(b) Explain the role of the stock exchange and the factors which determine the price of shares.
The Stock Exchange provide a market platform for buying shares.
The Stock Exchange acts on two levels, as a primary market, the Stock Exchange will liaise with investment banks and businesses that are looking to raise capital by selling shares. This process involves the business being 'listed' on the Stock Exchange or 'floating'.
However, much of the Stock Exchange's work is as a secondary market. People buying shares may wish to do so for a variety of reasons - to secure dividends or to see the price of the shares rise, for example.
To facilitate this process the market has two main 'players' - stock brokers and market makers.
Stockbrokers act on behalf of clients, buy and sell shares on their behalf and generally belong to firms who are members of the Stock Exchange.
Market makers simply buy and sell shares on their own account but make their money on the difference between the price they pay for buying shares and what they sell them for. This difference is called the 'spread'.
The London Stock Exchange is one of the oldest exchanges in the world, and also one of the most prestigious, supplying high-quality prices, news and other information to the financial community, not just in the UK but across the world.
Many factors determine the price of shares, for example, news, positive news about a company can increase buying interest in the market while a negative press release can ruin the prospect of a stock.
Demand and supply concept, when more people are buying a certain stock, the price of that stock increases and when more people are selling he stock, the price of that particular stock falls.
Earning Per Share - It is mandatory for every public company to publish the quarterly report that states the earning per share of the company on the last quarter. This is perhaps the most important factor for deciding the health of any company and they influence the buying tendency.
For example, since April 20, BP's share price has fallen over 34% because of the oil spill, including a huge 13% fall early this week.
BP is a major component of the FTSE 100 index - it currently comprise 6.1% of the value of basket of shares that make up the index.
Showing posts with label stock exchange. Show all posts
Showing posts with label stock exchange. Show all posts
Saturday, 19 June 2010
Issues related with central government - Stock Exchange (part one)
You are covering a story concerning a local company about which there have been rumours relating to a possible hostile take-over bid. On a day when the FT 100 Share Index fell 250 points, the value of the company's ordinary shares increased significantly.
There have been reports that the Office of Fair Trading might refer any take-over to the Competition Commission.
(a)Explain what is meant by the terms:
FT 100 Share Index (stating also why it is important): the Financial Times Stock Exchange 100 Share Index (to use its full title) is the most famous of a number of 'indices', or lists, of major companies listed on the London Stock Exchange.
It lists the hundred highest valued companies at any one time, in order of their share value.
Ordinary shares: They are known as equity shares and they are the most common form of share in the UK.
An ordinary share gives the right to its owner to share in the profits of the company (dividends) and to vote at general meetings of the company.
Ordinary shares are the riskiest form of investment in a company since there may be no dividends paid and the market value of shares might fall after they have been bought.
The Ryanair share price fell so dramatically in mid-January 2004 because the company announced that its profits for the current financial year would probably be worse than they had previously expected.
Competition Commission: formerly the 'Monopolies and Mergers Commission' (MMC), this regulatory quango vets prospective company mergers and takeovers to ensure that they are not likely to have the effect of compromising free market competition.
Office of Fair Trading: a national regulatory quango established to ensure that free and fair competition operates in a given market for the benefit of the consumer on a day-to-day basis.
The OFT investigates complaints about restrictive practices, cartels, and other anti-competitive behaviour.
Plc: Plc stands for Public limited company, these companies have at least two shareholders and may offer shares to the public. Their owners will 'float' them and they will be listed on the London Stock Exchange.
They must have issued shares to the value of £50,000 before being allowed to trade. Larger plcs are often referred to as blue chip companies, and include household names such as BP and Marks and Spencer.
Hostile takeover: When a company takes over another company against its will, it is a hostile takeover.
A hostile takeover is an acquisition in which the company being purchased doesn't want to be purchased, or doesn't want to be purchased by the particular buyer that is making a bid. It is just like how can someone buy something that is not for sale?
Hostile takeovers only work with publicly traded companies. That is, they have issued stock that can be bought and sold on public stock markets.
The two primary methods of conducting a hostile takeover are the tender offer and the proxy fight.
A tender offer is a public bid for a large chunk of the target's stock at a fixed price, usually higher than the current market value of the stock.
In a proxy fight, the buyer need to convince the shareholders to vote out current management or the current board of directors in favour of a team that will approve the takeover.
While companies fight tooth and nail to prevent hostile takeovers, it isn't always clear why they're fighting. Because the acquiring company pays for stocks at a premium price, shareholders usually see an immediate benefit when their company is the target of an acquisition.
Some analysts feel that hostile takeovers have an overall harmful effect on the economy, in part because they often fail.
There have been reports that the Office of Fair Trading might refer any take-over to the Competition Commission.
(a)Explain what is meant by the terms:
FT 100 Share Index (stating also why it is important): the Financial Times Stock Exchange 100 Share Index (to use its full title) is the most famous of a number of 'indices', or lists, of major companies listed on the London Stock Exchange.
It lists the hundred highest valued companies at any one time, in order of their share value.
Ordinary shares: They are known as equity shares and they are the most common form of share in the UK.
An ordinary share gives the right to its owner to share in the profits of the company (dividends) and to vote at general meetings of the company.
Ordinary shares are the riskiest form of investment in a company since there may be no dividends paid and the market value of shares might fall after they have been bought.
The Ryanair share price fell so dramatically in mid-January 2004 because the company announced that its profits for the current financial year would probably be worse than they had previously expected.
Competition Commission: formerly the 'Monopolies and Mergers Commission' (MMC), this regulatory quango vets prospective company mergers and takeovers to ensure that they are not likely to have the effect of compromising free market competition.
Office of Fair Trading: a national regulatory quango established to ensure that free and fair competition operates in a given market for the benefit of the consumer on a day-to-day basis.
The OFT investigates complaints about restrictive practices, cartels, and other anti-competitive behaviour.
Plc: Plc stands for Public limited company, these companies have at least two shareholders and may offer shares to the public. Their owners will 'float' them and they will be listed on the London Stock Exchange.
They must have issued shares to the value of £50,000 before being allowed to trade. Larger plcs are often referred to as blue chip companies, and include household names such as BP and Marks and Spencer.
Hostile takeover: When a company takes over another company against its will, it is a hostile takeover.
A hostile takeover is an acquisition in which the company being purchased doesn't want to be purchased, or doesn't want to be purchased by the particular buyer that is making a bid. It is just like how can someone buy something that is not for sale?
Hostile takeovers only work with publicly traded companies. That is, they have issued stock that can be bought and sold on public stock markets.
The two primary methods of conducting a hostile takeover are the tender offer and the proxy fight.
A tender offer is a public bid for a large chunk of the target's stock at a fixed price, usually higher than the current market value of the stock.
In a proxy fight, the buyer need to convince the shareholders to vote out current management or the current board of directors in favour of a team that will approve the takeover.
While companies fight tooth and nail to prevent hostile takeovers, it isn't always clear why they're fighting. Because the acquiring company pays for stocks at a premium price, shareholders usually see an immediate benefit when their company is the target of an acquisition.
Some analysts feel that hostile takeovers have an overall harmful effect on the economy, in part because they often fail.
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