision;
"base" of reference;
percentage calculation method.
According to the method of interest calculation, a distinction is made between bonds with simple interest accrual and bonds with compound interest accrual.
Interest-free (zerobond) - bonds that are sold at a discount and repaid at par. The income is a discount.
In developed countries, discount and interest-bearing bonds have a ratio of 1:4.
Bonds can be repaid either during the circulation period in parts (in constant or changing amounts according to a certain method), or at the end of the circulation period in the entire amount due for payment.
2. ^
Profitability calculation
Current yield is calculated for interest-bearing bonds and shows the nominal interest rate per unit of actual costs of purchasing the bond.
Yield to maturity characterizes the income received when redeeming a bond with any type of income per unit of actual costs for its acquisition.
The final (average annual) profitability is calculated using the formulas given below.
RCB is an integral part of the financial market, the purpose of which is to transform savings and investments; it is a stock market that provides long-term needs for financial resources through the circulation of shares, bonds, certificates of deposit, treasury bills and other similar documents.
A security is a financial document certifying the right of ownership or loan relationship, defining the relationship between the person who issued this document and its owner and providing for the payment of income in the form of interest or dividends, as well as the possibility of transferring monetary and other rights arising from this document to others. persons.
Securities are issued by firms, banks, and the state, called issuers. The procedure for issuing securities is regulated by law.
The main features of securities are:
a) liquidity - the ability to easily sell and convert them into cash;
b) profitability - the ability to generate income in the form of interest, dividends or an increase in the exchange rate price. This property of securities is the most valuable; it is what first of all attracts buyers;
c) reliability - the property of securities to avoid the possibility of losses. Bonds are the most reliable, while ordinary shares are the least reliable. The less reliable the securities, the lower their liquidity;
d) negotiability - the ability of securities to be bought and sold on the market, as well as to be an independent payment document.
Securities can be:
bearer (transferred to another person by delivery);
order (transferred by making an inscription certifying the transfer);
registered (transferred in the manner established for the assignment of claims).
Securities perform the following main functions: regulatory, control, information, the function of a mechanism connecting various spheres and sectors of the national economy, including the real economy and finance.
RCB is divided:
according to the circulation period of the Central Bank
1. Money market – a r/k on which short-term securities are traded, i.e. securities with a circulation period of up to one year. A bill or bank certificate with a maturity of more than a year is also traded on the money market.
2. The capital market is the market in which perpetual securities or securities that have more than a year to maturity are traded.
organizational structure
1. The primary market is the market in which the initial placement of a security occurs. Securities are mainly issued by legal entities. At the same time, a document such as a bill of exchange can also be issued by an individual. The person who issues securities is called the issuer, and the issue of securities is called the issue. The person purchasing securities is called an investor.
2. The secondary market is the market on which securities are traded. It no longer accumulates new financial resources for the issuer, but only redistributes resources among subsequent investors.
The secondary market is divided into
Exchange (represented by the circulation of securities on exchanges)
Over-the-counter (trading securities outside exchanges)
by the nature of the issuers
Government securities market
Market of non-state securities
General characteristics of the main securities
A share is an issue-grade security that secures the right of its owner to receive part of the profit of a joint-stock company (JSC) in the form of dividends, to participate in the management of the joint-stock company and to part of the property remaining after its liquidation. It is perpetual, i.e. it circulates on the market as long as the joint stock company that issued it exists. Shares may be registered And to bearer. There are two categories of shares: ordinary(sometimes called simple) and privileged. Ordinary shares differ from preferred shares in the following ways: a) they provide the owner with the right to participate in voting at a meeting of shareholders; such right arises after full payment of the share; b) payment of dividends and liquidation value on them during liquidation of the enterprise can be carried out only after the distribution of the corresponding funds among the owners of preferred shares.
Preferred shares differ from ordinary shares primarily in that, as a rule, they do not provide their owners with the right to participate in voting at a meeting of shareholders, unless it is assigned to them in the charter of the joint-stock company. . However, such a right appears to the owners if the meeting of shareholders decides not to pay dividends on preferred shares or discusses issues relating to the property interests of the owners of these shares, including issues of reorganization and liquidation of the company. Preferred shares are also characterized by the fact that they provide their owners with a preferential right to receive dividends and the liquidation value of the enterprise upon termination of its activities in comparison with the owners of ordinary shares.
One of the main characteristics of a stock is its par value, or face value. The sum of the nominal values of all outstanding shares constitutes the authorized capital of the joint-stock company. The market price is determined as a result of the interaction between demand for shares and their supply. These variables depend on the profitability prospects of the enterprise. Thus, in the secondary market the share price can take any value.
The sum of all nominal values of shares determines the authorized capital of the company. The concept of “capitalization” should be distinguished from the authorized capital. Capitalization is an indicator characterizing the amount of capital of a company in market valuation, embodied in shares. It is defined as the product of the current market price of outstanding shares and their number.
II. Bond
A bond is a time-based debt security that certifies a loan relationship between its owner and the issuer. The most important difference between a bond and a stock is that it represents a debt obligation of the issuer, i.e., a loan issued to him, issued in the form of a security. The bond is a term security, i.e. it is issued for a certain period of time, and upon its expiration it must be redeemed. Bonds can be registered and bearer.
III Bill of exchange, bank certificate
A bill of exchange is a debt obligation that gives its owner the unconditional right to demand payment of the amount of money indicated in it from the person obligated under the bill. First of all, a bill of exchange is an instrument of credit; it can also be used as a means of payment.
A bank certificate is a security that evidences the placement of money in a bank and certifies the right of the investor (beneficiary) to receive the par value of the security and the interest accrued on it. Distinguish savings and deposit certificates. A certificate of deposit is a security intended for legal entities. A savings certificate is a security intended for individuals
Topic 1. Fundamentals of the organization and functioning of the securities market
Questions:
The need to organize the stock market;
The structure of the financial market and the place of the stock market in it;
RCB structure;
Functions of the RCB;
RCB participants.
Question 1. The stability of the position of any state is determined primarily by the degree of stability of its financial condition, that is, the size of the state budget deficit and public debt. It is the financial system that is the barometer of the economy and at the same time the pain point by influencing which one can accelerate or slow down the processes of market transformations.
