Marketable securities are investments that can easily be bought, sold or traded on public exchanges. High liquidity of marketable securities makes them very popular among individual and institutional investors. These types of investments may be debt securities or equity securities.
The types of securities
Although there are many types of securities, the most common types of shares and debt securities, is conditional, stocks and bonds.
Stocks represent investments in stocks, since shareholders to retain an equity ownership in the company in which they invested. Companies can use the investment of shareholder capital to Finance the company’s operations and expansion.
In return, the shareholder receives voting rights and of the periodic dividends on the company’s profitability. The company’s stock price can fluctuate greatly depending on the industry and individual companies, and investing in the stock market can be a risky move. However, many people make good money by investing in the stock market using short-term and long-term strategies.
Bonds are the most common form of debt security and are a useful source of capital for businesses that want to grow. A bond is a security issued by a company or government that allows it to borrow money from investors. Much like a Bank loan, bonds guarantee a fixed return, called the coupon income in exchange for the use of invested funds.
The nominal value of the bond its nominal value. Each issued bond has a par value, coupon rate and maturity. The maturity date-when the company-Issuer must repay the full face value of the bond.
Because bonds are traded on the open market, they can be purchased for less than par (the so-called discount) or more pairs (also called premium), depending on their current market value. Coupon payments are made on the basis of the nominal value of the bond and not its market value or the purchase price, so the investor can buy the bond at a discount still enjoys the same interest payments as the investor purchasing the security at face value.
Interest payments on discount bonds represent a higher return on investment than the coupon rate. Conversely, the return on investment in the bonds purchased with the award is lower than the coupon rate.
There is another kind of marketable security that has some qualities of equity and debt. Preference shares, also called preferred shares, have the benefit from a fixed dividend, just like bond.
Unlike bonds, however, the initial investment of the shareholder are not repaid, making it a hybrid security. In addition to fixed dividend, preference shareholders receive a higher requirements than their common counterparts, if the issuing company goes bankrupt and needs to liquidate assets to pay its obligations.
In exchange for the preferred stockholders to waive voting rights that ordinary shareholders enjoy. The guaranteed dividend and the insolvency insurance policy to make preferred stock more attractive investment for those who find the overall stock market is too risky, but don’t want to wait for bonds to Mature.
Liquid securities can also come in the form of money market instruments, derivatives and indirect investments. Each of these types contains several different specific securities.
Indirect investments include hedge funds and mutual funds. These instruments represent ownership in investment companies. Most market participants have little or no impact on these types of instruments, but they are distributed to accredited or institutional investors.
Derivative financial instruments investment depends on the value of other securities. In the last quarter of the 20th century, trading in derivatives started growing exponentially. Many types of derivatives can be considered liquid, such as futures, options, and rights and warrants.
The most reliable and liquid securities belong to the category of money market. Most operate in the money market securities as a short-term bonds bought and sold in huge quantities on large financial institutions. They include Treasury bills (t-bills), acceptances, contracts, sales and commercial paper.
The General characteristics of the Marketable securities
A characteristic feature of marketable securities is their liquidity, or the ability to convert them into cash and use them as a mediator in other economic transactions. Security next, the liquid according to its relative supply and demand in the market and the volume of its operations. As the securities have short maturities and can easily be sold with price quotes available instantly, they usually have a very low level of profitability, while paying less attention than other tools. But they are usually perceived as low-risk as well.
From the point of view of liquidity, the investment demand, when they will buy and easy to sell. If an investor or a business needs cash in a pinch, it is much easier to enter the market and eliminate the common stock than, say, the certificate is not subject of deposits (CD).
This introduces the element of intent as a sign of “marketability”. In fact, many financial experts and accounting courses claim intentions, as the difference between marketable securities and other investment securities. According to this classification, commodity security must satisfy two conditions. The first ready convertibility to cash; the second condition is that those who buy securities should intend to convert them when they need cash. In other words, the note is purchased with short-term goals in mind is much more in demand than the same weight bought with long-term goals in mind.
Securities and working capital
In accounting terminology, marketable securities are classified as current assets, and, therefore, often include in the calculation of working capital on the balance sheets of corporations. (It is often noticed if they are not; the definition of adjusted working capital, for example, believes only in operating assets and liabilities excluding financing-related items, such as short-term debt and securities.) Businesses that have a conservative policy of cash management normally invest in marketable securities rather than long-term or riskier securities, such as stocks and other securities with fixed income with a maturity of more than one year. Liquid securities is usually a sign directly under cash and cash equivalents accounts on the balance sheet in the current assets section.
An investor who analyzes companies may wish to carefully study the ads that do certain cash obligations, such as dividend payments, before they are declared. For a company that is low on cash and has all of its balance sheet tied up in marketable securities, the investor can eliminate the monetary obligation that the management announced on marketable securities, as this portion of marketable securities is allocated and spent on something other than paying off current liabilities.
It is important to note that there are liquid assets that are not securities, and securities that are not liquid assets. Each commodity security must meet the requirements of the financial security: he must represent the interests of the owner, creditor or rights of ownership, to carry a cash value and be able to provide a profit opportunity for the buyer.