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Financial intermediaries provide two important advantages to savers. First, intermediaries provide many loans, so the few that fall short do not impact as much as a the loss faced by an individual with few loans. They provide a platform to incur less risk to each individual. Another reason financial intermediaries reduce risk is that by making many loans, they learn how to better predict which of the people who want to borrow money will be able to repay. Someone who does not specialize in this lending may be a poor judge of which loans are worth making and which are not, though even a specialist will make some mistakes. A second advantage of using a financial intermediary is they have the ability to convert assets into liquid (useable) money. Although the intermediary may use its funds to make illiquid loans, its size allows it to hold some funds idle as cash to provide liquidity to individual depositors.
Financial intermediaries help large numbers of people to use financial markets with a minimal amount of risk involved. Although these intermediaries are important in the macroeconomic functioning of the economy, they are usually stable and change only slowly.
2. What is the role of broker in the financial market?
Futures brokers have different licensing requirements and training than stockbrokers. A futures broker must have a Series 3 license, while a stockbroker is required to have a Series 7 license. Some brokers are dually licensed, so they can broker both kinds of financial instruments. The principles for selecting any broker are the same: know what your trading goals are, and look for the right fit.
Before you can make a trade in the futures or options on futures markets, you must open an account through a licensed Series 3 commodity brokerage representative.
It is generally believed that the broker serves only as an intermediary in securities trading, with commissions as his return. In fact, however, for this commission, the broker has to be responsible to their clients for accuracy, starting from opening the trading account until completing clearing and settlement. In order to receive their commission, a broker is responsible for carrying out and executing securities trading efficiently, delivering the securities payment to the seller and passing the scrip to the buyer on time, and providing the securities depository services and ensuring that the client's securities trading account is always correct.
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3. How has that role changed since the inception of on-line investing?
In the process of trading in the market, if any mistake occurs, the broker has to be responsible and make sure that the buyers get their securities and the sellers get their money accordingly and within the time limit. As for any mistake or loss that might happen, the broker has to accept the loss and complete any necessary legal transactions to protect the client's benefits.
If a mistake or loss occurs because of the broker's violation of laws or his failure to comply with the regulations and member's codes of conduct, the broker will be punished. Punishment may include probation, fine, trading suspension, and membership dismissal, according to how serious the mistake is.
Investing online gives the investor a sense of control over their wealth. Buying and selling of a stock no longer requires another individual (third party intermediary). It saves the investor the added worries that come with the risk of utilizing a broker and the potential mistakes they can make. It can be done whenever and wherever by the investor themselves, online. Most brokers live on commissions, hence the tactics used by them are in the favor of the broker first, the brokerage house next and finally the client. Online brokerages pay financial advisors a fixed salary, thus eliminating the chance for an investor doing unnecessary trades for the benefit of the brokerage firm and the broker
How are AMEX and NASDAQ similar, if at all?
The American Stock Exchange and the NASDAQ are both examples of financial market trade organizations. These two entities are vehicles that provide an avenue or marketplace for surplus economic units and deficit economic units to participate in financial trading.
The American Stock Exchange is a marketplace for an array of financial products such as stocks, options, exchange traded funds, and structured products (amex.com, 2006). These products are traded through interactions of offers to sell and public bids to buy. All AMEX security trading is facilitated by a specialist who is stationed on the trading floor. These specialists must perform duties as facilitators, auctioneers, dealers, agents, and brokers' brokers in order to fulfill their obligations of assisting in fair and equitable trading to both buyers and sellers.
The American Stock Exchange (AMEX) is a securities exchange that has a physical location in downtown Manhattan. The AMEX is the second largest options exchanges in the US. Stock that did qualify for the New York Stock Exchange used to be traded by brokers standing outside of the NYSE. In time, these brokers moved indoors and eventually became, what is now known as the AMEX. The Companies with shares traded on the AMEX are usually smaller than those listed in the NYSE. AMEX states that its purpose is to provide a securities market place in which high standards of honor and integrity are enforced and to promote and keep just and reasonable principles of trade and business. The American Stock Exchange still trades several stocks in a floor environment (similar to the NYSE).
NASDAQ was the world's first electronic stock market and remains the largest today. It was created in 1971. NASDAQ was originally an acronym that stood for National Association of Securities Dealers Automated Quotation. It has since simply become NASDAQ, a proper noun. The NASDAQ is an electronic network that facilitates trading and provides price quotations through a computerized system. NASDAQ has made claims of being the largest and fastest growing major stock market in the world (nasdaq.com, 2006). NASDAQ also notes that it is the largest U.S. electronic stock market and trades more shares per day than any other U.S. market. The NASDAQ market works to provide a high-technology market that is fast, reliable, highly transparent, and liquid.
