Financial instruments on the financial markets

Trimis la data: 2010-06-27
Materia: Economie
Nivel: Facultate
Pagini: 33
Nota: 10.00 / 10
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Autor: Ionela_P
Dimensiune: 37kb
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Stocks are among the most talked about and most popular investment opportunities available. Shares of stock represent partial ownership in a company. Ownership in the company is determined by the number of shares we own divided by the total number of shares outstanding.
For many companies, shares of stock are limited to the founders of the company and/or their employees. These companies are called "private" companies because their stock is owned privately; that is to say, it is not possible for the public to buy shares in the company.

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Most shares of stock are called "common shares". If we own a share of common stock, then we are a partial owner of the company. We are also entitled to certain voting rights regarding company matters. Typically, common stock shareholders receive one vote per share to elect the company's board of directors (although the number of votes is not always directly proportional to the number of shares owned). The board of directors is the group of individuals that represents the owners of the corporation and oversees major decisions for the company. Common stock shareholders also receive voting rights regarding other company matters such as stock splits and company objectives.

In addition to voting rights, common shareholders sometimes enjoy what are called "preemptive rights." Preemptive rights allow common shareholders to maintain their proportional ownership in the company in the event that the company issues another offering of stock. This means that common shareholders with preemptive rights have the right but not the obligation to purchase as many new shares of the stock as it would take to maintain their proportional ownership in the company.

But although common stock entitles its holders to a number of different rights and privileges, it does have one major drawback: common stock shareholders are the last in line to receive the company's assets. This means that common stock shareholders receive dividend payments only after all preferred shareholders have received their dividend payments . It also means that if the company goes bankrupt, the common stock shareholders receive whatever assets are left over only after all creditors, bondholders, and preferred shareholders have been paid in full.

The other fundamental category of stock is preferred stock. Like common stock, preferred stock represents partial ownership in a company, although preferred stock shareholders do not enjoy any of the voting rights of common stockholders. Also unlike common stock, preferred stock pays a fixed dividend that does not fluctuate, although the company does not have to pay this dividend if it lacks the financial ability to do so. The main benefit to owning preferred stock is that you have a greater claim on the company's assets than common stockholders.
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