To overcome the decline in production and restore economic growth, a manifold increase in investment is required. Otherwise, a reduction in personal consumption or a freeze in spending on science, culture and other areas of social activity is inevitable.
The combination of all these conditions led to an increase in demand for borrowed resources. At the same time, when resorting to bank loans, the organization transfers interest payments for using loans to the cost of production. An alternative to this is the organization and establishment of the stock market as one of the most important elements of the financial capital market.
On the stock market or securities market, the object of purchase and sale is a specific commodity - securities.
Central Banks are issued with the aim of mobilizing and more rational use of temporarily free financial resources of enterprises, savings of the population for the creation of new or technical re-equipment of existing industries.
Through the RCB, it becomes possible to enormously save money in circulation, that is, the opportunity to receive funds and involve them in the investment sphere without the inflationary issue of banknotes and loans from the National Bank of the Republic of Belarus.
Central banks are capable of performing a wide variety of functions: management, regulation of commodity-money, market relations, acting as financing, lending, redistribution of financial resources, investment of cash savings.
Question 2.
A market economy is a combination of three types of market: the financial market, the labor market, and the market for goods and services. These markets create a single economic mechanism and interact with each other.
The financial market is one of the most important markets, since with its help free financial resources are mobilized and directed to those individuals who can manage them most effectively. In turn, the financial market is divided into the securities market, the credit market and the foreign exchange market.
According to the law on securities marketRCB - this is a system of relations between legal entities and (or) individuals, as well as other subjects of civil law during the issue, circulation and redemption of securities, the implementation of professional and exchange activities on securities.
Classify RCB can be done as follows:
By territorial basis:
international;
National;
regional.
Internationally, securities denominated in foreign currency are traded between non-residents.
National markets cover resident-to-resident trading of securities issued by both residents and non-residents with denominations denominated in both foreign and domestic currencies.
In regional markets, a closed circulation of limited types and quantities of securities arises.
Securities securities are classified by issuer:
government securities market;
market for corporate securities.
By timing:
short-term securities market;
market for medium-term securities;
long-term securities market;
market of perpetual securities.
There are markets for specific securities (state, municipal shares, bonds).
Securities derivatives markets:
futures;
optional.
RCB infrastructure typical for all countries, including the Republic of Belarus. Typically it includes:
State bodies regulating and monitoring the securities market. Currently, these are the President of the Republic of Belarus, the Council of Ministers of the Republic of Belarus, the National Bank of the Republic of Belarus and the Republican government body that carries out state regulation of the securities market.
Issuer is a legal entity that issues securities on its own behalf and guarantees the fulfillment of obligations arising from the conditions of their issue.
Central Bank issue - this is the sequence of actions of the issuer to place an issue established by the legislation of the Republic of Belarus.
Investor - this is an individual or legal entity or a group of individuals investing in the Central Bank for the purpose of acquiring them as property.
Stock intermediaries - these are traders who provide communication between issuers and investors on the securities market.
Organizations servicing securities market which may include:
Organizers of the securities market (Stock exchanges or over-the-counter market organizers);
Settlement centers;
Depositories;
Information bodies or organizations.
Question 3.
INcomposition of the RCB distinguish between the money market and the capital market.
Money market is the market in which short-term securities are traded.
Capital market - this is the market on which perpetual securities or securities are traded that have more than one year left until maturity.
According to the organizational structure, securities markets are divided into primary and secondary markets.
Primary market of the Central Bank - this is their primary placement, that is, the acquisition of securities by their first owners.
Secondary market - this is the market in which the circulation of the Central Bank occurs. The basis of the secondary market is made up of transactions formalizing the redistribution of property, speculative and insurance transactions. The secondary market provides an influx of capital into the most efficient areas of activity, and also ensures the stability of the Stock Market and its liquidity.
Liquidity or market capacity is the ability of the market to absorb a certain amount of securities with reasonable changes in their prices. Liquidity is characterized by the frequency of transactions, a narrow gap between the seller's price and the buyer's price, and small price fluctuations from transaction to transaction. In turn, the secondary market is divided into exchange (organized) and over-the-counter (unorganized) markets.
With a developed securities market, the most important place in the secondary market is occupied by the Stock Exchange, which ensures regular trading of securities, their liquidity and determines their prices.
Stock Exchange is a specialized institution that creates conditions for permanent centralized trading of securities by combining supply and demand for them.
Each exchange develops its own list of requirements for issuers. In connection with the verification of the issuer for its compliance with the requirements of the exchange, a special listing term arose.
Listing is the procedure for the organizer of securities trading to include emission securities in the quotation list.
Quotation sheet - this is a list of issuing securities that meet the criteria specified by the organizers of securities trading and are admitted to trading.
Organized market is a set of relations associated with the execution of transactions with the securities in the trading system of the organizer of trade in the securities, including the Stock Exchange.
Unorganized market - this is a set of relations associated with the execution of transactions with the securities outside the trading system of the organizer of trade in the securities, including the Stock Exchange. The over-the-counter market covers transactions with securities carried out outside the exchange and represents computerized securities trading systems with simplified rules for the admission of securities, participants and trading technologies.
Question 4.
The essence of RCB is manifested through itsfunctions , which can be divided into two groups:
General market, that is, functions inherent in any market;
Specific, that is, functions that distinguish the securities market from other markets.
TOgeneral market functions include:
Commercial, that is, generating income from operations on the market;
Pricing, that is, the market determines supply and demand for goods and reveals real market prices for them;
Regulatory, that is, the rules of trade, participation in it, etc. are determined;
Information, that is, the accumulation of the necessary information about trade objects and its participants and the dissemination of this information to all interested organizations and individuals.
TOspecific The functions of the RCB include:
Attracting temporarily free financial resources of business entities, funds of the population with their subsequent investment in production, services, etc.;
Redistribution of funds between various sectors of the economy, ensuring the movement of capital from inefficient industries and enterprises to more efficient ones;
Regulation of money circulation and credit relations. The presence of a developed central bank has a restraining effect on inflation processes by tying up part of the free funds of consumers, and also reduces the need to finance the economy through bank loans;
Redistribution of the state's financial resources, covering the state budget deficit with non-inflationary means (without monetary and credit issues) by issuing various types of state securities;
Insurance (hedging) of financial risks, investment risks. This function is implemented through securities derivatives and allows you to turn some types of risks into objects of purchase and sale;
Creating conditions for effective management of the financial condition of enterprises. Business entities can raise funds by issuing securities, or they can diversify their investment portfolio by purchasing different types of securities.
