Capital Market Harvard Case Solution & Analysis

Capital Market Case Solution

The stock market is a place or organization by which stock traders (Companies and people) can trade stocks. It also includes securities listed on stock exchange and those which are traded privately. It is an important means of money management and a key representation of financial capitalism of a country.(A, W, J, & Jordan, 2016)

The concept of stock market came in the 12th century when the change was concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Since, these men also traded in debts; they were called the first brokers. In 1602, the first joint stock company "The Dutch East India Company" founded, as a result, the trading in stock occurred in Amsterdam Exchange. Since then, there are now many stock exchanges developed in almost every developed as well as developing economy. The largest stock markets of the world are United Kingdom, United States, France, Germany, Canada, China, Japan, India, Netherlands and South Korea.(E. Han Kim, 2000)

Despite the popularity of stock markets most of the people not fully understood the purpose and functions of stock markets. Let us make things bit easy, first of all, we will discuss what is a stock or share? Well, when a company needs some for new projects, investments or to launch a new product, it issues shares to the general public, this process is called IPO (Initial Public Offerings).  Stock price will be determined by the estimated worth of the company, and the maximum size of shares which can be issued to the general public will be determined by the concerned government institution i.e., Securities and Exchange Commission. The company raises the money to grow its business while the trading of Company's stock will be continued in the stock market, and the price of the stock will then depend on upon its demand and company's performance.(XAVIER GABAIX, May 2006)

Now, we have to know why companies issue shares or stocks, but the question is why people buy shares? As I said earlier after the Initial Public offerings, investors and traders will continue buy and sell of the particular company's stock, since a company's value changes time to time depending on its performance, so the stock price will also fluctuate as well as depending on the performance of the company, thus investors can make profits by buying the stock at a lower price and selling it at a high price and similarly, can lose money if the stock's price goes down. As there is a vast number of investors and traders, the demand, and supply of a stock pushes it prices high and low. As an Investor and Trader, you need to predict the future stock prices in order to make money, which is not an easy task to do. As an alternative, many investors use diversification to mitigate the risk of loss by buying a basket of stocks from various sectors. Many matured companies also pay dividends to shareholders; a dividend is a sort of profit by the company on investment.(Barro, 1990)

History has exposed that the price of shares and other assets is a significant measurement of the dynamics of economic performance, and can influence or be an indicator of social lifestyle. A market where the stock market is on the high is known to be a developed economy. The stock market is considered the most important indicator of a country's financial power and growth. There are many functions of stock markets which make the stock market a key indicator of a countries economic strength. Some of which are:......................'

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