INTRODUCTION
Background of the study
Financial markets maybe said to be a collection of buyers and sellers of financial instruments which include but not limited to equities, bonds, commodities currencies and derivatives. They are typical characterized by existence of forthright pricing based on market forces, basic rules and regulations restricting participation based on certain laid out criteria like amount of money held, geographical location and even profession of the participant.
These financial markets are located in almost all countries of the world. The distinguishing factors being the size and complexities of the financial markets located in different countries. The NYSE for example could transact trillions of dollars a day while infant stage RSE may move very low volume transactions values in a day: $70,000 (RSE report 12.05.2014).
Information transparency is Key in fostering investor confidence in any financial market. It helps build an efficient financial market where prices of securities are driven by market forces. This also helps curb on market manipulations, insider dealings and fraudulent transactions.
There have been many arguments advanced as rationales for development of financial markets. Good financial markets offer alternative sources of domestic debt finance. This is so because over-dependence on bank lending for financing exposes a financial system to risks in case of a meltdown of the banking system. This can be addressed by having an efficient domestic capital market (bond market), that would offer an alternative if banks cannot offer credit lines.
Developed financial markets also help to reduce the cost of capital. This is true as individuals would incur greater financing costs through banks loans as op...
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...rt also projects the figure to rise to just over 30% by 2030 and further to nearly 40% by 2050. This rise can be attributed to greater local and foreign investments to fund large scale infrastructure projects and the narrowing gap between EMs and DMs (OICV-IOSCO, 2011)
The world stock markets have also been on an up-surge after the weathering of the storm of the financial crisis. Whereas the DMs stock markets are still in state of recovery, the EMs stock markets speed of development has been unprecedented leading to in structures of this exchanges as well as capital flows from DMs as investors are no longer restricted by national boundaries. (IMF W.P 08/32)
STOCK MARKETS
BOND MARKETS
STOCK AND BOND MARKETS IN KENYA
RELATIONSHIP BETWEEN BONDS AND STOCK
RESEARCH PROBLEM
Talk about the average maturity profile for all domestic bonds, now stands at 5yrs some months
Also, the usage of high yield bonds securities for financing became popular during the 1990s in foreign markets such as Latin America, Asia, and Europe showing the rise in international appeal for these kinds of securities. However, outside of the U.S the high yield market has taken a longer time to become popular and thus there is still room for the development of high yield bonds within financial markets in emerging countries. It is safe to determine that the market for high-yield bonds will always be in existence since it is a viable alternative for many fast growing firms to acquire financing and is a rewarding option for investors. The key to the still growing, strong market demand for high yield bonds is based on linking the [U.S.] economy’s constant desire for capital with investors’ desire for higher returns on their investment.
“There were no smiles. There were no tears either. Just the camaraderie of fellow-sufferers. Everybody wanted to tell his neighbor how much he had lost. Nobody wanted to listen. It was too repetitious a tale” (The New York Times, World History Book). The stock market crash was only one of many contributions leading up to the Great Depression. There were many economic and societal conditions that worsened throughout this time. Luckily there have been documentaries on the life that was lived by the people and how they got through it, just like the character in the movie Cinderella Man, Jim Braddock. Millions of Americans and even people across the globe were hit and somewhat effected by this tragic period in history.
The stock market is a centralized area where buyers and sellers comes together to perform stock transaction. When one thinks of the stock market, the first thing comes to mind is Wall Street which is sometimes referred to as the New York Stock Exchange as well as the NYSE.
There are two types of transparencies: Regulatory transparency which incorporates controls on regulatory discretion, counsel with invested individuals and advance procedures that are clear, unsurprising and reliable. Information transparency is the giving of precise and “timely statistical data” as well as convenient warning of continuous policy discussions. ("Critical perspectives on international business: Vol 5, No 3", 2016) It needs to be transparent on how it spends the publics tax money and how they conduct their business. In 2012 South Africa was positioned second out of an aggregate of 94 countries for the transparency of its financial plan, however, in the 2015 review, South Africa was positioned third. ("South Africa Overview", 2016) The public and the business community need to have regulatory and information transparency so they can understand and make a precise evaluation of their rights and commitments. However, the final objective of the public sector transparency needs to make government policies reasonable and unsurprising to diminish the instability and expenses of “conducting public and private business.” ("Critical perspectives on international business: Vol 5, No 3", 2016) Transparency in the Private sector is the extent to which organizations customarily reveal substantial information about their financial condition and bookkeeping practices to “outsiders and the government in a reliable manner.” ("Critical perspectives on international business: Vol 5, No 3", 2016) Valuable numeric reporting supports the general productivity of the business sector and has the long‐term impact of lessening the expense of capital for companies. Incorrect or conflicting numeric reports brings down the plausibility of the private sector and discourage foreign contribution and cross‐border
The first is greed. This greed is what drives the bankers and the executives within the Wall Street. It is because of such greed that there was a form of irresponsible risk taking within the markets. The second cause of market change is the advancement of market values and norms into aspect so life where they are not needed. An example of such advancement is the use of markets in order to provide services, which can be considered as basic needs, such as; schools hospitals, environmental protection, criminal justice, procreation, recreation and national security. Allocation of such public goods using market mechanisms is a resent development, within the last few decades. The final cause of such changes is the cold war, which saw most of the countries adopt market mechanisms in order to attempt improving on development and
If the world, consisting of the consciences of over six billion people, wants the market to grow, then the market will grow. With international interest and knowledge, we can eliminate fraud and stock pooling to raise stock prices. The markets will be more honest, and they will grow at a rate that we need them to, in order to continue with our exceptional economic growth rate.