Diversification -distribution of funds, dispersal.
Question 5.
A potential investor needs expert advice on which securities should be invested in in order to achieve the desired goals. In the same way, an issuer that raises funds by issuing securities needs the help of an intermediary. Intermediaries have comprehensive information regarding which securities are the most attractive because they specialize in operations with them. In the Republic of Belarus, intermediaries are called professional participants of the securities market.
Professional participant of the RCB is a legal entity licensed for one or more types of professional activities at the Securities Market.
Depending on the type of activity, the following professional participants of the RCB can be distinguished:
Broker - this is a professional participant of the securities market who makes transactions with them on behalf and on behalf of the client on the basis of a commission agreement or commission concluded in writing;
Dealer - this is a professional participant in the securities market who carries out transactions with them on his own behalf and at his own expense by publicly announcing the purchase and sale prices of certain securities with the obligation to conclude transactions at the prices announced by him;
Investment fund - is a professional participant in the Central Bank, issuing shares in order to mobilize investors' funds and invest these funds on behalf of the fund in the Central Bank, as well as in bank accounts and deposits;
Depository is a professional participant in the securities market, which provides services for the storage of securities, accounting for the transfer of rights to securities, and maintains Depo accounts.
According to the Law of the Republic of Belarus, the depository is a legal entity of the Republic of Belarus that has received a special permit (license) to carry out professional and exchange activities in the Central Bank.
Non-resident depositary - this is a foreign or international legal entity (an organization is not a legal entity) carrying out depository activities outside the territory of the Republic of Belarus in accordance with foreign law.
Clearing house collects, reconciles and adjusts information on transactions with securities, determines mutual obligations of participants in transactions, carries out offsets on supplies of securities and settlements on them.
Property Manager is a professional participant in the securities market, carrying out on its own behalf, for a certain period of time for a fee, activities related to the management of the securities, as well as funds intended for investment in the securities and securities and funds received in the process of trust management.
Stock Exchange.
Topic 2. Securities
Questions:
The concept of the Central Bank, classification criteria, fundamental properties;
Share, its essence, preferred shares;
Ordinary shares;
Share price, exchange rate, quotation;
Types of shares from the position of investment attractiveness;
Determining the investor's income from owning shares;
Basic analytical characteristics of shares.
Question 1.
Central Bank is a document certifying, in compliance with the established form and mandatory details, property rights, the transfer of which is possible only upon presentation.
Central Bank - This is not money or a material product. The owner of goods or money will exchange them for the Central Bank only if he is sure of its identity.
Central Bank is a commodity traded on the securities market, that is, a special form of existence of capital. Its essence is that the owner does not have the capital itself, but has all the rights to it, which are recorded in the form of the Central Bank.
There are twotype Central Bank:
Cash , that is, documents certifying the right to receive a sum of money;
Commodity which include: mortgages, warehouse receipts and bills of lading.
Bill of lading is a document granting its holder the right to dispose of the cargo.
The legislation of the Republic of Belarus recognizes the followingtypes of central banks :
government bond;
bond;
bill of exchange;
check;
deposit and savings certificates;
bearer bank savings book;
bill of lading;
share;
privatized central banks.
Central banks are classified according to a number of signs:
According to the release procedure:
Emission securities, that is, securities that are placed in issues and have equal volumes and terms for the exercise of rights within one issue, regardless of the time of their acquisition;
Non-emission securities are issued on an individual basis.
According to the method of determining the holder of the securities:
Bearer Central Bank. It does not contain the name of the owner and is transferred to another person by simple delivery without any record of the transaction. The new owner must present his Central Bank only on the day of the investor census in order for the income to be transferred to his name;
Registered securities contain the name of the owner; the transfer of registered securities to another person is carried out using a transfer inscription on the security letterhead. At the same time, the corresponding changes must be made in the register of owners of securities, only after that all the rights of the former owner are transferred to the new owner.
Register of owners of securities - this is a list of registered owners of securities indicating the number, nominal value and category of registered securities owned by them compiled as of any specified date.
Order securities are transferred to another person by order of their owners, that is, by order.
By release form:
During a documentary issue, the investor is given Central Bank forms (paper form) that have the necessary elements of protection against counterfeiting;
Book-entry securities (paperless form) are a form of issue of emission securities in which their owner is established on the basis of an entry in the accounts of the organization (depository) that records rights under the securities. The issue of such securities is formalized by a document called a certificate.
Central Bank Certificate is a registered document issued by the issuer or organization that records rights to securities and certifies the totality of rights to the number of securities specified in the certificate.
By type of ownership:
State;
Municipal;
Corporate.
By territory of circulation:
Regional are the central banks of local authorities;
National securities are securities of Belarusian issuers circulating on the domestic market;
International securities are securities of foreign issuers circulating in the territory of other states.
By application deadline:
Short-term (up to one year);
Medium-term (on average five to ten years);
Long-term (on average twenty to thirty years);
Perpetual (not regulated, since they exist “forever” or until the maturity date of which is not indicated in any way when issuing the Central Bank).
By content:
Debt central banks that formalize the borrowing of money. The owners of such securities are creditors for these issuers;
Equity or investment securities for which the issuer does not have an obligation to return funds, but which certify their owners of participation in the financial institution, grant them the right to participate in managing the affairs of the issuer and receiving a portion of the profit;
Derivative securities are second-order securities that do not create any property claims against the issuer, but give the right to purchase a certain number of debt and equity securities, that is, first-order securities.
Fundamental properties of the Central Bank :
negotiability;
accessibility for civil circulation;
standard and serial;
documentary;
regulation and recognition by the state;
marketability;
liquidity.
Question 2.
Promotion - this is a registered emission security, indicating a contribution to the charter capital of a joint-stock company, issued for a certain period in a non-documentary form and certifying a certain amount of rights of the owner depending on its category (simple or preferred), type (for preferred shares).
Preference share is a share that has certain privileges over an ordinary share. It certifies the owner’s rights to receive part of the profit of the joint-stock company in the form of a fixed amount of dividend, to receive, in the event of liquidation of the joint-stock company, a fixed value of the property of the joint-stock company remaining after settlements with creditors and does not give the right to vote to participate in the general meeting of shareholders with voting rights, except in cases provided by law.