The NASDAQ also connects other trading systems, such as electronic communication networks (ECNs). Through these additional networks, investors can trade directly with each other without going through a market maker. The flexibility of the NASDAQ network permits the quick implementation of innovative trading technologies and strategies. The NASDAQ Stock Market, Inc. allows anyone to trade with anyone else and contains very little constrictions on trades of just about any kind.
2. How are AMEX and NASDAQ different, if at all?
The American Stock Exchange is considered an order-driven continuous auction market where specialists facilitate continuous trading. The NASDAQ is based on a competing dealer system where each dealer continually posts firm bid and ask quotes on an electronic screen (stockmarketinvestinginfo.com, 2004).
Other differences exist between NASDAQ and AMEX concerning limit orders that can affect the speed of price adjustment. AMEX specialists cannot trade ahead of limit orders at the same prices. This often results in their quotes reflecting the limit order books rather than the commitments by individual specialists. As a result, limit order prices are temporarily stale immediately after public announcements, which can delay revisions in the best bid and ask quotes. In contrast, dealers at NASDAQ are instructed to post firm bid and ask quotes for at least 1000 shares and are not allowed to rely on the limit orders of other investors.
3. How has the Former WorldCom Inc. Chief Executive Bernard Ebber's case affected WorldCom Inc., and the Telecommunication industry?
The jury of seven women and five men held Ebbers, 63, responsible for filings that boosted WorldCom's reported earnings and hid the fact that its business was deteriorating for nearly two years. WorldCom filed for bankruptcy protection in July 2002, later announcing it had uncovered $11 billion in fraudulent accounting entries.
The accounting practices implemented at WorldCom allowed management to manage earnings to meet desired numbers and Wall Street expectations. A culture of honesty and integrity along with a strong internal control structure would have discouraged the manipulation of financial information and prevented departures from GAAP. WorldCom filed bankruptcy on July 21, 2002 and its stock price bottomed after it was unlisted from the NASDAQ.
The firm's collapse combined with the implosion of Enron Corp., prompted the heads up for the 1990s stock market boom and prompted Congress to enact strict new laws holding corporate chieftains more accountable for their companies' financial reporting.
The government had contended that Ebbers orchestrated a scheme to boost WorldCom's share price because he was trying to protect his personal fortune -- once valued at $1 billion -- from banks that were calling in his loans as the company's stock fell.
The WorldCom debacle seriously wounded the telecom industry as it financially and ethically tripped the industry and WorldCom's heir, MCI. In the 1990's, telecom asset valuations were strained from market overcapacity. The industry was hardly prepared to accept the public's financial distrust as WorldCom was exposed in 2002. The unwanted exposure, combined with decreasing revenues, created a weak environment for many in the telecom industry.
Financial markets began to raise the risk premium for existing companies in the telecom sector. The exposed accounting improprieties of WorldCom created a speculative environment where venture capitol interest waned for the industry and governmental regulations of accounting practices as well as potential private investor concerns created delays to the capitol investing that was desperately needed by the companies in the industry. This negative international exposure applied an increased strain on an already challenged market. The industry was no longer viewed as a high-growth industry as it had been in the technology boom of the 1990's. As investor confidence was slowly reestablished, the industry began to be seen as a moderate-growth potential at best.
"Ebbers Guilty of WorldCom Fraud." (15 March 2005). BBC News. Retreived July 9, 2006: http://newsvote.bbc.co.uk/mpapps/pagetolls/print/news.bbc.co.uk/1/hi/business/4351975.stm
"The WorldCom Story." (13 July 2005). CBC News. Retrieved July 11, 2006: http://www.cbc.ca/news/background/worldcom
American Stock Exchange (AMEX) - A Swiss Bank Corporation (1992). Dictionary of Financial Risk Management. Retrieved on July 12, 2006: http://www.amex.com
Gallagher, T. J. & Andrew, J. D. (2003). Financial management, principles & practice, 3rd Ed. Upper Saddle River, NJ: Pearson Prentice Hall
Martin, Patrick. "Ebbers Found Guilty in WorldCom Fraud: A Case Study of US Corporate Criminality." Retrieved July 15, 2006: http://www.wsws.org
NASDAQ.com (2006). Website for NASDAQ. Retrieved July 13, 2006: http://www.nasdaq.com