The Australian Securities Exchange - Assignment Example

The Australian Securities Exchange The Australian Securities Exchange Through a merger between the Australian Stock Exchange and the Sydney Futures Exchange, the start of the Australian Securities Exchange came into being. This merger took place in the year 2006 which focused on many more issues surrounding the trading platform in Australia, and the world. Some of the things that the ASX deals in include the trading of shares, real estate investment, interest rate securities, and warrants. These are some of the basic features that the ASX carries out on a daily basis to billions of people it is meant to serve (Clarke 2007). Through time, its evolution is clear as it is now considered one of the biggest exchange markets available, today. Ranked among the biggest financial markets, the ASX is responsible for financial development in Australia and its capital market. This paper will examine the functioning of the Organization, and some of the things it is responsible for in the world. As the world continues to take charge over its financial stand, many investors are keen to invest with the ASX. This is in order to cash in on the opportunity to have a portion of the growing industry. The functions the organization performs cause a rise in the nation’s total revenue. It is also responsible for the employment of thousands of people (Clarke 2007). These individuals represent the organization as brokers who aid in the sale and purchase of shares. Through some of the following areas below, one will be capable of knowing more about the ASX. Question 1 The major purposes of a stock exchange The stock exchange performs many functions as mentioned earlier. If it was not for it, there is no telling where the modern world’s economy would be heading. One of the main purposes of a stock exchange is the valuation of stock. If companies issue stock without a proper valuation of their stock, it would be next to impossible to appropriate the stock’s value. They, therefore, need a group of investors. These investors have a wide range of knowledge and information, thus; the correct valuation of any amount of stock a company may issue (Gregoriou 2008). The second main purpose of the stock exchange is providing means and ways to raise capital and increasing wealth. This purpose works well for both individuals and companies that choose to invest through the stock exchange. Through the sale of stock, a company can raise significant amounts of capital. As individuals purchase this stock, they have a share in the profits that are foreseeable through the company. This way, both the individual and the company can increase their wealth through the stock exchange (Gregoriou 2008). Moreover, stock exchange acts as a saving scheme. Those who might want to save for retirement choose to do it through the stock market. If done wisely, investing through the stock exchange can reap tremendous benefits. It is responsible for facilitating the successful retirement of thousands, if not millions of individuals. This has become the norm among many retiring individuals. Even though, risky, the benefits are worth the risk some people think when they choose to invest through the stock exchange (Gregoriou 2008). Question 2 Three companies and the business they conduct Ainsworth Game Technology Limited is one company that an investor can purchase ordinary shares. This company is responsible for designing, developing, and manufacturing gaming machines. It is known worldwide for its respected skills in the gaming fraternity. It is a valuable investment for any individual or party that may want to invest in the growing company in Australia. The company’s code as identified by the ASX is AGI. In Australia, some of the investors choose to invest in growing activities that are part of everyday life (ASX Staff & Australian Stock Exchange 2004). The rise in technology and its various advances makes it frighteningly easy to see many people involved with the gaming industry. This is a growing industry, and soon, it will be almost certain that every home will have a game at their disposal. This is a guarantee that the industry will grow, and, therefore, a wise investment. The other company is Aberdeen Leader Limited. The ASX code is ALR that deals in the investing of other Australian companies. This means that, for any company that is starting up in Australia, ALR is ready to make investments in that company. Such investments are seen as securities that involve convertible notes. They invest in some of these companies hoping to gain some interests after the end of a period. The industry they are involved in is the Diversified Financials (ASX Staff & Australian Stock Exchange 2004). These offer a method for them to capitalize while helping other companies grow, and develop. The third and final company is the Advance Energy Limited. The ASX code is AVD. It is responsible for the acquisition, production, and exploration of petroleum in Texas, United States. It has its base in Australia, which helps people, with some of the major investments in the company (ASX Staff & Australian Stock