1) Why are stock markets the most watched and reported of the financial security
ID: 2699423 • Letter: 1
Question
1) Why are stock markets the most watched and reported of the financial security markets?
2) What is a market order? What is a limit order? How are each executed?
3) Suppose a firm has 15 million shares of common stock outstanding and six candidates are up for election for five seats on the board od directors
a. If the firm uses cumulative voting to elect its board, what is the minimum number of votes needed to ensure elections to the board?
b. If the firm uses straight voting to elect its board, what is the minimum number of votes needed to ensure election to the board?
4) What is a derivative security?
5) What are the differences between a spot contract, a forward contract, and a futures contract?
Explanation / Answer
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A market order is a buy or sell order in which the broker is to execute the order at the best price currently available. So here is how it works say you want to buy ten shares of company XYZ. You put in a market order for ten shares and hit the execute button. The stock order will automatically be matched up with the current market price and executed. The bad thing about a market order is that you could end up paying a lot more for a stock than you intended on doing. If you put in a market order for a stock and suddenly the price jumps ten dollars higher a share then you have to be able to cover the increase in the stock price. Market orders can be used in both the buying and selling of stock. People interested in trading volatile stocks should shy away from using market orders due to the fact that they could end up paying a much higher price for a stock than they expected to.
Limit Order -
A limit order is an order to a broker to buy a specified quantity of a security at or below a specified price, or to sell it at or above a specified price (called the limit price). If you want to buy ten shares of XYZ at ten dollars a share then your order will be automatically executed when the share price hits ten dollars a share. Limit orders can be used in both the buying and selling of stock. For the average investor I feel that limit orders are the best. In fact when I use trade with my online account I only use limit orders. With the limit order you are certain of the price at which your stock will be bought or sold so there are no surprises. Another great aspect of the limit order is the fact that your orders can be placed and executed while you are busy at work or enjoying a game of golf. On the downside it may take a long time for the stock price to get to the same place as your limit order.
I think the limit order is the best bet for most investors. You will always know how much you are putting in and how much you are getting out of a stock. Some online brokers charge the same price for all orders placed while others charge more for a limit order than for a market order. Most people will feel better spending a few extra dollars to place a limit order than risking hundreds or even thousands of dollars in a possible fluctuation in a stocks price when using a market order.
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A derivative security, also known as a derivative stock, is a financial instrument whose price is dependent on one or a number of underlying financial assets. In itself, the derivative security is no more than an agreement between two contracted parties to buy or sell an asset at a fixed price on or before a date of expiration. The value of the security is dictated by the value of the underlying asset, which is usually a stock, a commodity, a bond, currency, interest rates or markets indexes. Derivative securities usually are valued by using a version of the Black-Scholes Option Pricing Model.
A derivative security is particularly appealing to those investors looking to offset or hedge their risk when investing, but a number of other financial players also take an interest in stock derivatives from a range of motives. Among these other players stand most prominently the speculators and arbitrators who are less interested in off-setting or hedging risk and are instead motivated by the prospective profit that stock derivative speculation can bring. Some other players who typically participate in the stock derivatives market are brokers, banks, financial institutions, and commodity trading advisers.
5.forwards are traded off the stock exchange where as futures
are traded only in the exchanbes.
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