5-2 Final Project Milestone Four: Draft of Risks and Returns In this milestone, you will analyze the risks and returns of different investment instruments in the U.S. and non-U.S. markets you select

5-2 Final Project Milestone Four: Draft of Risks and Returns In this milestone, you will analyze the risks and returns of different investment instruments in the U.S. and non-U.S. markets you select
ORGANIZED EXCHANGES 0 Organized Exchanges Organized stock exchanges provide companies with an avenue to assess the deep pockets of investors from around the world. However, these exchanges are not the same, and they differ in size, trading volume, and regulations. Therefore, companies evaluate different exchanges before choosing the one that best suits their needs. However, the company can only be listed if they meet the exchange’s listing requirements. The reputation of major stock exchanges depends on the companies allowed to trade on their platforms. Reputation attracts investors to the exchange. Thus, the exchanges only consider listing companies that meet specific requirements such as quality management, solid financial history, etc. The exchanges also monitor the companies trading on their platforms to ensure transparency and accountability and protect investors’ money. The Securities and Exchange Commission (SEC) is a federal agency that monitors and regulates the trading of securities in the United States (Karmel, 2009). NASDAQ listing requirements Bumble Inc. chose to be listed on NASDAQ for reasons best known to its executives. NASDAQ requires all companies seeking to be listed on the platform to adhere to the U.S Securities and Exchange Commission (SEC) regulations. In addition, the firm must follow Marketplace Rules for Nasdaq listing, including the 4350, 4351, and 4360 corporate governance rules. Companies listed on NASDAQ must have a minimum number of publicly traded shares (1,250 000 in 2022) during the IPO launch, excluding those owned by directors and other parties closely associated with the company. NASDAQ charges the company a fee based on the number of shares issued to investors on the platform. This figure currently ranges between one hundred thousand and one hundred and fifty thousand dollars. The shares must also be sold above a minimum agreed price ($4.00 in 2022). The platform also charges application fees of between five thousand to twenty-five thousand dollars depending on the type of securities listed and the company’s size. NASDAQ also charges other fees such as annual listing fees, record-keeping fees, and fees for issuing additional shares. NASDAQ also has strict financial standards that cover significant aspects such as the company’s earnings, capitalization, and assets. The company must maintain these standards to continue trading on the platform, and failure to meet them results in delisting. The most common cause for delisting share prices falling below the minimum and market capitalization. Organized exchanges in the United States such as the NASDAQ and NYSE attract companies in the U.S. and outside. These exchanges have several advantages over other major exchanges in the world. This includes large market capitalization, massive trading volumes, credibility, and ease of doing business. Non-US companies seeking a listing on the NASDAQ must follow all requirements mentioned above. In addition, they must adhere to other standards enforced by the SEC. For example, in August 2021, the SEC approved new listing standards for NASDAQ to promote diversity. The requirement mandates non-US companies listed on NASDAQ to have at least two diverse members in their governing board and disclose their diversity efforts every year. The London Stock Exchange The London Stock Exchange (LSE) is one of the largest and oldest stock exchanges globally (Michie, 2001). Physical trading occurs in the city of London, United Kingdom, but the advancement of technology and favorable laws has seen the LSE move towards online trading. The LSE lists thousands of companies from more than fifty countries worldwide. The LSE is an attractive avenue for multinational companies planning to join the capital market. The exchange is often used as the benchmark for prices and market data for companies operating in Europe. In addition, the LSE seeks to eliminate regional trading barriers and promote global capital markets trade and has partnered with major exchanges in Asia and Africa. Companies that want to be listed on the LSE are approved by the Financial Conduct Authority (FCA) through the United Kingdom Listing Authority (UKLA). After approval by the FCA, the LSE then admits the company to its main market for trading. London Stock Exchange is responsible for the admission to trading of companies to the Main Market. The FCA regulates trading on the platform, and all listed companies must comply with the Rules of the London Stock Exchange (“the rules”). U.S. companies that want to be listed on the LSE can access the listing requirements from the LSE’s official website or trusted parties in the capital market industry, such as the PwC group (PwC, 2012). Bumble Inc. could have chosen to trade on the LSE instead of the NASDAQ. The LSE is more prestigious and gives companies listed on its platforms a blue-chip status than the NASDAQ. However, the perception that only the NYSE and LSE have successful companies has slowly changed due to the presence of several successful blue-chip companies in the NASDAQ platform, such as Apple, Google, and Microsoft. Choosing the NASDAQ presented the company with several advantages. First, technology companies have traditionally done well after listing on NASDAQ, and Bumble Inc. followed this trend and exceeded its expectations on their first trading day. Second, the U.S. capital market is more prominent and thus has higher trading volumes