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A stock market or equity market is a public entity (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of companystock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The size of the world stock market was estimated at about $36.6 trillion at the beginning of October 2008.[1] The total world derivatives market has been estimated at about $791 trillion face or nominal value,[2] 11 times the size of the entire world economy.[3] The value of the derivatives market, because it is stated in terms ofnotional values, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price.
History
In 12th century France the courretiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. A common misbelief is that in late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurze, and in 1309 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting, but actually, the family Van der Beurze had a building in Antwerp where those gatherings occurred;[7] the Van der Beurze had Antwerp, as most of the merchants of that period, as their primary place for trading. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Rotterdam. In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. Italian companies were also the first to issue shares. Companies in England and the Low Countries followed in the 16th century.
Share trading
Companies issue shares of their company in order to raise capital. Share trading is the exchange of securities between two individuals or brokerage firms. The shares must be registered with a stock exchange such as the New York Stock Exchange (NYSE) or the National Association of Securities Dealers Automated Quotation System (NASDAQ).
History
Regulated share trading first begun in 1698 when the London Stock Exchange was formed. John Castaing founded the London Stock Exchange in a coffee shop with only a few stocks and commodities. A commodity is a physical good such as an orange or grain that can be exchanged with a similar product which traders buy and sell under a futures contract, which is a legal agreement that states the goods will be delivered at a specified date and price. Since 1698 dozens of various stock exchanges have emerged.
Function
The exchange of shares of a company is intended to help adjust the intrinsic value of a security. Many factors change the price of securities such as global news and company reports. Through exchanging shares of a company, the intrinsic value of a security is represented.
Features
Investors buy and sell securities in order to create a profit. The intention is to buy and then sell at a higher price to make a profit. This can be done through investing in a company through buying shares or through short selling and an options contract. Short selling is the process of borrowing shares of a company from a broker to sell the shares, then buying the shares back in order to compensate the broker. An option is a legal agreement which provides the buyer the power to sell or buy a share at an agreed upon price.
Effects
The exchange of shares of a company by individual investors helps create liquidity in the market. Liquidity is the ability to convert a security into cash. In addition, the price at which the security is exchanged helps reflect the value of the company. Many companies receive financing based on the current price per share of their company. Thus, if the stock is traded at a high price the company is more likely to receive a good financing deal.
Definition of 'Subsidiary'
A company whose voting stock is more than 50% controlled by another company, usually referred to as the parent company or holding company. A subsidiary is a company that is partly or completely owned by another company that holds a controlling interest in the subsidiary company. If a parent company owns a foreign subsidiary, the company under which the subsidiary is incorporated must follow the laws of the country where the subsidiary operates, and the parent company still carries the foreign subsidiary's financials on its books (consolidated financial statements). For the purposes of liability, taxation and regulation, subsidiaries are distinct legal entities. A subsidiary company, subsidiary, or sister company[1] is a company that is completely or partly owned and partly or wholly controlled by another company that owns more than half of the subsidiary's stock.[2][3] The subsidiary can be a company, corporation, or limited liability company. In some cases it is a government or state-owned enterprise. The controlling entity is called itsparent company, parent, or holding company.[4] An operating subsidiary is a business term constantly used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity, locomotives and rolling stock. In contrast, a nonoperating subsidiary would exist on paper only (i.e. stocks, bonds, articles of incorporation) and would use the identity and rolling stock of the parent company. Subsidiaries are a common feature of business life, and all multinational corporations organize their operations in this way.[5] Examples include holding companies such as Berkshire Hathaway,[6]Time Warner, or Citigroup; as well as more focused companies such as IBM, or Xerox Corporation. These, and others, organize their businesses into national and functional subsidiaries, oftentimes with multiple levels of subsidiaries.
The objectives of SLR are to restrict the expansion of bank credit. 1. 2. To augment the investment of the banks in government securities. To ensure solvency of banks. A reduction of SLR rates looks eminent to support the credit growth in India.
are offered as securities in a repurchase agreement. Typically, in this agreement, a prospective seller submits the instruments for cash, with a promise to repurchase them from the buyer at a specified time. The sum being repaid is always greater than the sum received at the time of agreement. The difference amount is termed as repo rate.
Repo rate
The discount rate at which a central bank repurchases government securities from the commercial banks, depending on the level of money supply it decides to maintain in the country's monetary system. To temporarily expand the money supply, the central bank decreases repo rates (so that banks can swap their holdings of government securities for cash). To contract the money supply it increases the repo rates. Alternatively, the central bank decides on a desired level of money supply and lets the market determine the appropriate repo rate. Repo is short for repossession.
Definition of 'Indemnity'
Compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability for damages. The concept of indemnity is based on a contractual agreement made between two parties, in which one party agrees to pay for potential losses or damages caused by the other party. A typical example is an insurance contract, whereby one party (the insurer) agrees to compensate the other (the insured) for any damages or losses, in return for premiums paid by the insured to the insurer. Under section 4 of the Statute of Frauds (1677), a "guarantee" (an undertaking of secondary liability; to answer for another's default) must be evidenced in writing. No such formal requirement exists in respect of indemnities (involving the assumption of primary liability; to pay irrespective of another's default) which are enforceable even if made orally. (Ref: Peel E: "Treitel, The Law of Contract") In the UK, under the Unfair Contract Terms Act 1977 s4, a consumer cannot be made to unreasonably indemnify another for their breach of contract ornegligence.