There are the followingtypes of preferred shares :
Cumulative ones are characterized by the property that if, due to the financial difficulties of the company, in some year (within two to three years) it will not be able to pay dividends, they will accumulate and will be paid immediately after the resumption of dividend payments. Otherwise, shareholders will have voting rights;
Non-cumulative ones do not have the properties of previous ones and dividends not paid for previous years are not paid;
Participatory shares allow holders to receive additional dividends above the stated amount when dividends on common stock exceed the stated amount;
Convertibles are characterized by the fact that they can be exchanged for ordinary or other varieties of privileged ones within a certain period of time and at a predetermined rate;
Shares with floating dividend. This type of shares differs from shares with a fixed dividend in that the dividend is “tied” to the rate of the state short-term Central Bank;
Revocable shares are characterized by the fact that the joint stock company has the right to revoke them through redemption. The redemption is carried out at par plus a premium of one percent of the par;
Non-revocable ones exist as long as the joint stock company that issued them exists;
Retractive. Holders of such shares can “force” the company to repurchase the shares at a certain point in time at a certain price. The terms of the withdrawal are formulated in a document called a prospectus.
Prospectus is a document containing information about the issuer, issuing securities, its financial position and the upcoming placement of issuing securities, as well as other information.
Warrant preferred shares are characterized by the fact that the owner of the share, at the time of issue or after a certain time, is issued a special warrant, which gives the opportunity to purchase one or more ordinary shares at a predetermined price.
Question 3.
Ordinary share is a share certifying the owner’s right to receive part of the profit of the joint-stock company in the form of a dividend, participate in the general meeting of shareholders with voting rights and receive part of the property of the joint-stock company remaining after settlements with creditors or its value upon liquidation of the joint-stock company in the manner prescribed by law.
Owners of common shares have a pre-emptive right to purchase shares of additional issues, which makes it possible for the shareholder to retain their share of ownership.
There are placed and announced shares.
Posted These are sold shares; they determine the value of the joint stock company’s profit margin.
Announced - these are shares that the joint-stock company has the right to sell in addition to those placed. The presence of authorized shares simplifies the issue of increasing the profitability of a joint stock company.
The number of shares that makes it possible to exercise complete control over the activities of a joint stock company is called a controlling stake.
Large block of shares - this is more than five percent of the total number of ordinary shares of a joint-stock company acquired immediately or through repeating transactions.
Golden share is a special right of the state to participate in the management of a joint-stock company. The bodies that made the decision to use the golden share are given the opportunity to control the activities of the joint-stock company. The golden share has no time limit and is applied until canceled by the authorities that decided to apply it. A golden share gives its owner the right of veto when the general meeting of shareholders makes decisions on the following issues:
reorganization of a joint stock company;
liquidation of a joint stock company, appointment of a liquidation commission, approval of the interim and final liquidation balance sheet;
change in profit margin and use of net profit;
appointment of a manager to a position and dismissal;
and on other issues.
Question 4.
Stock Valuation joint stock company is required in the following cases:
When shares are gifted or inherited and it is necessary to determine their price for tax purposes;
During the acquisition or merger of companies, when the monetary value of the transactions is shares of a closed joint stock company;
Upon a new issue of shares;
When issuing a loan, when it is secured by shares.
There are the followingtypes of stock prices :
The nominal price is determined by dividing the amount of the cash balance by the number of shares issued. The nominal value indicates what part of the UV is accounted for by one share on the date of its formation;
The issue price is the price of the initial public offering of shares, which in the Republic of Belarus must not be lower than the nominal price;
The book price is determined according to the financial statements as the ratio of the value of the net assets of the joint stock company to the number of issued shares.
Net assets are what remains with an enterprise after it has settled its debts, that is, what the enterprise has the right to sell. They can be represented by finished products, fixed assets, etc.
Liquidation price is the price of the property being sold in actual prices per share at the time of liquidation of the joint stock company;
Exchange rate (market) is the selling price of shares on the Stock Exchange, which depends on supply and demand;
The securities exchange rate is the price at which securities are quoted and sold on the Stock Exchange.
Quotation (quotation) is the registration of the highest price offered for securities to buyers and the lowest price at which the seller is ready to sell it at the moment.
The estimated price of a stock is determined based on the results of technical analysis and modeling of the market value of shares.
When analyzing supply and demand for shares, you can use indicators such as the absolute value of the “spread” and its ratio to the maximum bid price.Spread is the gap between the minimum bid price and the maximum bid price. When determining the most liquid stock, the criterion is the smallest ratio of the spread to the maximum bid price.
In the case of a securities purchase at an exchange rate different from the nominal one, this indicator is determined"rendit" is the quotient of the dividend divided by the market price of the stock. This indicator is used to determine the most profitable stock. The selection criterion is the largest rendit value.
Task 1. Determine the size of the spread for shares and identify the most liquid share, if for the first the minimum offer price is 1.02 rubles, the maximum ask price is 1 ruble, and for the second the minimum offer price is 2.05 rubles, the maximum ask price is 2 rubles.
Problem 2 . Choose the most profitable share if the first has a dividend of 600%, par value 0.1 rubles, market rate of 4 rubles, and the second has a dividend of 300%, par value of 0.1 rubles, market rate of 1 ruble.
Question 5.
There are the following divisions of shares from the point of view of investment attractiveness:
Growth stocks - these are shares of enterprises that show high growth rates of production activity and income. As a rule, these shares bring income to the investor in the form of an increase in market value. In a good market environment, shareholders decide not to pay dividends, but to reinvest them in expanding production, which in the future should bring even higher income due to increased sales of the enterprise's products. When the rapid growth of an enterprise is eventually exhausted, due to the saturation of the market with its products, the enterprise begins to pay dividends.
Speculative stocks - these are stocks that have the potential to bring big profits. The probability of such a result is not high, but it has objective conditions.
Aggressive actions - these are shares of joint-stock companies, the income of which largely depends on the state of the economic situation and the phase of the economic cycle. If the economy is booming, then they bring high returns to the investor, otherwise the returns are not high.
