Important Terms - II

PART II

Stock Exchange

• The market in which shares are issued and traded either through exchanges or over-the-counter markets. Also known as the equity market, it is one of the most vital areas of a market economy as it provides companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company's future performance.
  
  
  
• Multinational Companies
  
  A corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management. Very large multinationals have budgets that exceed those of many small countries. Sometimes referred to as a "transnational corporation"
  
  
• Blue Chips
  
  A nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue-chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth. The name "blue chip" came about because in the game of poker the blue chips have the highest value.
  

• Buyback of Shares
  
  The buying back of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies will buyback shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may be looking for a controlling stake.
  
  A buyback is a method for company to invest in itself since they can't own themselves. Thus, buybacks reduce the number of shares outstanding on the market which increases the proportion of shares the company owns. Buybacks can be carried out in two ways:
  
  1. Shareholders may be presented with a tender offer whereby they have the option to submit (or tender) a portion or all of their shares within a certain time frame and at a premium to the current market price. This premium compensates investors for tendering their shares rather than holding on to them.
  
  2. Companies buy back shares on the open market over an extended period of time.
  
  
• Stock Splits and Reverse Stock Splits
  
  Increase in a corporation's number of outstanding shares of stock without any change in the shareholders' Equity or the aggregate Market Value at the time of the split. In a split, also called a split up, the share price declines.
  
  Procedure whereby a corporation reduces the number of shares outstanding. The total number of shares will have the same market value immediately after the reverse split as before it, but each share will be worth more.
  
  
• Dematerialization - DEMAT
  
  The move from physical certificates to electronic book keeping. Actual stock certificates are slowly being removed and retired from circulation in exchange for electronic recording.
  
  With the age of computers and the Depository Trust Company, securities no longer need to be in certificate form. They can be registered and transferred electronically.
  
  Rematerialzation is the antithesis of Dematerialization.