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Example research essay topic: Supply And Demand Prentice Hall - 1,803 words

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Two different financial markets. In the following essay I am going to speak about the two markets, Forex and Futures market, explain their infrastructure, spreads and whether or not they are quote driven. I will present various educated findings together with my personal opinion on the given matter. Forex.

Forex (Foreign Currency Exchange) is an interbank financial market that was created in 1971 when international trade transitioned from fixed to floating exchange rates. Since then the rates of currencies relative to each other are determined by the most obvious means which is the exchange at a mutually agreed rate. This market surpasses the other world markets in its volume. For example, the daily turnover of world securities market is estimated at around $ 500 billion, while Forex approaches 2 trillion US dollars daily.

However, Forex is not a market in a traditional sense as many might think of it. It doesn't have a fixed location of the trading floor as, for example, futures, or stock markets do. The trading is done over the telephone and at the computer terminals in hundreds of banks around the world simultaneously. Futures, commodity and securities markets have one more significant feature distinguishing them from Forex. The trading is suspended at the end of each day and resumed only next morning and one should remember that because of the time differences around the world, it usually happens that before the US markets open the Australian or Japanese markets close. Thus, should certain significant developments occur in the USA, the opening of the Japanese stock / futures market next morning could have some reaction.

Forex, on the other hand is open 24 hours a day, and the currency exchange operations are maintained every day except for the weekends. Almost every time zone (New York, Tokyo, Hong Kong, Sydney) has dealers willing to buy / sell currencies. The primary causes of changes in currency rates are economical forces as well as political and psychological factors. It should be noted that just because it is extremely hard to make a prediction about the movement of the currency, technical analysis is used most widely as opposed to the fundamental analysis used in the stock and commodity exchange.

Basic parameters of economy such as inflation, interest rates, unemployment, and many others affect exchange rates constantly and dramatically, even more than it would affect the stock markets or commodities markets. Government policies have drastic influence on the rates too. Competence of the government in maintaining the currency is conducive for its rate increase. Decreasing interest rates stimulates decreased demand for the currency and, thus, depresses its value in the exchange operations. A decision of the Central Bank of a country to buy or sell the currency may strengthen or undermine its rate significantly. Expectations of change in the economic conditions may lead to sudden and drastic fluctuation of the currency rate.

I would like to note that the Forex has hardly any other influences from individual companies unless they make an currency exchange of over 2 billion (that can move the market) which is extremely rare. One should also remember that because the foreign exchange market is often controlled by expectation of change, rather than the changes themselves much of the buying decisions are made on a subjective basis without any solid facts to support or oppose the given movement of the currency rate. Activity of professional currency exchange managers, especially when caused by the interests of powerful financial consortia, is another important market force. In many cases, the managers may act independently and use the market as a unique instrument to achieve their goals of changing major rates. Most, if not all of them, could not care less about the adequacy of charts used for technical analysis.

Though, as major levels of resistance and support are approached, the behavior of the market becomes more and more "technical", and the reactions of large number of traders often become similar and predictable. Such periods in the market may lead to dramatic rate fluctuations, because significant funds happen to be invested in similar positions. One must not forget that Forex is not quote driven but is rather driven by technical indicators and supply and demand for the currency. Unlike the stock / commodity /derivatives markets that are quote driven, Forex is considered to be one of the best representatives of the random walk theory and is certainly the most liquid market in the world. Forex is not and auction and the prices are formed based on the principle of open bid (similar to open outcry, yet without a physical presence as it is in case with the stock markets). Stock Exchange market.

A stock exchange is a place where you can buy and sell shares. We call people who buy or sell small numbers of shares small investors. Organizations, who buy or sell large numbers of shares, are institutional investors. A stock exchange is the place where companies can raise money to expand their businesses. Companies raise this money by selling shares to investors. At the same time the stock exchange gives investors an opportunity to invest in these companies and benefit from any profits they may make.