than the United Kingdom and the E.U. The NASDAQ also has fewer listing fees and lower listing requirements than traditional exchanges such as the LSE. Bumble Inc.’s decision to list only on NASDAQ was the best. The company raised twice the expected capital on its first trading day. Interest rates The Bank of England sets interest rate policies in the United Kingdom. The goal of the policies is to keep inflation low and stable within the country. The Bank of England primarily uses two monetary tools to control inflation in the U.K. The first one is setting a specified bank rate that applies to all financial institutions that borrow from the Bank of England. The bank also buys bonds to lower interest rates on loans through quantitative easing (Q.E.). On the other hand, the Federal Open Market Committee sets interest rates in the U.S. References Karmel, R. S. (2009). The Future of the Securities and Exchange Commission as a Market Regulator. U. Cin. L. Rev., 78, 501. Michie, R. (2001). The London stock exchange: A history. OUP Oxford. PwC (2012). Listing in London A guide to premium and standard listings of equity and flotation on AIM. PWC capital markets. https://www.pwc.com/mn/en/capital-markets/assets/mn_successful_listing_in_london_eng.pdf
5-2 Final Project Milestone Four: Draft of Risks and Returns In this milestone, you will analyze the risks and returns of different investment instruments in the U.S. and non-U.S. markets you select
Running Head: FINANCIAL MARKETS 0 Financial Markets Introduction Financial markets are marketplaces where investors trade securities. They are vital features of capitalist economies and include the stock market, forex, bond market, and derivatives (Madura, J. (2020). The stock market is a marketplace that offers companies an avenue to list their shares to traders and investors. The bond market is avenue corporations, and governments use to raise money to finance their investments or projects. Investors buy bonds from these corporations at an agreed interest rate for a specific period. Commodities markets are avenues that offer producers and consumers to exchange different physical products such as agricultural products, precious metals, petroleum products, and soft commodities. Macroenvironment Financial markets are significantly affected by the macroenvironment such as fluctuating political and social climates. The political climate changes include factors such as changes in the government, political instability, legislative changes, military control, etc. The social climate includes current news and events, such as terrorist attacks, wars, riots, etc. Governments make political decisions that affect businesses in their market, such as introducing new taxes, trade tariffs, environmental regulation, labor laws, etc. The most recent case example occurred in China in 2020 when investors in the Ant Group, a subsidiary of the Chinese multinational giant Alibaba, felt the impact of changing political changes when Chinese regulators canceled its IPO (Oxford Analytica, 2020). This illustrates that these factors significantly impact investment options, operations, and returns. Boom and bust cycle Financial markets are also affected by the economic cycles of the country. The most common cycle in most western capitalist economies is the boom-and-bust cycle. The boom period is accompanied by low unemployment rates, wage growth, a bull market, and rising real estate prices. The central bank reduces barriers to obtaining credit through measures such as low-interest rates, and thus individuals and for-profit institutions borrow capital for investment. Subsequently, investors earn high returns from the market, and the economy grows. Companies get raise higher amounts of capital during IPOs launched the bust period. The was recent economic boom in the United States was from 2009-2020. It was known as the ARRA and QE after the American Recovery and Reinvestment Act of 2009 (ARRA). This was a federal program implemented by the Obama government to counter unemployment and steer the economy after the Great Depression of 2008 (Act, 2009). However, the economic growth reaches its peak and stops expanding after some time. This is called the bust cycle. The availability of excess credit from lenders makes individuals and businesses overinvest. The investments in the market outweigh the market demand, and thus they lose value. Financial institutions increase interest rates, making it difficult for individuals and businesses to obtain credit. Investors lose their money and confidence in the market, and consequently, there is limited capital for investment. Companies reduce operating costs, and many people lose their jobs. The increased unemployment rates reduce consumer spending. This period is also called economic recession or depression if it’s more severe and persists for long periods.  Studies show that the 2020 Coronavirus pandemic was a bust which had widespread impact on financial markets (Cumming, 2020). Inflation and interest rates Stakeholders in the financial markets constantly monitor the country’s level of inflation and interest rates. Inflation can be defined as the uncontrolled rise of prices of goods and services in the country. Inflation reduces the purchasing power of a nation’s currency, and thus consumers purchase few goods, businesses record low revenues, and the economy slows down. Scholars have conducted several studies to investigate the relationship between inflation and market performance. These studies show that expected inflation can positively or negatively affect the stock market depending on the government’s fiscal response or the investor’s ability to reduce the associated risks. Interest rates refer to the cost individuals or businesses pay for using another party’s capital to invest. The Federal Open Market Committee