If financial markets are instable, it will lead to sharp contraction of economic activity. For example, in this most recent financial crisis, a deterioration in financial institutions’ balance sheets, along with asset price decline and interest rate hikes increased market uncertainty thus, worsening what is called ‘adverse selection and moral hazard’. This is a serious dilemma created before business transactions occur which information is misleading and promotes doing business with the ‘most undesirable’ clients by a financial institution. In turn, these ‘most undesirable’ clients later engage in undesirable behavior. All of this leads to a decline in economic activity, more adverse selection and moral hazards, a banking crisis and further declining in economic activity. Ultimately, the banking crisis came and unanticipated price level increases and even further declines in economic activity.
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
Financial markets as we know them were arguably started in the 14th century by Venetian merchants tied to the moneylenders - the bankers of their time. They basically bought high-risk, high-interest loans or exchanged them for other loans with other lenders. The first real stock exchange can be linked to Antwerp in 1531 to deal in loans, government, and individual debt. By the 1600’s, all the East India trading companies started to spring up under different countries. Individuals would invest in these voyages, thus creating the first futures markets. It was a risky investment, considering storms, pirates, and the other dangers of a long ocean voyage over relatively unknown seas, but if the ship you invested in came back with full holds then you were pretty much set for life. However, actual exchanges were not established until later. The first was set up in London in 1773, but it was restricted by laws that restricted shares to whom shares could be sold and at what rate they were taxed. Nineteen years later it was followed by the New York Stock Exchange.
Financialization is a complex process that labels global finance as the dominant force that drives all economic and political bearings. In order to understand this concept and the process of how financialization works, this essay will evaluate and assess how the collapse of the housing market led to the fiancial crisis in 2008. According to Economic Geography a contemporary introduction, financialization “is when all sorts of things are transformed into financial instruments for trading among individuals and firms in the international capital markets. Through financialization, fixed properties such as housing are financialized into structured investment vehicles such as mortgages—back securities that can be easily traded among global investors through a variety of financial institutions” (Coe, Kelly, and Yeung, 2013). Trading mortgages, or shares at the global level proved to be a financial disaster for many involved. Ultimately the collateralized debt obligation market collapsed and thus dragged down the entire global financial market.
Markets exist for the vast majority of goods and services. Markets can be defined broadly or narrowly. For example there are the consumer goods, capital goods, commodities, financial and labor markets. Each of these broad categories can be broken down into more specific markets. For example within the financial market there are markets for foreign exchange and for long term loans, within the corn modifies market there are the markets for corn and copper and within the consumer goods market there are the markets for clothes and cars. Prices usually play an important role in these markets.
In 2008, the world experienced a tremendous financial crisis which is rooted from the U.S housing market. Moreover, it is considered by many economists as one of the worst recessions since the Great Depression in 1930s. After bringing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It ruined economies, crumble financial corporations and impoverished individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brothers and AIG. These collapses not only influenced own countries but also international scale. Hence, the intervention of governments by changing and expanding the monetary and fiscal policy or giving bailout is needed in order to eliminate and control enormous effects of the financial crisis.
The free movement of capital, is generally, a harmful policy for developing countries to pursue. This is because the free movement of capital creates high vulnerability to market volatility, which is often very severe and difficult to combat. As a result,
This paper will define and discuss five financial theories and how they impact business decisions made by financial managers. The theories will be the Modern Portfolio Theory, Tobin Separation Theorem, Equilibrium Theory, Arbitrage Pricing Theory (APT), and the Efficient Markets Hypothesis.
The second purpose is to disclose risk faced by the company to public including stakeholders and shareholders. Companies are obliged to disclose all the necessary information that is related to the performance of the company to stakeholders and shareholders. This is probably preventing shareholders to make wrong decisions in their investments due to insufficient information provided by the company.