20. The stock market

Stock Markets are the means through which securities are bought and sold.

The appearance of formal stock markets and professional intermediation resulted from the supply of, demand for and turnover in transferable securities in the 19^th century.

The largest, most active and best organized markets were established in Western Europe and the United States.

Members of stock exchanges drew up rules to protect their own interests and to facilitate the business to be done by creating an orderly and regulated marketplace.

Stock exchanges emerged as central elements in the financial systems of all advanced countries.

Potential investors, insurance companies, pension funds, governments and corporate enterprises see securities as a cheap and convenient means of finance.

An investor who purchases new securities is participating in a primary financial market. An investor who resells existing securities is participating in a secondary financial market.

There are two basic types of stock markets–organized exchanges, and the less formal over-the-counter markets.

The organized security exchanges are tangible physical entities, which have specially designated members⁵ and elected governing bodies – boards of governors.

21. Foreign exchange market

Any one country’s currency is a legal tender only within its national boundaries. To trade beyond these boundaries involves exchange of monies. It is possible if national currencies are interchangeable.

Currencies can be bought or sold in the Foreign Exchange Market. It is the oldest and the largest international market in the world.

The Market performs two major functions: it facilitates the foreign exchange needs of exporters and importers, and it enables individuals, corporations and governments to obtain a desired currency mix of their portfolios.

The exchange market is global in character, it does not have one centralized location. . The market consists of three major sectors: the spot market, the forward and futures markets and the currency options market.

Prices in the market depend on the volume of transactions, exchange rate volatility, the availability of relevant information and the strength of competition in the Market.

22.Taxes and taxation

Taxes are the compulsory financial contribution by a person or body of persons towards the expenditure of a public authority. In modern economies taxes are the most important source of government revenues.

Taxes have 3 functions:

1)fiscal or budgetary, to cover government expenditure, to provide the public authorities with the revenue required for meeting the cost of defence, social services, interest payments on national debt, municipal services, etc;

2)economic, to give effect to economic policy, to promote stable economic growth, to influence the rate of economic growth of the nation;

3)social, to increase the economic welfare of the community, to lessen inequalities in the distribution of income and wealth.

Taxes may be direct or indirect. For example, taxes on income and on capital are known as direct; taxes on commodities or services are known as indirect.

Taxes may be proportional, progressive and regressive.

A proportional tax is one that imposes the same percentage rate of taxation¹ on everyone, no matter what their income.

A progressive tax is one that imposes a higher percentage rate of taxation of people with high incomes than on those with low incomes.

A regressive tax is one that imposes a higher percentage rate of taxation on low incomes than on high incomes.