ii) Financial Products

1. ii)Financial Products 7) Stock pg. 74

2. Basic Stock Analysis • What is a stock ? A stock is a share of ___________ of a Company • As the owner of a stock you have a claim on the company’s assets and _________

3. Share Certificates- • What does each share certificate represent ? • We can say share certificates represent ownership of a number of stocks or shares • In the example in the video what is mentioned.

4. ROE vs. EPS • ROE is a measure of how efficient a company is at generating profits. It measures a company’s net income as a percentage of it’s __________ _____________ • EPS is an indicator of a company's profitability.

5. EPS pg 74. Is a measure of a Company’s profit. How is it calculated ? EPS = Profit – Dividends Outstanding Shares What are Outstanding shares ? Shares currently owned by Shareholders.

6. Lets look at two Companies EPS • COMPANY A: PROFIT $1 000 000 • DIVIDENDS $ 200 000 • OUTSTANDING SHARES $ 100 000 • COMPANY B: PROFIT $ 2 000 000 • DIVIDENDS $ 200 000 • OUTSTANDING SHARES $ 300 000 • Can you work out the EPS for these company ?- Who can work it out first ?

7. Company A vs. B analysis • We can see that Company A reported a higher EPS ($8) vs. Company B ($6) even though company B reported twice the profits of A. • We can use EPS to _________ratios that will help __________ two companies to each other. • This calculation is used along with others in deciding on a company to invest in.

8. TWO types of Dividends pg 74 • Dividends come in two types: • 1. Fixed and 2. Variable. • What is the difference ? • Dividends that pay a fixed rate go to owners of Preferred Stockwhereas dividends that pay a variable rate go to Common Stock holders.

9. Why do companies issue preferred stock ? pg 74 • Usually because their investors demand it. • Simply, preferred Stock is stock which is “preferred” over common stock because; • Does anybody know why it is preferred ? • The answer is in the last paragraph of pg 74

10. Preferred stock is a safer claim against a firm. • preferred stock may be entitled to dividends before common stock; • preferred stock holders may have special voting rights at shareholders meetings

11. 2) Stock Exchange pg 76 • p76 : 「定義」について • "Stock Exchange is a voluntary organization...." • These days the stock exchanges in the developed countries are mainly stock corporations (limited companies). • Therefore they are not voluntary organizations any more. • In Japan such a structural change occurred in May, 2000, when the Securities and Exchange Act was changed.

12. Primary vs. Secondary Markets • The Primary Market deals with the issuance of new securities. • It is where new securities (an IPO) for example are sold for the first time. • Does anybody know of any examples of recent or upcoming IPO’s ?

13. Primary vs. Secondary Markets cont. • The Secondary market is the place where previously issued securities are bought and sold. • The NYSE and the TSE are big exchanges and examples of the secondary market.

14. Secondary Market Mergers • The proposed merger between the TSE and the OSE. • Will create Japan’s largest exchange group and strengthen the TSE’s position as the third largest in the world by market capitalization of company listings.

15. 4) Trading pg 80 • Lets shadow this extract. • What are some of the popular day trading platforms in Japan? • Volatility increased by more people speculating. (Speculation)

16. 8) Bond pg 86 • Discussion on this material and Bond Basics. • Q and A • What does a bond represent ? • _____________________ • Who issues bonds and why ? • _____________________ • Lets have a look at the key differences between Stocks and Bonds. (from 37 seconds) • http://www.investopedia.com/video/play/stocks-versus-bonds#axzz1kLZl7LpG

17. Different types of Bonds pg. 90 • Government Bonds – What is the coupon on the 10year JGB approximately ? • Corporate bonds/ Municipal Bonds and Junk Bonds • Please ask a question on this short extract.

18. 5) Rating - • What are the three major Credit Ratings Agencies? • Can anybody list them ? • The downgrade stripping _________ of it’s triple A or AAA was announced on Friday the 13th.

19. 5）Ratings continued • Institutional and individual investors rely on ratings agencies and their in-depth research to make investment decisions. • There is currently a lot of debate about CRA’s. • Good investment firms will not rely solely on the bond rating agency's rating and will supplement their research with their own in-house research department.

20. 9) Foreign Exchange pg. 98 • Foreign Exchange (FX) services use a global currency __________to provide both business, and private clients with added value when exchanging currencies, and transferring money abroad. • Foreign currency hedges are often used by ___________and ______________ to limit exchange rate risk. (see forward contracts pg 104)

21. 10) Derivatives pg. 110 • Futures contracts : - are ___________between two parties to buy or sell an asset at a predetermined future date and price. • Derivatives can protect producers and suppliers from_________________ • Values depend on the prices of other more basic variables- (This is referred to as the underlying) – any examples ? CDS, MBS

22. 5) Hedge pg. 118 • Please separate the definitions of Hedge on pg. 118 into two separate pieces. • 1.Any combination of positions in securities and options in which one position tends to reduce the risk of another; • 2. any strategy used to offset investment risk.

23. Arbitrage and Leverage • Two concepts and keywords you should try to remember. • Concept of Arbitrage • Arbitrage is defined as the ___________of securities on one market for immediate ____________on another market in order to profit from a price__________. This results in immediate risk-free __________. Concept of Leverage • Leverage is a general term for any technique to __________gains and losses. Common ways to use leverage are __________ money, buying fixed assets and using derivatives