Defensive shares - these are shares of enterprises whose income is weakly dependent on the state of the economic situation - these are commercial enterprises, the income of such enterprises is reduced to a lesser extent than aggressive ones, and on the eve of an economic downturn, the investor should pay attention to protective shares that will provide him with a higher level of profitability, than aggressive ones.
If the enterprise operates successfully in the long term, the share price may increase so much that it becomes illiquid, since the more expensive share is already available to a smaller circle of investors.
To maintain liquidity at the same level, the general meeting of shareholders may announce a stock split, which is the conversion of one share into two or more shares of the same category. As a result of splitting, the number of shares increases and at the same time their par value and, consequently, the market price decreases.
The general meeting of shareholders can also carry out consolidation (merger) of shares. This means that two or more shares are converted into one new share of the same category.
Question 6.
As a shareholder, an investor can receive income in the form of dividends, and after selling shares, income from the increase in market value.
Dividend - this is the part of the net profit received by the joint-stock company during the billing period, per share.
Net profit is used to pay dividends and is distributed among shareholders in proportion to the number and in accordance with the categories of shares they own.
The procedure for paying dividends is established by the general meeting of shareholders.
Dividends can be annual, semi-annual, quarterly.
The amount of the final dividend is announced by the general meeting of shareholders based on the results of economic activity for the year (taking into account the payment of an interim dividend).
If there is sufficient profit to pay dividends on preferred shares, the joint stock company does not have the right to refuse to pay dividends to the holders of preferred shares.
Payment of dividends on preferred shares in the event of a shortfall in profit or loss of profit of the joint-stock company is possible only at the expense and within the limits of the Reserve Fund.
If a joint stock company is insolvent or may become so after paying dividends, then the general meeting of shareholders may decide not to pay dividends.
Only those persons who are registered in the register of shareholders no later than thirty days before the officially announced date of payment of dividends are entitled to receive dividends.
By decision of the general meeting of shareholders, dividends may be paid in shares, goods and other property owned by the joint-stock company. In this case, the joint stock company solves several problems at once:
Dividends are paid and, therefore, there are no dissatisfied shareholders.
Share capital increases.
Since additional shares are issued to their shareholders, there is no dilution of share capital at the expense of new shareholders.
Dividends are not accrued on own shares purchased by a joint stock company and listed on its balance sheet. Such shares do not have voting rights. In essence, they are identical to unreleased ones.
Conventionally, the share price can be divided into two parts:
Net price, price without dividends.
The amount of the dividend accumulated at the time of the transaction with shares on the secondary market.
On the date of closure of the register, the share begins to be sold without a dividend, since during the expired period it was received by the shareholder who was listed in the register at the time of its closure. Therefore, on this date the share price falls by the amount of the dividend.
Another component of investor income is the increase in the market value of the stock. To realize income, the share must be sold. Otherwise, there is a danger that the Central Bank rate may fall at the next moment.
An increase in exchange rate value can occur for two reasons:
Possible speculative rise in the market. He has objective long-term grounds for it.
Real growth of enterprise assets. Having received profit, the joint stock company divides it into two parts. One part is paid in the form of dividends, and the other is reinvested to maintain and expand production.
Reinvested profit, which takes the form of fixed and working capital, actually fills the share and leads to an increase in its value, as a result of which the price of shares on the market will rise.
Question 7.
A general idea of the investment attractiveness of shares can be drawn up based on several simple indicators:
Dividend rate or current yield shows what level of return an investor will receive on his investment due to possible dividends if he buys shares at the current price. The dividend rate can give the investor an idea of the primary form in which shares generate income, that is, in the form of a dividend or in the form of an increase in market value. However, when making an investment decision, taking into account the dividend rate indicator, it is necessary to trace its dynamics for at least several years.
Payback period of shares measured in years and defined as the ratio of the current share price to the net earnings per share earned by the company, assuming that all earnings are paid out as dividends. When an investor is confident in the good prospects of a company, this indicator increases as the share price rises. At the same time, shares with a high index value are not always the best choice for an investor, since in reality the increase in the market value of shares may already be exhausted.
Ratio of current stock price to book price . For a well-functioning enterprise, this ratio must be greater than one, that is, the current price must exceed the book price. However, if this indicator is too high, this indicates an overvaluation of the stock price on the market. A coefficient value of 1.25-1.3 can be considered as a threshold, above which, as a rule, a speculative increase in the price of shares is accrued.
Earnings per share determined by dividing reported earnings by the total number of shares. The indicator is an absolute value, since shares of different companies differ from each other in value, it is difficult to make comparisons between shares using this indicator; it is better to use the indicator of earnings per share and its price at the beginning of the period. The resulting figure will give an idea of the effectiveness of investing one ruble of funds in a particular company.
Investment return for the period of holding the share :
IR=Income/ ∑invested funds*number of days per year/ tenure in days *100%
Income=P1-P0+Div, Where
P1 is the sale price of the share,
P0 is the purchase price of the share,
Div-dividend.
Task 1. The buyer purchased a package of 100 common shares at a price of 1 ruble. each and after 32 days I sold them at a price of 1.2 rubles. each. Determine the income and profitability of such a financial transaction, considering the number of days in a year to be 365.
Problem 2 . The client purchased 10 shares with a par value of 50 rubles. each at the rate of 120%. The shares pay an annual dividend in the amount of 30% of the par value of the shares. Determine the income and profitability of the transaction if the stock price rose to 140%.
Task 3. The company owns a package of 30 common and 20 preferred shares with a par value of 1 and 2 rubles. respectively. For the quarter, a dividend will be paid in the amount of 100% per annum on common shares and 200% per annum on preferred shares. Determine the income and profitability of such an operation.
Problem 4 . The company acquired a package of 50 common and 20 preferred shares with a par value of 10 rubles. and 20r. respectively at the rate of 110% and 180% respectively. Dividends on common shares are 80% and 120% by year, on preferred shares 120% and 200%. Two years later, the shares were sold at rates of 130% and 200%, respectively. Determine the income and profitability of the transaction.
Topic 3. Bonds
Questions:
1. The concept of bonds. Classification of bonds according to various criteria.
2. Types of bond prices. Determination of bond yield.
3. Bond yield.
Question 1.
Bond This is a security that certifies the loan relationship between its owner (lender) and the person who issued it (borrower).
The legislation of the Republic of Belarus defines a bond as a security that certifies the contribution of funds by its owner and confirms the issuer’s obligation to reimburse him the nominal value of this security within a specified period with the payment of a fixed percentage, unless otherwise provided by the rules of the issue.
