Stocks and shares: Basic connotations- Part 1
Stock, or stocks and shares, have now become synonyms with securities, and the original distinction between shares and stock has become little hazy. Here are some of the important connotations in the share and stock markets.
THIS PAPER briefly looks at some of the important connotations in the share and stock markets:
Securities:
In the widest sense, securities are documents giving title to property or claims in income which may be lodged, e.g. as security for a bank loan. Another meaning of securities is that it is an income-yielding paper traded on the stock exchange or in secondary markets.
(a) Ordering Costs that consist of the administrative overheads of making the order (which do not depend on the quantity ordered) and the delivery costs (that may well not increase in proportion to the size of the order); and
(b) Inventory Costs that consist of storage and warehousing costs, insurance and deterioration costs, and the interest cost of money tied up in inventories. All these vary directly and possible more than proportionately with the size of the inventories.
In the widest sense, securities are documents giving title to property or claims in income which may be lodged, e.g. as security for a bank loan. Another meaning of securities is that it is an income-yielding paper traded on the stock exchange or in secondary markets.
It is usually a synonym for stocks and shares. The main types of securities are: (a) Fixed Interest Securities like debentures ( fixed interest securities issued by limited companies in return for long-term loans), preference shares ( normally entitle the holder only to a fixed rate of dividend), stocks and bonds ( including all government securities and local authority securities); (b) Variable Interest Securities: These are securities that are akin to ordinary shares; (c) Other Securities: These securities are like Bills of Exchange (in principle, a bill of exchange is similar to a post-dated cheque, and like a cheque it can be endorsed for payment to the bearer or any named person other than the drawee), Assurance Policies Securities may be redeemable( that are payable at their par value at a certain date ) or irredeemable( that are not bear a date at which the capital sum would be paid off or redeemed )
Stock:
Stock is a particular type of security, usually quoted in units of Rs.100 value rather than in units of proportion of total capital, as in shares. Stock, or stocks and shares, have now become synonyms with securities, and the original distinction between shares and stock has become little hazy. The term stock is now coming to mean exclusively a fixed-interest security, i.e. loan in a company or local or central government stock. Stock also means accumulation of a commodity when we talk of economics.
Stock (or inventory) analysis:
It is a body of techniques which tries to determine the optimum level of inventories to hold in any given situation. This includes (a) the determination of the relevant set of costs, to find the way in which these vary with certain key variables, and (b) setting up a model of the situation using the cost relationships, and then to find the values of variables which minimize the costs of holding inventories. In this context consider an example of a retailer of a single good, which he sells at a known constant rate per week. Given this rate of sales, he has to decide how large an inventory to hold, which involves two decisions: how often a delivery of the good should be made, and how much should be delivered each time. In essence, if we assume that deliveries will be timed for when inventories should have run down to a certain minimum level, the only variable whose size has to be determined is the size of the order quantity. The relevant cists are:
Stock:
Stock is a particular type of security, usually quoted in units of Rs.100 value rather than in units of proportion of total capital, as in shares. Stock, or stocks and shares, have now become synonyms with securities, and the original distinction between shares and stock has become little hazy. The term stock is now coming to mean exclusively a fixed-interest security, i.e. loan in a company or local or central government stock. Stock also means accumulation of a commodity when we talk of economics.
Stock (or inventory) analysis:
It is a body of techniques which tries to determine the optimum level of inventories to hold in any given situation. This includes (a) the determination of the relevant set of costs, to find the way in which these vary with certain key variables, and (b) setting up a model of the situation using the cost relationships, and then to find the values of variables which minimize the costs of holding inventories. In this context consider an example of a retailer of a single good, which he sells at a known constant rate per week. Given this rate of sales, he has to decide how large an inventory to hold, which involves two decisions: how often a delivery of the good should be made, and how much should be delivered each time. In essence, if we assume that deliveries will be timed for when inventories should have run down to a certain minimum level, the only variable whose size has to be determined is the size of the order quantity. The relevant cists are:
(a) Ordering Costs that consist of the administrative overheads of making the order (which do not depend on the quantity ordered) and the delivery costs (that may well not increase in proportion to the size of the order); and
(b) Inventory Costs that consist of storage and warehousing costs, insurance and deterioration costs, and the interest cost of money tied up in inventories. All these vary directly and possible more than proportionately with the size of the inventories.
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