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The Over-the-counter Market



Once a stock or bond has been issued, its owner is entitled to sell it to anybody else, at any time, at any price that can be agreed on. The transaction can be completed privately, but most people enlist the services of a specialized middleman. An over-the-counter dealer plays essentially the same role in the securities market that a used car dealer does in the used car market. He buys securities from individual owners for resale to others at slightly higher prices, getting his commission from the difference between the buying and the selling prices. Since over-the-counter dealers are organized into a National Association of Security Dealers, there is a nationwide competitive market. Most securities are unlisted. Quotations of security prices being paid (bid) and charged (asked) by dealers are published in the daily financial pages.

Organized Stock Exchanges

As in any other part of the economic system, greater specialization in securities trading is possible in more extensive markets. Securities that are bought and sold in large volume every day are traded through highly organized special markets called organized stock exchanges.

A stock exchange (or a securities exchange) is an institution set up by brokers at a permanent location for buying and selling securities. The securities bought and sold at these exchanges are called listed securities.

An organized stock exchange is an institution with a limited membership, whose members are permitted to trade securities with each other. Since only members are permitted to conduct business on the exchange, others who want to buy or sell in this way must employ members to act on their behalf.

Trading among members of each exchange is restricted to a special list of securities and the stocks and bonds of corporations not listed on the exchange cannot be bought or sold there. Each exchange has established rules governing which securities can be listed for trading. Among other requirements, securities are listed only if they are traded in sufficient volume to make it worthwhile. In addition, before a security can be listed, it must have been outstanding long enough to have «seasoned». Securities of young companies, for example, are not listed. Moreover, the listed corporation must agree to file certain reports with the SEC (Securities and Exchange Commission).

There is an organized stock exchange in almost every major U.S. city, but most of these are small and limit their lists largely to the securities of local firms. The securities of most large, nationally known corporations are traded on the two large New York exchanges: the New York Stock Exchange and the American Stock Exchange.

The New York Stock Exchange (NYSE) is the most important U.S. Securities exchange and one of the three largest exchanges in the world. The American Stock Exchange (AMEX) is also a national exchange, but it is smaller than NYSE.

 

 

Text 4 Learn How to Read a Stock Price Quotation

Stock and Bond prices – the prices of stocks and bonds on the securities exchange and the over-the-counter market are reported in many daily newspapers.

Stock Prices - several important kinds of information are presented in a stock quotation.

1. The stock quotation usually starts with the stock’s 52 week high and low.

2. The stock’s name is then presented in abbreviated form.

3. Next is shown the annual dividend and then the yield (interest rate) the stock is paying.

4. Next is the price earnings ratio and then the total number of shares traded.

5. The next two columns typically show the high and low price on the date shown and the closing price.

Bond Prices are expressed in terms of 100, although most bonds have a par value of $1000.

Stock and Bond prices Averages—lists show the average price of a group of stocks or bonds.

 

Assignment to text 5:

1. Read the text given in a jumbled order and put the paragraphs in the correct order.

2. How many logical parts can you distinguish?

3. Match the following headings with the parts:

· Don’t make a costly mistake!

· Why are the pyramid schemes dangerous?

· What is a pyramid scheme?

· How does the pyramid work?

 

Text 5 The Pyramid Scheme.

Don`t make a costly mistake!

- Thousands of Americans have lost millions of dollars participating in pyramid schemes. Many of the victims knew they were gambling (although they didn’t know the odds were rigged against them). Many others, however, thought they were playing for help in starting a small business of their own. These people were fooled by pyramid schemes disguised to look like legitimate businesses.

- In reality, however, the supply of participants is limited, and each new level of participants has less chance of recruiting others and a greater chance of losing money.

- Things you should know about pyramid schemes:

· There are losers. Pyramiding is based on simple mathematics: many losers pay a few winners.

· They are fraudulent. Participants in a pyramid scheme are, consciously or unconsciously, deceiving those they recruit.

· They are illegal.

- To join, you might have to pay anywhere from a small investment to thousands of dollars. For example, $1000 buys a position in one of the boxes on the bottom level. $500 of your money goes to the person in the box directly above you, and the other $500 goes to the person at the top of the pyramid, the promoter. If all the boxes on the chart fill up with participants, the promoter will collect $16000, and you and the others on the bottom level will each be $1000 poorer. When the promoter has been paid off, his box is removed and the second level becomes the top of payoff level. Only then do the two people on the second level begin to profit. To pay off these two, 32 empty boxes are added at the bottom, and the search for new participants continues.

- Of course, the pyramid may collapse long before you reach the top. In order for everyone in a pyramid scheme to profit, there would have to be a never-ending supply of new participants.

- Each time a level rises to the top, a new level must be added to the bottom, each one twice as large as the one before. If enough new participants join, you and the other 15 players in your level may make it to the top. However, in order for you to collect your payoffs, 512 people would have to be recruited, half of them losing $1000 each.

- The purpose of this discussion is to help you avoid falling victim to pyramid schemes, whether simple or disguised. Simple pyramid schemes are similar to chain letters, while disguised pyramids are like wolves in sheep’s clothing, hiding their true nature in order to fool potential investors and evade law enforces. What is a pyramid scheme?

- Pyramid schemes are illegal scams in which large numbers of people at the bottom of the pyramid pay money to a few people at the top. Each new participant pays for the chance to advance to the top and profit from payments of others who might join later.

 

 

Discussion:

These are some helpful word-combinations in addition to the glossary that you should translate, memorise, and use while discussing the texts:

to contribute cash, to raise funds, to spend time and money, to make a sound judgement, to collect a commission, to follow a procedure, to examine for accuracy, to take at wholesale, to sell at retail, to perform a service, to disclose information, to lack information, to offer for sale, to become effective, to contact brokerage house (broker), to complete a transaction.

1. Discuss the functions and the role of investment banks.

2. Explain what SEC is and its role in business.

3. Draw a line of comparison between the American securities market and the Russian one.

4. What do you think about the system of securities regulation in the USA and in Russia? Compare the systems.

5. Investigate securities scandals in the USA and Russia. Include in your report the background of each, how the business was organized, for how long the pyramid existed.

For your notes:








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