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  3. Can you explain why people buy stock on margin?

Can you explain why people buy stock on margin?

admin2010-02-11  100
问题 Can you explain why people buy stock on margin?
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答案Suggested answers: a．Well, I don’t know much about stock market. As we all know, many people buy many things on credit, and stocks are no exception. Investors who qualify can make a stock purchase by paying 50 percent down and getting a loan for the remainder. This is called buying on a“margin”of 50 percent. The balance is borrowed at interest from the brokerage house and the stock certificates are deposited with the broker as security. The Federal Reserve Board regulates the minimum margins, the amount that must be paid in cash as a percentage of a purchase. The minimum margins vary, depending on whether there is need to stimulate the market or curb its speculative enthusiasm. b．If an investor sells stock held on margin that has appreciated, the investor may pocket the profit and pay the broker the amount that was borrowed plus interest and commission. If the stock goes down, the broker can issue a“margin call,”and the investor is required to pay an additional amount into the account. If the owner cannot produce cash, some of the stock is sold at the investor’s loss. Buying stock on margin gives speculators (traders willing to gamble on high-risk situations) the opportunity of making more profit and also the risk of suffering greater losses. c．At times the Federal Reserve Board requires a 100-percent margin, meaning that all stock must be paid for in cash. During the 1950s, for example, the margin rate varied from a low of 50 percent to a high of 90 percent. A low rate, of course, stimulates stock buying, while a high rate discourages it. The first concern of most investors is the safety of their purchases. If necessary they will often take lower dividends to avoid great risk. In contrast, speculators hope to see the price of their stocks go up, usually within months, or even days, They are more interested in the future of the stock than in its earning power at the time of purchase. People who believe they can outguess the market try to buy before prices rise and sell before they fall. d．There is also a group of speculators known as“short sellers. ”A short seller is someone who invests money because he or she expects a particular stock to go down in value. This person sells “borrowed”stock, in hope of replacing it later with stock bought on the open market at a lower price. This is one of the riskiest ways of investing in the market, because the price of a stock that is doing very well may rise tenfold or more, in which case the“short”gets“squeezed”for a big loss. Selling short is governed by specific rules to prevent abuses of a type that occurred in an earlier era on Wall Street. e．The largest security market in the world in terms of the number of different stocks and bonds traded is the over-the-counter (OTC) market. OTC is not located in any one place, but is primarily an electronic communications network of stock and bond dealers. The National Association of Securities Dealers, Inc. , which has the power to expel companies, supervises these stocks or dealers determined to be dishonest or insolvent. The over-the-counter market tends to get stocks of smaller companies, and by the 1990s had come to be known as a market where many of the fastest growing“high-tech-nology”stocks could be bought and sold. Again, information about trading activity can be acquired through newspapers, magazines, or electronically. A brokerage house usually handles purchases and sales of these stocks along with those on the major exchanges. f．Many persons who do not feel qualified to decide which stocks to purchase, but who nevertheless want to participate in the stock market in hopes of making a profit by doing so, turn to mutual funds. A mutual fund combines funds of its shareholders, which may be in small amounts, and invests large blocks of money in a varied portfolio of stocks, this reducing the risk, which is another reason why many people prefer this method of investing in stocks. g．Another advantage of mutual funds to the customer is that the fund’s managers get professional advise from staff analysts. It is possible for a fund to employ such persons because the operation is on a large scale. There are dozens of kinds of mutual funds. Some are designed for income. Some for capital appreciation, and others are speculative with the chance for large gains or severe losses. Some deal only with stocks of specific industries, or stocks of foreign companies, or companies whose activities benefit the environment. The number and variety of funds proliferated greatly in the 1980s; the total number of funds jumped from 524 to 2,918 over the decade, while the portion of U. S. households holding shares in mutual funds increased from 6 percent in 1979 to 25 percent in 1989.
解析 over-the-counter stocks场外交易股票。capital appreciation股本升值。brokerage经纪人佣金。 remainder余数，剩余部分。block冻结，封锁。
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