ii) Financial Products

7) Stock pg. 74

Basic Stock Analysis

• What is a stock ?

A stock is a share of ___________ of a Company

• As the owner of a stock you have a claim on the company’s assets and _________

Share Certificates-

• What does each share certificate represent ?

• We can say share certificates represent ownership of a number of stocks or shares

• In the example in the video what is mentioned.

ROE vs. EPS

• ROE is a measure of how efficient a company is at generating profits. It measures a company’s net income as a percentage of it’s __________ _____________

• EPS is an indicator of a company's profitability.

EPS pg 74.

Is a measure of a Company’s profit.

How is it calculated ?

EPS = Profit – Dividends Outstanding Shares

What are Outstanding shares ? Shares currentlyowned by Shareholders.

Lets look at two Companies EPS

• COMPANY A: PROFIT $1 000 000 • DIVIDENDS $ 200 000 • OUTSTANDING SHARES $ 100 000

• COMPANY B: PROFIT $ 2 000 000 • DIVIDENDS $ 200 000• OUTSTANDING SHARES $ 300 000

• Can you work out the EPS for these company ?- Who can work it out first ?

Company A vs. B analysis• We can see that Company A reported

a higher EPS ($8) vs. Company B ($6) even though company B reported twice the profits of A.

• We can use EPS to _________ratios that will help __________ two companies to each other.

• This calculation is used along with others in deciding on a company to invest in.

TWO types of Dividends pg 74

• Dividends come in two types: • 1. Fixed and 2. Variable.

• What is the difference ?

• Dividends that pay a fixed rate go to owners of Preferred Stock whereas dividends that pay a variable rate go to Common Stock holders.

Why do companies issue preferred stock ? pg 74

• Usually because their investors demand it.

• Simply, preferred Stock is stock which is “preferred” over common stock because;

• Does anybody know why it is preferred ?

• The answer is in the last paragraph of pg 74

Preferred stock is a safer claim against a firm.

• preferred stock may be entitled to dividends before common stock;

• preferred stock holders may have special voting rights at shareholders meetings

2) Stock Exchange pg 76• p76 : 「定義」について

• "Stock Exchange is a voluntary organization...."

• These days the stock exchanges in the developed countries are mainly stock corporations (limited companies).

• Therefore they are not voluntary organizations any more.

• In Japan such a structural change occurred in May, 2000, when the Securities and Exchange Act was changed.

Primary vs. Secondary Markets

• The Primary Market deals with the issuance of new securities.

• It is where new securities (an IPO) for example are sold for the first time.

• Does anybody know of any examples of recent or upcoming IPO’s ?

Primary vs. Secondary Markets cont.

• The Secondary market is the place where previously issued securities are bought and sold.

• The NYSE and the TSE are big exchanges and examples of the secondary market.

Secondary Market Mergers

• The proposed merger between the TSE and the OSE.

• Will create Japan’s largest exchange group and strengthen the TSE’s position as the third largest in the world by market capitalization of company listings.

4) Trading pg 80

• Lets shadow this extract.

• What are some of the popular day trading platforms in Japan?

• Volatility increased by more people speculating. (Speculation)

8) Bond pg 86

• Discussion on this material and Bond Basics.

• Q and A

• What does a bond represent ? • _____________________• Who issues bonds and why ?• _____________________• Lets have a look at the key differences

between Stocks and Bonds. (from 37 seconds)• http://www.investopedia.com/video/play/stocks-versus-bonds#axzz1kLZl7LpG

Different types of Bonds pg. 90

• Government Bonds – What is the coupon on the 10year JGB approximately ?

• Corporate bonds/ Municipal Bonds and Junk Bonds

• Please ask a question on this short extract.

5) Rating -

• What are the three major Credit Ratings Agencies?

• Can anybody list them ?

• The downgrade stripping _________ of it’s triple A or AAA was announced on Friday the 13th.

5） Ratings continued

• Institutional and individual investors rely on ratings agencies and their in-depth research to make investment decisions.

• There is currently a lot of debate about CRA’s.

• Good investment firms will not rely solely on the bond rating agency's rating and will supplement their research with their own in-house research department.

9) Foreign Exchange pg. 98

• Foreign Exchange (FX) services use a global currency __________to provide both business, and private clients with added value when exchanging currencies, and transferring money abroad.

• Foreign currency hedges are often used by ___________and ______________ to limit exchange rate risk. (see forward contracts pg 104)

10) Derivatives pg. 110• Futures contracts : - are

___________between two parties to buy or sell an asset at a predetermined future date and price.

• Derivatives can protect producers and suppliers from_________________

• Values depend on the prices of other more basic variables- (This is referred to as the underlying) – any examples ? CDS, MBS

5) Hedge pg. 118

• Please separate the definitions of Hedge on pg. 118 into two separate pieces.

• 1.Any combination of positions in securities and options in which one position tends to reduce the risk of another;

• 2. any strategy used to offset investment risk.

Arbitrage and Leverage • Two concepts and keywords you should try to

remember.

• Concept of Arbitrage

• Arbitrage is defined as the ___________of securities on one market for immediate ____________on another market in order to profit from a price__________. This results in immediate risk-free __________.

Concept of Leverage

• Leverage is a general term for any technique to __________gains and losses. Common ways to use leverage are __________ money, buying fixed assets and using derivatives