Download Finance and Investment: Institutional Investors, Capital Markets, and Securities Trading - and more Study notes Finance in PDF only on Docsity! 1. net supplier of funds o individuals as a group are net suppliers of funds (they put more money into the financial system than they take out) 2. institutional investor makeup/behavior o institutional investors--investment professionals who are paid to manage other people's money These professionals trade large volumes of securities for individuals, businesses, and governments. Institutional investors include financial institutions--banks, life insurance companies, mutual funds, and pension funds. For example, a life insurance company invests its premium receipts to earn returns that will permit payments to policyholders or beneficiaries. Institutional investors generally invest larger sums of money on behalf of others and therefore are often more sophisticated in investment knowledge and methods 3. capital gain calculation o capital gain/loss= # shares X (sell price - buy price) i.e. Joe bought 500 shares of stock at $10/share. A year later he sold all shares for $12/share. What is he capital gain/loss? capital gain/loss= $500(12-10)= $1,000 4. investor age group preferences o Young investors (ages 20-45) tend to prefer growth-oriented investments that stress capital gains rather than current income. Often young investors don't have much in the way of investable funds, so capital gains are viewed as the quickest (if not necessarily the surest) way to build capital. Young investors tend to favor growth-oriented and speculative (high risk) vehicles, particularly high-risk common stocks, options, and futures. o Middle age investors (ages 45-60) are in the consolidation phase of life. Family demands and responsibilities such as educational expenses and retirement contributions become more important. The whole portfolio goes through a transition to higher-quality securities. Low-risk growth and income stock, high-grade bonds, preferred stocks, convertibles, and mutual funds are all used at this age. o Investors in their retirement years (ages 60-?) are concerned with preservation of capital and current income. A secure, high level of income is paramount. Capital gains are viewed as merely a pleasant, occasional by-product of investing. The investment portfolio now becomes highly conservative. It consists of low-risk income stocks and mutual funds, high- yielding government bonds, quality corporate bonds, bank CDs, and other short-term vehicles. At this stage the investor reaps the rewards of a lifetime of saving and investing. 5. types of income to an individual o Active income consists of everything from wages and salaries to bonuses, tips, pension income, and alimony. Active income is made of up income earned on the job as well as most other forms of noninvestment income. o Portfolio income is earning generated from various types of investments. This category covers most (but not all) types of investments, from savings accounts, stocks, bonds, and mutual funds to options and futures. For the most part, portfolio income consists of interest, dividends, and capital gains. o Passive income is a special category of income, composed chiefly of income derived from real estate, limited partnerships, and other forms of tax-advantaged investments 6. levels of risk on various debt instruments 7. markets where long- and short-term securities are sold o money market--market where short-term securities are bought and sold o capital market--market where long-term securities are bought and sold primary market--the market in which new issues of securities are sold to the public secondary market--the market in which securities are traded after they have been issued; an aftermarket 1. broker market--the securities exchanges on which the two sides of a transactions, the buyer and seller, are brought together to trade securities national exchange New York Stock Exchange (NYSE) American Stock Exchange (AMEX) regional stock exchanges options exchanges futures exchanges 1. dealer market--the market in which the buyer and seller are not brought together directly by instead have their orders executed by dealers that make markets in the given security National Association of Securities Dealers Automated Quotation System (Nasdaq) over-the-counter (OTC) market 8. regulatory agencies and the markets they oversee o Securities and Exchange Commission (SEC)--federal agency that regulates securities offerings and markets
