Chapter 4 - equities

  • Created by: sophie000
  • Created on: 23-11-18 10:44
Documets to form a company
memorandum of association and articles of association
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Types of equities
ordinary shares = carry full risk and reward and sharholders are owners of company. Preference shares = a hybrid security with elements of debt and equity
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Risk of owning shares
market and price risk, liquidity risk and issuer risk
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Issuer risk
the risk that the issuing company collapses and the ordinary shares become worthless
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Capital gains
made on shares if their prices icrease over time
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Shares are issued on registered or bearer form
registered form = involves the investors name being recorded on the share register. earer form = the person who holds the shares is the owner
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Corporate action
occurs when a company does something that affects is shareholders or bond holders
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Mandatory corporate action
one mandated by the company, with no interventions
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Mandatory corporate action with options
has some sort of default option that occurs if the sharegolder does not intervene
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Voluntary corporate action
requires shareholders to make decision
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Dividends
represent the part of a company's profit that is passed to its shareholders - mandatory corporate action
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Advantages for listing
raise capital, takeovers and mergers, status, employee stock options
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Disadvantages for listing
risk of takeovers, short termism of investors
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Rights issue
raising additional finance by issuing new shares
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Bonus issue
when the company gives existing shareholders extra shares without having to subscribe any further funds
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Dividend yield
dividend/market capitalisation x 100
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Settlement
the process through which legal title of a security is transferred from seller to buyer in exchange for the equipment value in cash
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On-exchange trading
when the trading is conducted through a recognised stock exchange
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Quote-driven systems
employ market makers to provide continuous two way, or bid and offer, prices during the trading day
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Order-driven systems
employs either an electornic order book such as the LSE's SETS or an auction process
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Other cards in this set

Card 2

Front

Types of equities

Back

ordinary shares = carry full risk and reward and sharholders are owners of company. Preference shares = a hybrid security with elements of debt and equity

Card 3

Front

Risk of owning shares

Back

Preview of the front of card 3

Card 4

Front

Issuer risk

Back

Preview of the front of card 4

Card 5

Front

Capital gains

Back

Preview of the front of card 5
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