Markets Economists study trade, production and consumption decisions, such as those that occur in a traditional marketplace.
See Article History Security, in business economics, written evidence of ownership conferring the right to receive property not currently in possession of the Business economics property economics.
The most common types of securities are stocks and bonds, of which there are many particular kinds designed to meet specialized needs. This article deals mainly with the buying and selling of securities issued by private corporations.
The securities issued by governments are discussed in the article government economic policy. Types of corporate securities Corporations create two kinds of securities: In Great Britainthe term stock ordinarily refers to a loan, whereas the equity segment is called a share. Bonds The bond, as a debt instrument, represents the promise of a corporation to pay a fixed sum at a specified maturity date, and Business economics property economics at regular intervals until then.
Since it could be difficult for a corporation to pay all of its bonds at one time, it is common practice to pay them gradually through serial maturity dates or through a sinking fundunder which arrangement a specified portion of earnings is regularly set aside and applied to the retirement of the bonds.
The principal type of bond is a mortgage bondwhich represents a claim on specified real property. Another type is a collateral trust bond, in which the security consists of intangible property, usually stocks and bonds owned by the corporation.
Railroads and other transportation companies sometimes finance the purchase of rolling stock with equipment obligations, in which the security is the rolling stock itself. Corporations have developed hybrid obligations to meet varying circumstances. One of the most important of these is the convertible bondwhich can be exchanged for common shares at specified prices that may gradually rise over time.
Such a bond may be used as a financing device to obtain funds at a low interest rate during the initial stages of a project, when income is likely to be low, and encourage conversion of the debt to stock as earnings rise.
A convertible bond may also prove appealing during periods of market uncertainty, when investors obtain the price protection afforded by the bond segment without materially sacrificing possible gains provided by the stock feature; if the price of such a bond momentarily falls below its common-stock equivalent, persons who seek to profit by differentials in equivalent securities will buy the undervalued bond and sell the overvalued stock, effecting delivery on the stock by borrowing the required number of shares selling short and eventually converting the bonds in order to obtain the shares to return to the lender.
Another of the hybrid types is the income bond, which has a fixed maturity but on which interest is paid only if it is earned. These bonds developed in the United States out of railroad reorganizations, when investors holding defaulted bonds were willing to accept an income obligation in exchange for their own securities because of its bond form; the issuer for his part was less vulnerable to the danger of another bankruptcy because interest on the new income bonds was contingent on earnings.
Still another hybrid form is the linked bond, in which the value of the principal, and sometimes the amount of interest as well, is linked to some standard of value such as commodity prices, a cost of living index, a foreign currencyor a combination of these.
Although the principle of linkage is old, bonds of this sort received their major impetus during the inflationary periods after World Wars I and II.
In recent years they have had the most use in countries in which the pressures of inflation have been sufficiently strong to deter investors from buying fixed-income obligations. Stock Those who provide the risk capital for a corporate venture are given stockrepresenting their ownership interest in the enterprise.
The holder of stock has certain rights that are defined by the charter and bylaws of the corporation as well as by the laws of the country or state in which it is chartered. A stock certificate ordinarily is given as documentary evidence of share ownership. Originally this was its primary function; but as interest in securities grew and the capital market evolved, the role of the certificate gradually changed until it became, as it is now, an important instrument for the transfer of title.
In some European countries the stock certificate is commonly held in bearer form and is negotiable without endorsement.
To avoid loss, the certificates are likely to be entrusted to commercial banks or a clearing agency that is able to handle much of the transfer function through offsetting transactions and bookkeeping entries. Investors, for legal or personal reasons, may prefer to keep the certificates in their own names.
A corporation may endow different kinds or classes of stock with different rights. Preferred stock has priority with respect to dividends and, if the corporation is dissolved, to the division of assets. Dividends on preferred stock usually are paid at a fixed rate and are often cumulated in the event the corporation finds it necessary to omit a distribution.
In the latter circumstance the full deficiency must be cleared before payments may be made on the common shares. Participating preferred stock, in addition to stipulated dividends, receives a share of whatever earnings are paid to the common stock.
Participation is usually resorted to as an inducement to investors when the corporation is financially weak. Although a preferred issue has no maturity date, it may be given redemption terms much like those of a bond, including a conversion privilege and a sinking fund.
Preferred stockholders may or may not be allowed to vote equally with common stockholders on some or all propositions or more characteristically may vote only upon the occurrence of some prescribed condition, such as the default of a specified number of dividend payments.
Common stockin some countries called ordinary shares, represents a residual interest in the earnings and assets of a corporation. Whereas distributions to bonds or preferred stock are ordinarily fixed, dividends paid on common stock are set at the time of payment by the directors and tend to vary with earnings.
Options An option contract is an agreement enabling the holder to buy a security at a fixed price for a limited period of time.
One form of option contract is the stock purchase warrant, which entitles the owner to buy shares of common stock at designated prices and according to a prescribed ratio. Warrants are often used to enhance the salability of a senior security, and sometimes as part of the compensation paid to bankers who market new issues.
Another use of the option contract is the employee stock option. This is used to compensate key executives and other employees; it is normally subject to a variety of restrictions and is generally nontransferrable.The law and economics of intellectual property is attracting increased attention as technological innovation continues to have a major impact on economic growth.
Managerial Economics: Definition and Meaning of Managerial Economics: Managerial economics, used synonymously with business initiativeblog.com is a branch of economics that deals with the application of microeconomic analysis to decision-making techniques of . Expertise Essential Economics are experts in the economic analysis of 'people, places and spaces'.Since , our practical approach and analytical rigour has informed decision-making by a diverse range of private and public sector clients across Australia, New Zealand, Asia and the USA.
Security: Security, in business economics, written evidence of ownership conferring the right to receive property not currently in possession of the holder. The most common types of securities are stocks and bonds, of which there are many particular kinds designed to .
Economics Faculty and Staff. Scott L. Baier Department Chair and Professor. Ph.D.: Michigan State University Fields: International Trade; Economic Growth and Development; Applied Econometrics Office: C Sirrine Hall Phone: Email: [email protected] Robert K. Fleck Professor and Undergraduate Coordinator.
Economics International provides clear analysis of complex issues in economics, finance, and statistics.
Our testimony has been accepted by state, federal, and international courts.