Financial markets provide their participants with
most favorable conditions for purchase/sale of financial instruments they have inside. Their major functions are: guaranteeing liquidity, forming assets prices within establishing proposition and demand and decreasing of operational expenses, incurred by participants of market. Financial market comprises variety of instruments, hence its functioning totally depends on instruments held. Usually it can be classified according to type of financial instruments and according to terms of instruments’ paying-off.
From point of different types of instruments held market can be divided into one of promissory notes and one of securities (stock market). The first one contains promissory instruments with right for its owners to get some fixed amount of money in future and is called market of promissory notes, while latter binds issuer to pay a certain amount of money according to return received after paying-off all promissory notes and is called stock market. There are also types of securities referring to both categories as, e.g., preference shares and converted bonds. They are also called instruments with fixed return.
Another classification is due to paying-off terms of instruments. These are: market of assets with high liquidity (money market) and market of capital. The first one refers to market of short-term promissory notes with assets age up to 12 months. The second one refers to market of long-term promissory notes with instruments age surpasses 12 months. This classification can be referred to bond market only as its instruments have fixed expiry date, while stock market’s not.
Now we are turning to stock market.
Stock market As it was mentioned before, ordinary shares’ purchasers typically invest their funds into company-issuer and become its owners. Their weight in process of making decisions in company depends on number of shares he/she possesses. Due to financial experience of company, its part in market and future potential shares can be divided into several groups.
1. Blue Chips Shares of large companies with a long record of profit growth, annual return over $4 billion, large capitalization and constancy in paying-off dividends are referred to as blue chips.
2. Growth Stocks Shares of such company grow faster; its managers typically pursue policy of reinvestment of revenue into further development and modernization of company. These companies rarely pay dividends and in case they do dividends are minimal as compared with other companies.
3. Income Stocks Income stocks are stocks of companies with high and stable earnings that pay high dividends to shareholders. The shares of such companies usually use mutual funds in plans for middle-aged and elderly people.