Bonds are classified according to various criteria.
State;
Municipal;
Corporate.
Short-term (up to 1 year);
Medium-term (from 1 year to 5 years);
Long-term (5 30 years).
Personalized;
To bearer.
Emission;
Non-emission.
Coupon (with fixed or floating interest). A coupon bond gives its owner the right to receive income on it using a cut-out coupon (coupon) with the coupon interest printed on it. Interest on a bond is calculated in relation to its face value and is paid once a month, quarter, half year or year.
Zero coupon(zero coupon) or pure discount bonds. No interest is paid on them; bonds are sold at a discount (discount) relative to their face value, and are redeemed at face value. Thus, the yield is the difference between the face value and the purchase price of the bond. Paid when the bond matures. A coupon bond can also be discounted.
Secured Bonds;
Bondsunsecuredcollateral.
Redemption of the bond's face value is made in a one-time payment.
With redemption distributed over time, when a certain portion of the face value is repaid over a certain period of time.
With sequential repayment of a fixed share of the total number of bonds (lottery or circulation loans).
In some cases, all bonds of one loan are repaid at the same time, but in order to facilitate the repayment of debt, the issuer may issue bonds of several series, each of which has its own maturity date.
Callable bonds allow the investor to present the bond to the issuer early for redemption. When placed, such bonds usually cost more, since in this case the issuer takes on the risk.
Freely tradable bonds;
With a limited range of circulation, i.e. with limited or no resale possibilities.
With an unchanged validity period;
With variable validity period:
Bonds with a reduced loan term or callable bonds. They can be repaid ahead of schedule, which the issuer must inform the bond holder about in advance. Typically, the issuer will call the bond if interest rates in the market have fallen. Therefore, he buys back the old security in order to issue a new one at a lower interest rate and thereby reduce his expenses.
Issue of a bond with extension of the loan term. They are used in conditions of inflation, when long-term bonds are not in demand among investors. In this case, bonds are issued with the right to prolong them; the conditions must meet both the interests of the issuer and the investor.
By issuer there are:
By validity period:
According to the method of determining the holder of a security:
According to the form of release, they are distinguished:
By method of income calculation:
According to the method of securing a loan, there are:
According to the method of repayment of the bond par value:
According to the loan repayment terms:
By nature of the appeal:
From the point of view of maintaining validity:
Fundamental properties of a bond:
Bonds are not titles of ownership of the issuer's property, but a certificate of loan (a loan issued in the form of a security).
Bonds have a finite maturity date, after which they must be redeemed.
They have seniority over shares in the payment of interest and other obligations.
They do not give the right to participate in the management of the enterprise.
Convertible bond allows their owner to exchange them for ordinary shares or other types of bonds of the issuing company at a certain time at a pre-agreed rate.
The point of purchasing a convertible bond is that, on the one hand, the investor is confident in receiving the income brought by the bond in cases of not very successful operation of the joint stock company, and on the other hand, to retain the opportunity to increase income by converting the bond into a share, if the shares began to pay high dividends.
Eurobond is a bond issued by an issuer in the currency of another country. The circulation of euro bonds is not regulated by the rules of the specific country in whose currency the issue was made. The euro bond market arose in order to be able to bypass the legislative obstacles of the country in whose currency the security was issued.
Mortgage – This is a type of debt obligation under which the lender, in the event of non-repayment of the debt by the borrower, receives this or that property.
2. The main economic indicators characterizing the bond are:
The nominal price of a bond is the borrowed amount of money, on the basis of which the bond's income is subsequently calculated. Typically, bonds are issued with a high face value.
The issue price is the price at which bonds are sold to their first owners. It can be more, less, or equal to the nominal value. It depends on the type of bonds and terms of issue.
The redemption price is the price that is paid to the owner of the bond at the end of the loan term. The redemption price of a bond may or may not be the same as the par value.
Market value is the price at which bonds can be purchased on the market. The exchange rate is influenced by various factors: the term of the loan, the income on the bond and the form of its payment, guarantee, etc.
Since the denominations of different bonds may differ, there is a need for comparable measures of the bond's market price. This indicator is the bond rate.
Bond rate is the value of the market price of a bond, expressed as a percentage of its face value.
Bond income consists of the following elements:
Fixed interest payment;
Floating interest rate;
Stepped interest rate. Several dates are established, after which the owner of the security can either redeem it or leave it until the next date;
Income from indexation of nominal value. As an anti-inflationary measure, the bond's face value is indexed taking into account the consumer price index;
Income from a discount (discount) when purchasing a security;
Income in the form of winnings from loans. Regular draws are held for certain types of securities, at the end of which winnings are paid to some owners.
Income from the disposal of a security. This is the income from selling it at market value when it exceeds the par or original value at which the bond was purchased.
Income from owning a bond, which can be obtained in various ways:
Bond yields are typically lower than other securities. This is due to the fact that bonds are more reliable compared to other types of securities and their income is less dependent on market conditions.
3. In the financial market, investors are interested in the performance of its operations. The performance of investments is compared using an indicator such as profitability.
Profitability – this is a relative indicator that characterizes what percentage a ruble of invested funds brings in over a certain period of time.
Profitability can be defined as the ratio of the result obtained to the costs that brought this result.
Profitability is expressed as a percentage. In financial practice, it is accepted that the rate of return or interest on an investment is usually set or determined on an annual basis, unless nothing is said about a different time period.
Different bonds may provide investors with different returns due to the following reasons:
From the maturity of the bonds. The longer the period of time for which they are issued, the higher the interest rate must be for the investor to agree to invest his funds in them.
Level of taxation of income on bonds.
One of the indicators of a bond's yield is the coupon interest, which is the main characteristic of the bond. All other things being equal, a bond will be more attractive to an investor, the higher the coupon interest it offers.
The price of a bond can be divided into two parts: the net price and the amount of the accumulated coupon. This division is intended to better represent the dynamics of the market value of the bond. During the coupon period, it is equal to the amount of the net price and the amount of the coupon accumulated at the time of the transaction. On the coupon payment date it falls by the coupon amount.
The difference between the par value of a bond and the price, if it is lower than the par value, is called a discount (discount) or disaggio. The difference between the price of a bond, if it is higher than the face value, and the face value is called the premium or premium.
