Markets Chapter 6 Fundamentals of Financial Services - PowerPoint Presentation

1. MarketsChapter 6Fundamentals of Financial Services

2. Lesson ObjectivesBy the end of the lesson:Everyone MUST be able to:Explain the function of a stock exchangeExplain the purpose of a stock exchangeList the following stock market indices and which markets they belong: Dow Jones Industrial AverageS&P 500FTSE 100DAXHang SengNikkei 225

3. Stock ExchangesThey began simply as meeting places where investors gathered to discuss companies and their shares, and to trade sharesAs they became more formal, these meeting places became the trading floors of exchanges, where traders made deals face to face.Today, many of these exchange floors have been replaced by sophisticated electronic dealing systems run on computer systems that now operate in major cities throughout the world.A stock exchange is simply a place where financial instruments can be bought or sold.

4. Stock ExchangesA short video clip introducing the stock exchange and how it works.Watch the video clip and jot down 4 main points about how a stock exchange works.Be prepared to share your points !

5. Stock ExchangesA stock exchange is simply a place where financial instruments can be bought or sold.STOCK EXCHANGEFinancial InstrumentsSellersCashCashFinancial InstrumentsBuyers

6. STOCK EXCHANGESEquities can be bought and sold on the following world famous exchanges:New York Stock Exchange (NYSE)London Stock Exchange (LSE)Abu Dhabi Securities Exchange (ADX)Singapore Exchange (SGX)Colombo Stock ExchangeJohannesburg Stock Exchange (JSE)Tadawul (Saudi Arabia)Most countries have their own stock exchange.An exchange is like a market place where buyers and sellers “meet” to trade in equities.Most of these transactions are now completed electronically

7. Case Study: RogerRoger holds shares in an international oil company that he is considering selling. He goes to the nearest stock exchange, where he finds other buyers and sellers of shares have gathered and he is able to find someone who is willing to pay a price that he considers reasonable for his oil company shares.Roger will probably use the services of a member firm, such as a bank, to put his wish to sell the oil company shares onto the exchange’s computer system.The exchanges system may have a number of interested parties that have already expressed a wish to buy the oil company’s shares.As long as Roger is willing to sell at the same price that a purchaser is willing to buy, the exchange's system will match Roger’s order to buy with the appropriate order to sell.The exchange will then make arrangements to transfer ownership of the shares to the new owner and transfer the cash proceeds to Roger.FUNCTION of Stock ExchangeFacilitate trading in financial instruments, particularly shares – enabling sellers to sell their investments and enabling interested buyers to purchase investments.

8. IPOsStock exchanges trade shares in listed companies.Generally, to become a listed company:The company needs to be well establishedThe company needs to be large enough to attract sufficient trading in their sharesInitial Public Offering (IPO)A company goes public when shares are offered to the public for the first time Raises Money The Facebook IPO raised around $16 billion: $7billion for the company and the other $9 billion for some earlier investors to sell some, or all, of their shares.Increases the public profile and awareness of the company Increases liquidity After an IPO, shares are much easier to buy or sell as they are now traded on a stock exchange

9. Stock Market IndicesMeasures aggregate price movements of companies’ shares on an exchangeProvide a snapshot of how share prices are performing in a particular stock market, or across several markets.Single market indicesMeasures price movements of companies’ shares listed on one stock exchangeGlobal market indicesMeasures price movements of companies’ shares listed on various exchanges internationallyInvestors can gauge the overall performance of the marketSmoothens out anomalies and provide a consistent picture of the mood across the market.Provides a benchmark for investors - assess whether their portfolios of shares are doing better (outperforming) or worse (underperforming) than the market in general.

10. Stock Market Indices ExamplesFTSE 100UK‘Footsie’Largest 100 UK companiesCovers 70% of the UK market valueDow JonesIndustrial Average(DJIA)USAA narrow view of the US stock market30 stocksS&P 500USAA wider view of the US stock market500 stocksChinaHang Seng Index58 stocksGermanyDAX30 stocksJapanNikkei 225225 stocks

11. Research ActivityWhich index (or indices) are the following 15 companies included within?Company NameWhich index/indices?AdidasAppleBarclaysBPCanonCathway Pacific AirwaysCoca-ColaExxon MobilHondaHSBCMcDonald’sSharpSonyToyotaVolkswagen

12. PlenaryHave you met the learning objectives?Use your learning objectives sheet to assess your learning.