Exchange 2004). Through preference shares, individuals and other interested parties can cash in and get a piece of the growing company. The energy industry is responsible for providing many areas with petroleum that is used in many areas for different purposes. The growing demand for their products makes it a worthwhile investment. The industry is worth investing in due to this sudden, steady rise. Question 3 Characteristics between preference shares, ordinary shares, and convertible notes Preference shares are a form of hybrid security. This means that it has both debt, and equity. Through its debt characteristics, a preference share pays regularly through an income stream that is well defined. It also has a fixed maturity date. Through the equity characteristic, it pays some, if not all of its income through/in the form of dividends. At some point, the preference shares are converted into ordinary shares (Fleming 2004). For ordinary shares, they do not have predetermined dividend amounts. They have limited liability. This means that, the liability is limited to those shares only. During liquidation, the owners of ordinary shares are entitled to their fair share of the proceeds. These shares provide an individual with an official right over ownership of a company (ASX Staff & Australian Stock Exchange 2004). Convertible notes are paid a fixed coupon rate. These too can be transformed to ordinary shares over a certain period. The conversion can occur with the use of a fixed value, or may vary depending on the company’s rate of exchange. Also, this rate depends on the current value of assets (ASX Staff & Australian Stock Exchange 2004). The differences that exist between these three securities include the payment of dividends. Preference shares hold precedence over ordinary shares. This is when it concerns the distribution of profit in the company where one has these securities (ASX Staff & Australian Stock Exchange 2004). When it concerns convertible notes, the implications that accompany such securities lies with the rate of taxation. When converted, the rate of tax placed on these securities could be much higher, thus making it a lot riskier than all the others. Question 4 Costs incurred by buyers or sellers when buying or selling the securities The tax implications that come with the purchase of securities are immense. When one decides to buy shares in a company, one needs to consider the tax cost that may be rendered toward such an investment. The total tax cost is the total of all taxes that accumulates after the purchase of the different securities available in a company. One can make a lump sum amount of capital during the sale of these securities (ASX Staff & Australian Stock Exchange 2004). For example, if one buys the securities at a low price, and sells them at a higher price, they stand a chance to make more than they did when purchasing them. This is regardless of the tax implications that are involved. The dividends that come through the purchase of such securities must be given focus. If the dividends being offered as a rate of return are minimal, then the buyer of such securities will make a loss, depending on the amount spent to purchase the securities. Choosing stock that may offer cumulative dividends is a right choice when purchasing securities. For investors in Australia, it is frighteningly easy to purchase and sell securities ((ASX Staff & Australian Stock Exchange 2004). The dividends are more than the cash payments. As such, it would make sense to purchase securities while thinking of the return benefit. Transaction costs also fall under the costs incurred in the purchase and sale of securities. Question 5 Chance of investors losing investment when unfortunate events occur In the event of bankruptcy, investors do not have the liability of losing everything. If this happens, there are certain things that investors can retain. This is in the form of some of the securities under their name. Some form of equity is retained by the investors. For preference shareholders, they are the most preferred candidates liable for compensation. There is an exemption on these securities that allow them to have their share of dividends provided before all the others (Fleming 2004). This is provided they are registered as the actual, preferred candidates for compensation. Second in line for compensation are the convertible notes securities. They have a large stake in the company’s equity. They, therefore, have a right to be compensated and a certain value of their money accorded to them. It may not be the same amount as that which they once invested, but it may come to a certain value. This is as depending on the company’s rate of return on the securities (Fu 2010). It may be after a certain period, but they eventually get their portion. The last party in line for compensation are those who hold the ordinary shares. These have a stake in the ownership of the company, and if it goes down, then they are considered last. This is regardless of the amount of shares they have invested in the company (Kinsky 2012). During insolvency or the liquidation process, they are placed last. The