sets interest rates in the United States. These rates are often used by financial institutions such as banks to borrow or lend money to each other, and thus, it usually takes at least one year for the rate to have a widespread impact on the economy. However, changing interest rates have an immediate effect on the stock market. Therefore, investors should know the relationship between interest rates and market performance to make informed financial decisions. Governments control inflation by changing fiscal policies in the country, such as raising interest rates. Raising interest rates increases the cost of borrowing for financial institutions. These institutions increase the rate they charge their customers on different credit options such as mortgages and credit cards. Therefore, there is less capital available for investments. The increased costs reduce the amount of money available to consumers to spend, reducing business revenues and profits. Subsequently, businesses have to deal with two factors that affect market performance, earnings, and stock prices; increased borrowing costs and reduced consumer spending Conclusion Financial markets are significantly affected by changes in the microenvironment. Ant Groups ‘ saga with Chinese authorities, show how the extremes of governments control on stock markets. Bonds are issued at fixed rates which does not account for changes in the financial markets, such as inflation. Therefore, the bond market is significantly affected by changes in its external business environment. The prices of products are affected by inflation and other external factors mentioned above. Commodities markets provide investors with a hedge against inflation. They have a low negative correlation compared to stocks and bonds and offer protection from the effects of inflation. References Act, R. (2009). The American Recovery and Reinvestment Act of 2009. Public Law, 111(5), 5-30. Cumming, D. J., Martinez Salgueiro, A., & Sewaid, A. (2020). COVID-19 Bust, Policy Response, and Rebound: P2P vs. Banks. Policy Response, and Rebound: P2P vs. Banks (November 5, 2020). Madura, J. (2020). Financial markets & institutions. Cengage learning. Oxford Analytica. (2020). Halted China IPO sends political and policy signals. Emerald Expert Briefings, (oxan-db).
5-2 Final Project Milestone Four: Draft of Risks and Returns In this milestone, you will analyze the risks and returns of different investment instruments in the U.S. and non-U.S. markets you select
Running Head: ORGANIZED EXCHANGES 0 Organized Exchanges Definition Organized exchanges give companies a platform to sell shares to investors to raise capital to finance their businesses. The shares are sold according to formal rules formulated by the exchanges. Investors also use these exchanges to trade shares between themselves. There are several organized exchanges where companies can list and sell their shares in the world. Companies in the United States have several options such as the New York Stock Exchange (NYSE), the American Securities Exchange (AMEX) and the National Association of Securities Dealers (NASDAQ). Main Organized Exchanges in the US All organized exchanges have a common goal, to raise capital. However, they all have slight differences in their operations. The NYSE and AMEX have physical trading floors where investors conduct transactions individually or through brokers. However, the advancement of electronic media has made NYSE switch to online trading. The NYSE has strict listing and reporting requirements and thus only lists established companies such as Ford Motor Co., Alibaba Group Holding Limited, and Boeing Co (Macey, 2002). The AMEX functions like the NYSE but without stringent listing requirements. Thus, AMEX attracts smaller companies that cannot meet the NYSE’s requirements. Unlike the NYSE, all trades on NASDAQ occur online. Therefore, trading is highly efficient and attracts traders from all over the world. NASDAQ’s early listing requirements attracted technology companies that could meet NYSE requirements, and their success had made it a favorite of technology firms in the country. Examples of companies listed on NASDAQ are Apple, Facebook, Amazon, and Google. Bumble Inc IPO Bumble Inc is a software development multinational headquartered in Austin, Texas. The company was founded in 2014 by the current CEO Whitney Wolfe Herd. Bumble Inc. owns and operates online dating and social networking applications that enable users to meet new individuals for relationships, dating, and friendship. The company’s consumer market is geographically segmented in North America, Europe, and the rest of the world. The products are divided into free and subscription models. However, the company generates a bulk of its revenue from in-app purchases. The company’s products have a unique feature that it a competitive edge; women have to initiate conversations. Bumble Inc. went public in the NASDAQ stock exchange on 10th February 2021. Bumble Inc.’s decision to trade on NASDAQ was the best given the platform’s reputation among technology start-ups. The company raised two billion dollars in its initial public offering, IPO. The IPO was strategically launched days before Valentine’s Day. The company initially offered to sell thirty-four million shares with prices ranging between twenty-eight to thirty dollars. However, the company sold fifty million shares at forty-three million dollars due to increased demand. Therefore, Bumble Inc raised twice the capital it planned on its first day on the NASDAQ trading floor. The share price rose to seventy dollars the day after the IPO, which rewarded early investors who had bought the IPO. References Macey, J. R., & O’Hara, M. (2002). The economics of stock exchange listing fees and listing requirements. Journal of Financial Intermediation, 11(3), 297-319.