The change in the price of a bond is measured in points; one point is equal to one percent of the bond's face value.
Problem 1
The investor bought a bond with a maturity of 100 rubles in a year. and 20% coupon:
A) for 96 rubles.
B) for 102 rubles.
Determine the investor's income if the bond was repaid at the end of the term.
Problem 2
The company bought 10 bonds with a nominal value of 2,000,000 rubles, each at an exchange rate of 81%. Determine the payment amount.
Solution:
∑Payment= 2000000*0.81*10= 16200000 rub.
Answer: 16200000 rub.
Problem 3
The company bought a batch of 50 bonds worth 100 each at an exchange rate of 0.95. The bond maturity is 34 days. Determine the company's income and the profitability of the transaction if the number of days in the year is 360.
Problem 4
The company bought 8 bonds with a nominal value of 2,000,000 rubles. each, maturity 3 years, at the rate of 95%. Income is paid at the end of the term at a rate of 30% per annum. Determine the income and profitability of the transaction.
Problem 5
The company purchased a package of 40 bonds with a nominal value of 2,000,000 rubles. each, at the rate of 90%. Repayment period is 4 years. Income is paid annually at a rate of 24% per annum and reinvested at a rate of 33% per annum. Determine income and profitability.
Topic 6. Bill
1. The concept of a bill of exchange and its functions
2. The concept of aval, acceptance, endorsement of a bill
1. A bill of exchange is a security issued in accordance with the requirements of the law and containing an unconditional, abstract monetary obligation. According to the legislation of the Republic of Belarus, a bill of exchange is recognized as a security, which is a written obligation of a strictly established form, giving its owner the indisputable right, after the expiration of the obligation, to demand from the debtor or acceptor payment of the amount of money specified in the bill.
Required details:
1) name of the bill;
2) a simple and unconditional offer to pay a certain amount of money;
3) the name of who must pay (the drawee);
4) an indication of the place where the payment must be made;
5) the name of the person to whom and by whose order the payment must be made;
6) indication of the date and place of compilation;
7) signatures of the person who issues the bill (drawer).
The due date for a bill of exchange is not a mandatory requirement. There are the following payment terms for the bill:
1) upon presentation;
2) at such a time from presentation;
3) in so much time from compilation;
4) for a specific day.
If the term is not specified, the bill is payable upon presentation.
Functions of a bill:
1) is property;
2) is a means of payment (settlements);
3) performs the function of a commercial loan;
4) a bank bill is a tool for raising funds.
In terms of income for their owners, bills can be discounted and interest-bearing.
2. The bill of exchange must be accepted by the payer only after that it receives the force of an executed document.
Acceptance can be complete, i.e. for the entire amount of the bill, or partial. Payment on an accepted bill can be additionally guaranteed by issuing a surety (aval). Aval is issued by a third party both for the original payer and for each subsequent person obligated on the bill. It is drawn up with a special inscription of the avalist on the front side of the bill or on an additional sheet to the bill - allonge.
The avalist and the persons for whom he vouched are jointly and severally liable. Valuation of bills increases their reliability and contributes to the development of bill circulation. Banks can act as avaliers on bills of exchange of their clients. Current legislation provides for the possibility of transferring a bill of exchange from hand to hand as an instrument of payment using an endorsement - an endorsement.
Transfer by endorsement means the transfer of a bill of exchange to another person and the transfer of the right to receive payment of the bill. The person who transfers the bill is called the endorser, the person who receives the bill is called the endorsee. All rights and obligations under the bill are transferred to the endorsee. For bills of exchange executed with endorsements, all parties involved in them are jointly and severally liable, with the exception of the inscription “Without negotiability on me.”
Problem 1
The client bought a bill on August 10 at a price of 870,000 rubles. Nominal value is 10,000,000 rubles. On October 15, this bill was resold to another person at a price of 900,000 rubles. The maturity of the bill is 6 months.
Determine the yield on the security for each note holder.
Solution
IR1=
IR2=
Problem 2
A financial company purchased a bill of exchange worth 60,000,000 rubles. I received a discount of 10,000,000 rubles. The note was purchased 30 days before its maturity. Determine the profitability of the transaction for this financial company. DG – 360.
Topic 8. Derivatives
1. Definition of derivative securities. Characteristics of derivative financial instruments.
2. The essence of a forward contract.
3. The essence of the futures contract.
4. The essence of the option contract.
5. Securities market participants.
1. Derivative securities are securities that certify the right of their owner to buy or sell the underlying asset. The underlying asset can be commodities, stocks, bonds, government bonds, as well as currency and interest rates on borrowed funds. Derivatives of the Central Bank refer to urgent documents, i.e. to documents implementing the right contained in them, with a deadline for execution at a certain future date.
A sign of derivativeness or secondaryness is also the fact that the price of derivative securities is determined on the basis of the prices of goods, currencies, and securities that constitute their basis. The reasons for the creation of these financial instruments were the increased mobility of exchange rates of traditional central banks and interest rates on borrowed funds, in connection with which the task of seeking protection against the risks of transactions with currency, loans, and central banks became active.
These financial instruments allow, regardless of the requirement put forward at the beginning of the operation or the obligation assumed, to operate separately with risks, assessments, liquidity and, accordingly, for each of the investment characteristics, possible chances of anticipating risk are provided. There are 2 segments (markets) in the securities market:
spot;
urgent.
Securities of the same order are traded on the spot market. The derivatives market is a market for derivative financial instruments. Futures contracts are traded on the derivatives market. A fixed-term contract is an agreement for the future delivery of the subject of the contract. It performs 2 functions:
1) allows you to coordinate enterprise plans for the future;
2) allows you to insure price risks in uncertain economic conditions.
Futures transactions allow you to insure yourself against changes in prices of financial assets, exchange rates, interest rates, and commodity prices themselves. The attractiveness of the derivatives market lies in the fact that its instruments are highly profitable although high-risk objects of invested financial resources.
2. A forward contract is an over-the-counter agreement, binding, between the parties for the supply of a certain asset in an agreed volume, within a specified period (from 1 week to 5 years) at a fixed price. A forward contract is usually concluded to carry out the actual sale or purchase of the relevant asset and insure the supplier or buyer against possible adverse changes in price.
