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hi john, i had a few doubts.
why is it that increase in shareholder’s rate of retrurn will result in fall to market rate.
And it is true that money market insturments are only traded over the counter between instituitonal investors and not individual investors. But, why is that when we are doing a foreifn export and the importer will pay later, we ask the importer for bankers acceptannce. I mean, both companies are not institiutional investiors.
Also what we mean by negotiable and non negotiable insturments
thanks
You really should watch my free lectures, because you cannot expect me to type out all my lectures here!!!
An increase in the shareholders required return does not result in a fall in ‘market rate’. It results in a fall in the market value because the market value is the present value of the future expected dividends, discounted at their required rate of return. If the required return is higher, then the PV (and therefore the market value) will be lower.
Over the counter (OTC) is direct with the bank or other financial provider, and are not traded. They are the same whether individuals or institutionsl!
Negotiable instruments are traded (and so can be bought and sold – i.e. are negotiable). Non-negotiable instruments are not traded on the relevant exchanges.
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