1. Credit Unions and Insurance Companies
Structures and Functions
Credit unions and insurance companies have financial structures that render autonomy to the management of their own affairs, usually under clear legislative regulation. Special insurance companies known as mutuals operate in a version similar to a credit union which shows how similar the two financial institutions might be. Credit unions Due to the nature of their operation and type, management units and version are different between the two entities. Credit unions are managed by a regulatory board and committees while insurance companies are managed by managerial offices and a board of directors.
While credit unions are regulated by cooperatives regulations, insurance companies are regulated by incorporated entities regulations. By seeking financial assistance from a credit union, individual entities become owners of the financial institution which is not the case with insurance companies which are not owned through seeking insurance cover or any other financial assistance. Interest rates at credit unions are very attractive since they aim at initiating development among members. On the other hand, insurance companies charge high interests since they are profit oriented.
Both institutions are established to offer financial security in a certain way to their clients. In a similar end result, both the credit unions and insurance companies offer a clear savings channel that is not as clear in many other financial institutions. The operation of both of these financial institutions seems to be providing a secure means to invest since the risks involved are considerably shielded from several risk types. In contrast, on one hand, credit unions ought to spur development among the members through offering of cheap financial services. On the other hand, financial services offered by insurance companies are geared towards maximization of profits thorough delivery of a range of policies and other financial services.2. Open-end mutual funds, closed-end mutual funds, and exchange traded funds
Salient Characteristics and Features
Management is vested in the hands of a board of directors in all of the above mentioned financial institutions, with the sole responsibility of protecting the shareholders. In distinguishing open end mutual funds from the rest, it is clear that the fund operates on a self liquidating manner, in that it is always willing and able to purchase and sell investors’ shares any day of operation. On the contrary, closed end mutual funds are not bound by the provision of liquidity, a factor attributed to have caused a serious performance slump at the helm of Crush of 1929 (Haslem 2009, p19). Open end mutual funds allow redemption of the shares by the fund. On the contrary, exchange traded fund is a mutual fund portfolio through which an acceptance to trade the shares in a securities exchange program exists. In a similar way, exchange traded funds as well as closed end mutual funds therefore enable the fund investors to exchange and trade the shares among themselves.
According to Haslem (2009) the regulation of the open end funds is a very challenging order to match for several institutions since one of them is the provision of performance disclosure. Such disclosures are expected to solve the collapse risk observed during the Crush of 1929 and increase investor confidence. As a result, investors prefer open end mutual funds to closed end mutual funds to this day due to the disclosure protection. Open end mutual funds are also one of the most diversified investment mutuals due to a wide asset and securities coverage. For this reason, there more investment avenues in an open end mutual fund than several other funds. Investors that deal in exchange traded funds are more likely to use the features of the fund that allows them to hedge a certain financial position. This is due to the diversified nature of the fund such that its shares can be shorted to cover certain investment considerations.
3. Common stocks, preferred stocks, bonds, and convertible bonds Salient Characteristics and Features
Common stocks present a bundle of rights to a holding investor which include dividends, liquidity rights, consideration rights upon fundamental transactions, voting and owning assets proportion upon liquidation. Preferred stocks have all of common stocks rights and an additional advantage of preferential treatment during the effecting of the rights. For instance, dividend payments are preferentially made in consideration of the rights possessed by preferential stocks holders. Extra rights include inspection and information, blocking rights and pro rata participation rights during sales among several other special rights. Bonds holders are creditors to an institution that has offered to issue bonds as a financing mode. This is a difference from stock holders who are actually partial owners of the issuing corporation.
Alternatively, the bond relationship is a temporal arrangement that automatically expires at the end of the stipulated contractual period. The returns obtained from the bond investment are known in advance and tend to be fixed unlike that of stocks which considerably varies with the actual performance of the corporation. Convertible bonds are special type of bonds which present the owner with a rare opportunity to transform them into shares. As such, the bundle of rights possessed by shareholders becomes effective upon the conversion. It can be said to possess both debt and equity characteristics that bonds and stocks separately possess.
While stocks are translated as units of ownership of the corporation, bonds are a measure of debt that the corporation owes to holders who effectively become creditors. In the application of the general interpretation of the rights of these two groups of investors, there is a feature of corporate liability on one while the other does not possess the feature. In this sense, the stockholder is more of the owner who should take care of liabilities such as those claimed by the bondholder who is a creditor. It therefore means that these two types of investors are on the exact opposite sides of the ownership rights. A hybrid sense of corporate rights emerges from the merging of the rights of both a creditor and a shareholder. This is the rare investment opportunity presented by convertible bonds.
4. NASDAQ market, NYSE, and the stock market of the nation that was the focus of your group project
Strengths and weaknesses
NASDAQ market posses on of the most unique strength that modern securities markets can have, the electronic foundation. In a world whose operation is almost synonymous with incessant innovation particularly fueled by the information technology regime, it positions itself as a rare type of a market. Electronic security trading has a lot of insights to borrow from NASDAQ market, having been able to amass the largest market volume that is unmatched by any other market. On a market capitalization yardstick, NASDAQ is only second to the world largest stock market which demonstrates how powerful of a stock market that it is.
Similarly, the NYSE is a leading world stock and securities market second to none in its volume and market capitalization. Its electronic base got a milestone boost when it merged with Euronext, a leading electronic stock market in 2007. Perhaps, one of its strengths is hidden in the fact that it incorporates a huge electronic operation line with the ordinary stock market operation. Coincidentally, both systems of stock markets are in New York, home to the world business coordination center. The American system of stock trading is central to many world operations. New York City is home to numerous world related institutions and world economic watch derives its vibrancy from the city.
Among the most potent financial weaknesses that NASDAQ and NYSE posses include limited operating margin, low return on equity and a vey high reliance on the US security market (GlobalData, 2010). From these common weaknesses, the scenario is also made worse by the fact that both markets rely on the US dollar as the debt reference currency, which exposes their scope to the performance of the dollar. The US stock market is vulnerable to various risks such as the Wall Street risk analysis which is usually blamed for the recent economic slump.
GlobalData (2010) “NYSE Euronext (NYX- Financial and Strategic SWOT Analysis,” Retrieved from: HYPERLINK “https://www.researchandmarkets.com/reportinfo.asp?report_id=1495220&t=t&cat_id” https://www.researchandmarkets.com/reportinfo.asp?report_id=1495220&t=t&cat_id=
Haslem, J. A. (2009) Mutual funds: portfolio structures, analysis, management and stewardship. Hoboken, NJ: John Wiley and Sons