The Stock Exchange is the organization which provides the principal markets for the issue of, and the buying and selling of, publicly quoted shares in the US. It brings companies and investors together, provides rules to ensure the markets work efficiently and fairly, and monitors the operation of its markets to ensure that its rules are being obeyed. The Exchange also provides markets in corporate loan stocks, Government securities and international securities. Companies whose shares are traded on the Exchange are known, in general, as 'quoted companies' and may be admitted to the main market of listed shares and securities or to the Alternative Investment Market that NASDAQ represents Stock broking firms and other securities houses, if they are 'members' of the Exchange may trade directly in shares and securities on the Exchange, on behalf of their clients. The Exchange makes sure that its quoted companies and firms which are members comply with the Admission and Disclosure Standards or the Rules of the Stock Exchange, as appropriate. One should also note forget about the fact that the Admission and Disclosure Standards cover the issue of listed shares and securities, and companies' ongoing disclosure standards towards their shareholders.

Thus, whenever something suspicious happens to the stock price, one can ask the agency to investigate on the matter, yet if a Japanese Yen or a German Mark had plummeted, no one is able to blame or investigate the Japanese German government about the given issue that could cost thousands of people their jobs and savings. The Rules of the Stock Exchange cover the way shares are traded on the Exchange's markets by firms which are members. They also cover companies whose shares are traded on AIM. A booklet outlines the role of the Exchange and provides guidance on those issues which fall to the Exchange to regulate and those which may be appropriate for consideration by other regulatory organizations.

It details how to make a complaint to the stock Exchange, and how to take a complaint further should the stock Exchange's response be unsatisfactory or inappropriate from the legal point of view. You normally buy shares in lots of 100. When you give your stockbroker the order to "buy" he will buy your shares. He will buy them at the best price in the market. You become the owner of the shares from the time the sale is concluded. The stock market price of shares is influenced by many factors.

The prices are formed by the supply and demand and not in an auction style manner. The open outcry is the way orders are placed on the trading floor. When you give your order to buy, your stockbroker must tell you whether he is acting either as an 'agent' or as a 'principal'. If he acts as an agent your stockbroker will go out to the marketplace and let other stockbrokers know that you wish to buy shares from their customers if they are willing to sell. If on the other hand, he tells you he is acting as a principal, you will be buying shares that the stockbroker has bought and is holding for his firm's account, which he could sell directly to you. A stockbroker must not charge you commission when you buy your shares directly from the stockbroker's firm, which is the principal.

You will, however, still have to pay the tax according to the value of the shares you buy. Within a few days, you will receive a broker's note in the mail. This broker's note is an important document. It shows the details of the deal that the stockbroker has carried out for you. It also tells you how much you have to pay the stockbroker for the shares he has bought for you. Keep it safely for your records.

The share certificate will arrive later. Your share certificate shows how many shares you own. It is also an important document, so keep it in a safe place. You will need the share certificate if you want to sell the shares at a later stage. You must pay for the shares you have bought on the spot or within seven business days from the date of the confirmation of the trade as agreed with your stockbroker. In conclusion I would like to note that these two markets, Forex and Stock exchange are different in the way the order is placed, executed.

These two markets have different instruments that are traded and different rules that govern the price formation and the execution of the order. These two markets also are different in a way they are controlled, with the stock exchange market being highly controlled by the US government and the SEC, while with forex is not controlled directly by one single government but can rather be controlled indirectly by the central bank or the US FED. Bibliography: Thompson, Andrew, the stock market theory, McGraw Hill, 2002. Donahue, Hose, Forex and money, Prentice Hall, 2001. Mc Blum, Dorian, financial markets and institutions, NY Random House, 2001 web web web Bodie, Zvi and Robert C. Merton.

Finance. Upper Saddle River: Prentice-Hall. 2000. Bradley, Richard and Stewart C. Meyers. Principles of Corporate Finance, 6 th Edition.

Irwin, McGraw-Hill. 2000. Copeland, T. and J. F. Weston. Financial Theory and Corporate Policy.

Addison-Wesley. 1988. Huang, C. and R. Litzenberger. Foundations of Financial Economics. Prentice-Hall. 1988.

Chancellor, Edward. Devil Take the Hindmost. PLUME published by Penguin Books. 2000. Dalton, John M. (editor). How the Stock Market Works, 3 nd Edition. New York Institute of Finance. 2001.

Value, Stuart. Stocks, Bonds, Options, Futures, 2 nd Edition. New York Institute of Finance. 2001.


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