FORM FIVE COMMERCE – STOCK EXCHANGE

What is stock exchange?

This is the market where already issued securities like shares, bonds, stocks can be bought and sold. For example DSE, KSE, USE, In Dar es Salaam stock exchange, Kenya stock exchange and Uganda stock exchange.

Functions of stock exchange

1. It provides a ready market for those who wants to buy and sale their securities.
   
2. It is part of saving by members of the public.
   
3. It facilitates the raising of capital for investment.
   
4. It is used to judge country’s economy progress.
   
5. It is important means of raising up government revenue through tax.
   
6. It provides employment opportunities.
   
7. It publishes useful information, statistics and summary of various companies.
   

 

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Important terminologies used in stock exchange

1. Par value. This is a face or nominal value of a security as it is written on its face (cost price).
   
2. Market value. Refers to the current price of a security as it is sold in the market as per demand.
   
3. Cum. Div (including dividends). This word stands for “with Dividends” which implies that the price quoted in a security will include some amount of outstanding interest for the previous period when an investor/seller declares dividend for the first time.
   
4. Ex-Div (excluding Dividends). This term stands for “without dividends) which implies that the price quoted will include some amount of dividend to be paid in advance when an investor declares it for the first time.
   
5. Quoted company. Is a company which allows its shares to be traded in the stock exchange market. That is bought and sold will only apply to public ltd company e.g. CRDB, Precision airways etc.
   
6. Un quoted company. Is a company whose shares are not traded in the stock exchange. That is, all private companies and some public companies which may decide not to sell their shares at stock exchange market will be in this category. For example; Bakhressa, Mengi, Manji etc.
   
7. To go public. This is an act of converting (changing) a private limited coy into public company. This will happen when a private company wants its shares to be trades at the stock exchange market.
   
8. Staging. It is a speculation which occurs in the new issue of shares in the stock exchange.
   
9. Under writer. It is an institution or a person who is responsible to collect or sale shares on behalf of the issuing company under the authority of stock exchange.
   

 

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             Members of stock exchange; Include

1. Brokers
   
2. Jobbers
   

 

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• Who are brokers?
  

 

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These are people who buy and sale securities on behalf of others or owners.

• Who are jobbers?
  

 

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These are traders who buy and sale securities on their own account. They trade in security like wholesalers or retailers.

Jobbers can be classified into three, namely as:

• Bulls
  
• Bears
  
• Stags
  

 

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Bulls

These are jobbers who buy securities e.g shares when they are cheap hoping to sell them at higher price to make a profit.

Bears

These are jobbers who sales shares when the price is high speculating that the price will drop later on and be able to buy them again at the cheapest price.

Stags

These are jobbers who deal with new issue of securities for example blue chips hoping to sell them at a profit.

What are the differences and similarities between jobbers and brokers?

• Similarities
  

 

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1. Both operate in capital market.
   
2. Both do not hold shares for investment.
   

 

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• Differences
  

 

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1. Brokers earn commission while jobbers earn profit by selling securities.
   
2. Brokers are the same like retailers in securities while jobbers are the same like wholesalers in securities..
   
3. Brokers do not speculate on security price while jobbers speculate on security price.
   

 

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SECURITIES TRADED IN STOCK EXCHANGE/ SECURITIES BOUGHT AND SOLD IN STOCK EXCHANGE

Its concept;

Security is any document that gives the holder a right to money or possesses property. Among the securities traded in stock exchange are:

1. Share. This is a unity of capital of a company divided into units of uniform value whoever contributed to the capital of the company will be the owner and called a share holder. In that case a share certificate ill be issued to certify that a person has contributed some amount of money in the total capital to be invested in the company. The shares can be divided into two classes
   

   a. Ordinary shares-Are shares which are owned by promoters of company who are paid after all other shareholders have been paid.
   

   b. Preference shareholder- Are shares of company which are considered first in the nglish-swahili/distribution” target=”_blank”>distribution of profits.
   

   2. Guilt edged.   These are securities which are mainly issued by the government in order to regulate circulation and use the to implement fiscal and monetary policy. For example; treasury bills, government stocks, government bonds etc
   

   3. Blue chips. These are shares of companies of high repute. That is, companies which are performing better in business. For example CRDB, Precision airways, Swiss air etc.
   

   4. Bonds. These are loan securities given by company or government or individual showing its indebtedness.
   

   5. Debenture. This is a document or a loan certificate issued by the company under its seal indicating that a company or individual has acknowledged the debts. It can be naked, redeemable, irredeemable.
   

   6. Stocks. These are set of shares which are issued in a bundle collectively or in a group e.g. TOL, TATCPA.