Securities in a Global Market: Role of Financial Markets

Securities in a Global Market
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Securities in a Global Market
Financial securities provide the means through which various institutions such as the government, corporations and other small business raise funds to finance their daily operations. Lynch (2009) argues that securities are the safest way which organizations can use to raise funds at the same time ensuring that the investors get great returns. Also according to Lynch (2009), “Financial markets provide a platform that ensures there is openness between the sellers and buyers of the securities,” (Lynch, 2009). Additionally, financial markets mobilize the huge amounts of capital for use in the various institutions. The financial markets play an important role in creating economic wealth in the U.S.A.
Role of Financial Markets
The financial markets help the government in obtaining funds to finance some of its projects around the country. The governments borrows capital from some of the financial institutions, such as banks in the form of bonds and the general public to enable them to get enough capital to initiate some projects in the country such as developing the infrastructure such as the hospitals and other service oriented projects. Also, students are able to finance their studies which they could not have been able to undertake through loans that they get from the financial markets. They later contribute to the economy by adding labor.
Also, the financial markets contribute to economic growth in the country by ensuring that there is continuous saving in the country. The saved funds are later used to initiate projects that are projected by financial analysts to be having high yields within a specific period. This ensures and assures the country of economic stability through financial management within the major organizations that offer products and services to the citizens. They also ensure that there are reservations in borrowing from investors during financial crises and they are only used to initiate projects that are expected to yield high returns both in the short-run and long-run (Hillier, Grinblatt, & Titman, 2011).
General Overview of each Security
Equity securities are the major forms that many corporations in the U.S use to raise funds to finance their operations. An investor who lends funds through such a way gets the opportunity of obtaining shares of a certain company. One can buy securities directly from a company or through mutual funds. They can be obtained in the New York Stock Exchange (NYSE). These equity securities lend one an opportunity of obtaining stakes of a certain company becoming a shareholder.
Future Financial Contracts
These are exchange-traded instruments that represent a commitment of an investor to buy or sell a predefined amount of a certain asset at a predefined price on a specified date in the future. There are various assets that underlie the future financial contracts such as currencies, equity, interest rates, and commodities (agricultural products and precious ornaments or metals). They are leveraged instruments so that even if an investor invests in a future financial, he will not commit will not commit all of the assets as margins in the contract. Financial future contracts require the investor to retain at least 25% of its net asset value in form of deposits so as to meet liquidity and margin requirements (Kaplan, Martel, & Strömberg, 2007). It may also invest in some of the over-the-counter instruments. The future contracts try to make profits for the investor by undertaking a long term contract to capture the increasing price trends of the respective assets to be traded. They adopt the strategy of trend following and use of systematic models that guide the investments under the market conditions and pre-conditions.
Mutual Funds
For the past two decades mutual funds have become popular, once it was just an obscure financial instrument but now is one of the thing that many investors have coined into the daily lives. In the U.S one half of the American households have invested in mutual funds. To many investing means buying mutual funds in the markets but they do not what it real is. Investors become sponsors when the operate mutual funds. This type of investment pools money from the investor and collectively invests it in stocks, bonds and in other market instruments that are available. It is the most convenient form of investment to individual investors.
Quantitative parameters such as risk, volatility, adjusted returns are used to select the funds in the pool. The mutual funds of leading companies are made available to all customers through the financial markets. They are popular because provide the investors with the ability to easily invest in the complicated financial markets (Geczy, Stambaugh, & Levin, 2005).
Stocks
When an investor owns a share of stock of a certain company he becomes partly owns that company no matter how small the share is on every asset and penny in earnings. As the earnings of the company increases, more investors will be willing to pay for more stock. There are thousands of stocks that investors can choose from. The stocks are put into three different categories; size, style and sector.
Size
This is the size of the company that is selling the stock and refers to its market capitalization (price and number of outstanding shares). This is how the investors perceive the whole company. Companies ...