In fact, any company trying to price its public issue higher than its market price is being silly. For that matter any company trying to price any of its products higher than the market price is being silly. It should be obvious, that in such a case the investor (or the customer) will eject the offered share (or the product) outright, unless the higher price is qualitatively justified or he is ill informed. True, there have been many instances following the free pricing policy where companies have priced their issues higher than the market price. But these are errors of judgment, which a company soon comes to learn and learns to correct. However, one important reason for the propensity of companies to price their shares unduly high may be attributed to their mistaken notion that the higher the price at which a company issues its Continue reading
Stock Investments
Factors Contributing to the Growth of Derivatives
Factors contributing to the explosive growth of derivatives are price volatility, globalization of the markets, technological developments and advances in the financial theories. 1. Price Volatility A price is what one pays to acquire or use something of value. The objects having value maybe commodities, local currency or foreign currencies. The concept of price is clear to almost everybody when we discuss commodities. There is a price to be paid for the purchase of food grain, oil, petrol, metal, etc. the price one pays for use of a unit of another persons money is called interest rate. And the price one pays in one’s own currency for a unit of another currency is called as an exchange rate. Prices are generally determined by market forces. In a market, consumers have ‘demand’ and producers or suppliers have ‘supply’, and the collective interaction of demand and supply in the market determines Continue reading
Commodity Futures – Meaning, Objectives and Benefits
What is “Commodity” and “Commodity Exchange”? Any product that can be used for commerce or an article of commerce which is traded on an authorized commodity exchange is known as commodity. The article should be movable of value, something which is bought or sold and which is produced or used as the subject or barter or sale. In short commodity includes all kinds of goods. Indian Forward Contracts (Regulation) Act (FCRA), 1952 defines “goods” as “every kind of movable property other than actionable claims, money and securities”. A commodity exchange is an association or a company or any other body corporate organizing futures trading in commodities for which license has been granted by regulating authority. In current situation, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for commodity trading recognized under the FCRA. The national commodity exchanges, recognized by the Central Government, permits commodities Continue reading
Portfolio Revision Strategies in Investment Portfolio Management
Meaning of Portfolio Revision A portfolio is a mix of securities selected from a vast universe of securities. Two variables determine the composition of a portfolio; the first is the securities included in the portfolio and the second is the proportion of total funds invested in each security. Portfolio revision involves changing the existing mix of securities. This may be effected either by changing the securities currently included in the portfolio or by altering the proportion of funds invested in the securities. New securities may be added to the portfolio or some of the existing securities may be removed from the portfolio. Portfolio revision thus leads to purchases and sales of securities. The objective of portfolio revision is the same as the objective of portfolio selection, i.e. maximizing the return for a given level of risk or minimizing the risk for a given level of return. The ultimate aim of Continue reading
Intermediary Participants in the Derivatives Market
The intermediary participants in the derivatives market are as follows: 1. Brokers For any purchase and sale, brokers perform an important function of bringing buyers and sellers together. As a member in any futures exchanges, may be any commodity or finance, one need not be a speculator, arbitrageur or hedger. By virtue of a member of a commodity or financial futures exchange one get a right to transact with other members of the same exchange. This transaction can be in the pit of the trading hall or on online computer terminal. All persons hedging their transaction exposures or speculating on price movement, need not be and for that matter cannot be members of futures or options exchange. A non-member has to deal in futures exchange through member only. This provides a member the role of a broker. His existence as a broker takes the benefits of the futures and options Continue reading
Meaning of Bonus Shares
The term bonus issue also called as stock dividend means an extra dividend paid to shareholders in a company from additional profits. When large fund gets accumulated out of profits of a company much beyond its expectations and needs, the company’s directors may decide to share out a part of it among the existent shareholders of company in the form of bonus. Bonus can be paid in two forms either in cash or in form of shares. The company pays cash bonus when it gains large amount of profits as well as cash to pay dividend. But many a times, it happens that a company is not in a position to pay bonus in cash though it has enough amounts of profits because of poor cash position or because of its unfavorable effects on the working capital of the company. In such a situation, the company pays a bonus to Continue reading