The party wishing to purchase the asset buys a forward contract, and the party agreeing to deliver the asset sells it. The first one opens a long position on the market, and the seller opens a short position. The buyer expects the price of the asset to increase by the time the contract expires, and the seller expects it to decrease.
A forward contract implies mandatory performance. Counterparties are not insured against non-fulfillment due to bankruptcy or bad faith of one of the parties to the transaction. Therefore, before concluding a contract, partners must find out each other’s solvency and reputation. A forward contract can be concluded for the purpose of playing on the difference in the exchange rate value of assets. A person who opens a long position expects the price of the underlying asset to rise, and a person who opens a short position expects it to fall. According to its characteristics, a forward contract is an individual contract, therefore the secondary market for forward contracts is very poorly developed.
3. A futures contract is an agreement between the parties on the future delivery of an underlying asset, which is concluded on the exchange. The exchange itself develops the terms of futures contracts and they are standard for each underlying asset. The exchange organizes a secondary market for futures contracts. The execution of futures contracts is guaranteed by the exchange (clearing house) after the contract is concluded, it is registered with the clearing house. From this moment on, the party to the transaction, both for the seller and the buyer, is the clearing house. Those. for the buyer she acts as a seller, and for the seller she acts as a buyer.
A futures contract is highly liquid because it is standard and guaranteed by a clearinghouse. This means that a trader can close an open position using an offset trade.
An offset transaction is the opposite transaction, i.e. the seller must buy and the buyer sell the contract, while participants in futures trading no longer bear the obligations of fulfilling the contract, but transfer them to their new counterparty. The result will be a win or a loss, depending on the price at which the participant closed and opened the position. If a participant wishes to make or take delivery, he will not liquidate his position until the day of delivery. In this case, the clearinghouse notifies him to whom he must deliver or from whom he must accept the underlying asset. The terms of some futures contracts may include non-delivery of bases. Asset, and mutual settlement in cash. As a rule, a futures contract is not concluded for the purpose of actual delivery, but for hedging and speculation.
In world practice, only about 3% of all concluded futures contracts end in delivery, the rest end in an offset transaction.
4. If an investor is confident in his forecasts regarding the future development of events in the market, he can enter into a futures contract, however, with erroneous forecasts or random deviations in the development of the market, the investor may suffer large losses. To limit his financial risk, he should turn to option contracts, which allow him to limit the risk of only a certain amount that the investor loses in the event of an unfavorable outcome of events. Otherwise, the winnings can be anything.
An option is a two-way contract that conveys the right (for the buyer) and the obligation (for the seller) to buy or sell a specified underlying asset at a specified fixed price within a specified period. The underlying asset can be securities and futures contracts.
The buyer of an option is the party to the contract who acquires the right to buy or sell, or to abandon the transaction. The buyer of the option has the right to exercise the option, i.e. buy or sell bases. asset at a price fixed in the contract. This is called the strike price. The execution price is set in the contra. the price at which the person who purchased the option subsequently has the right to buy or sell the underlying asset.
The seller of the option is the party to the contract who obliges to deliver or accept the transaction at the request of the buyer. The buyer of the contract pays the seller a fee called a premium. This is the option price. An options contact is an exchange-traded contract. The clearing house requires participants in an option transaction to pay a premium and collateral to secure the terms of the transaction. The peculiarity is that in a purchase and sale transaction the buyer does not acquire the title of owner of the securities. An option's expiration date is a date or period of time after which the option should not be exercised. There are different terms between European and American options. A European option means that the option can only be exercised on a fixed date (the day the contract expires). American provides for the option to be exercised within the expiration date (any day before the option expires).
Types of option:
1) to buy (call) - means the buyer’s right (but not the obligation) to buy securities to protect against (or in anticipation of) a potential increase in their exchange rate;
2) for sale (put) – allows the buyer to sell securities to protect against depreciation;
3) double option (stillage) - allows the buyer to either buy or sell at the exercise price.
Each option contract is concluded, as a rule, for a full lot (lot of identical securities) offered for sale (100, 1000, 10000). By writing an option, the seller opens a short position on this transaction, and the buyer opens a long position. Resp. The concept of a short call or put means selling an option, and a long call or put means buying them.
An option contract is not binding. The owner of the option can resell it or leave it unused. The risk of the buyer of the option is limited to the premium paid, and the risk of the seller is unlimited, the return is based on the premium.
5. All participants in the derivatives market can be divided into 3 groups:
1. hedgers;
2. speculators;
3. arbitrageurs.
A hedger is a person who insures price risks. The hedging mechanism comes down to concluding a futures contract in which the price is set at the base rate. asset.
A speculator is a person seeking to make a profit due to the difference in the exchange rate value of the securities that may arise over time. If a speculator predicts an increase in the value of the Central Bank, then he will play for an increase, i.e. buy a security in hopes of selling it later at a higher price. Such speculators are called “bulls”. If a speculator predicts a decrease in the value of the Central Bank, then he plays short, i.e. borrows a security and sells it in the hope of repurchasing it later at a lower price. Such speculators are called “bears”, and such transactions are called short sales or uncovered sales. Speculators usually carry out short-term transactions. When he starts an operation, they say that he opens a position, when he completes it, he closes it.
Arbitrageurs are individuals who make a profit by simultaneously buying and selling the same security in different markets if they have different prices. An arbitrageur sells a security on the exchange where it is more expensive, and buys it where it is cheaper. The difference in prices constitutes his profit, since both actions are performed simultaneously, there is no risk in such an operation. As a result of the actions of arbitrageurs, prices in different markets become identical again, because active purchases of a security on one exchange lead to an increase in its price, and sales on another - to its fall. The person carrying out such transactions must have good communication systems with various markets.
The same person can be both a speculator and an arbitrageur. The nature of his actions is determined by market conditions in a certain period of time.
Task
A participant in the derivatives market opened a long position in a futures contract for delivery of 100 shares in 3 months at a price of $30 per share.
Calculate the participant’s income (loss) if at the time of execution of the contract the market price of the share was:
a) $32
b) $30
c) $28
Solution
32 $ * 100 = 3200 $
30 $ *100 = 3000 $
28 $ * 100 = 2800 $
3000 $ - 3200 $ = 200 $
3000 $ - 3000 $ = 0 $
3000 $ - 2800 $ = - 200 $