amount of shares an individual/investor has makes them liable for different values of compensation. All this happens as a result of the security type taken by the investor. His/her liability to the company comes before all others when trying to figure out the best way to compensate them. This information was found in the guarantee fund. Many companies offer their investors this guarantee once they agree to enter into a contract with the company (Kirby & Drury 2012). Question 6 Factors to consider when choosing to invest in a financial asset Various financial assets have different tolerance to risk. This means that, for an investor to invest in an asset, the risk factor that comes with it needs to be measured. It is always going to be an issue of risk versus return (ASX Staff & Australian Stock Exchange 2004). Everyone wants to invest in something that may offer them something in return. This is in terms of monetary value. This may be twice what they might have spent while investing, or something that may offer a constant rate of money at the end of any period. Also, an investor should be willing to determine the investment approach. Here, they might discover who they are as investors by choosing the right investment mix. This is by understanding their financial position at the period they want to start investing in the asset. This helps determine the right time and investment to put oneself in, and the right company to choose. As they say, no two people are alike; therefore, one cannot invest in something following choices made by others (ASX Staff & Australian Stock Exchange 2004). This can be the first rule of trying to invest in an asset. Moreover, an investor can diversify his/her options. Diversification can help one identify the right options, hence making little or no mistakes. It may limit the risk involved as one wants to invest in the thought-of investment plan. One is required to hold onto the fact that, investment is a win or lose situation. Meaning it involves high risk (ASX Staff & Australian Stock Exchange 2004). Investments may fluctuate over time; therefore, one may stand or gain or lose money. It is wise to weigh the options offered before drawing any conclusions on intended investments. Question 7 Security to invest in when one intends to resell after a certain period If I was to invest in a security, it would be the convertible notes. This is because; after the period is done the money that I will have invested comes back with interest. There is also the choice of owning a portion of that investment if one so chooses. Convertible notes offer an investor the option of getting back a basic loan given in an investment with interest (Australian Securities Exchange 2008). Since these convertible notes are mostly offered by start-up companies, an investor will be willing to put in a little money so as to gain more when the company’s business has picked up. Why one should not choose others, for example, ordinary shares, is that in investing in such, one could be taking a frighteningly enormous risk. This is because; they might not offer any dividend at the end of a period, say, a month or a year. For the preference shares, they have one immense disadvantage. They offer a fixed degree of yield on investment. It is for these reasons that one may choose to invest while using convertible notes due to the interest they accrue over time (Australian Securities Exchange 2008). In conclusion, one can choose to invest in many assets. However, it is wise to invest while using knowledge available to work in one’s favour. There is information on how people need to invest in their future today that can benefit someone trying to invest for their future. Retirement can render people’s financial standing unstable. However, wise investments can assist them tackle numerous issues that may come an individual’s way, after employment (Tomasic & Bottomley 2002). To prevent one from making a choice they might regret, it is wise to incorporate the use of advice from financial experts on the proper actions to take when it comes to investments. References ASX Staff & Australian Stock Exchange 2004, Starting out in shares the ASX way, Cambridge University Press, Cambridge. ASX Staff & Australian Stock Exchange 2004, Trading options the ASX way, Bantam Books, New York. ASX Staff & Australian Stock Exchange 2004, Trading the sharemarket the ASX way, Springer, New York. Australian Securities Exchange 2008, Starting out in shares the ASX way, Butterworth Publishers, New Zealand. Clarke, T 2007, International corporate governance: A comparative approach, Colombus Dispatch, Colombus. Fleming, L 2004, Excel HSC business studies, Sage, London. Fu, J 2010, Corporate disclosure and corporate governance in China, Hart Publishing, Oxford. Gregoriou, G 2008, Stock market liquidity: Implications for market microstructure and asset pricing, Free Press, New York. Kinsky, R 2012, Online investing on the Australian sharemarket. W. W. Norton, New York. Kirby, J & Drury, B 2012, Investing for dummies, Macmillan Publishers, London. Tomasic, R & Bottomley, S 2002, Corporations law in Australia, PULP, New York. Read More