FINANCIAL MARKETS

Apple Inc.



Apple Inc.

Introduction

Financial market is a place where buyer and seller meet to trade in financial securities. These markets are an important part of the country's economy. This paper discusses the concept of financial markets and financial securities and its application. The company selected for the purpose of research is Apple Inc. It is a U.S. based IT company that design and manufactures electronic products and softwares. Some of the popular products of the company include IPhone, IPad and Macintosh. This document discusses the financial position of the company's common stock and options. Fair price valuation and stock analysis are presented along with the company's performance against S&P.

Financial Markets and Financial Securities

Financial market is a mechanism that allows agents to exchange financial assets. Financial markets are affected by the forces of supply and demand. The economy relies primarily on the interaction between buyers and sellers and their ability to allocate resources. The functions of financial markets include capital or money management, the transfer or hedging of risk (in the derivatives markets) and international trade (in the currency markets). Financial markets establish mechanisms to facilitate transactions between the participants in the negotiations. It prices the financial products depending on their supply and demand and reduces the intermediation costs, allowing greater movement of goods (Mishkin, 2007). Moreover, financial markets are also involved in the management of cash flows and capital goods. Financial markets are classified into different types of market.

Money Market

The money market deals the trading in money or financial assets with a short term maturity period. These instruments are highly liquid and easily convertible into cash (Mishkin, 2007). The main objective of the Money Market is to manage the supply and demand of money, balancing the needs of the public savings with funding requirements for investment projects or working capital needed by private companies, businesses, federal and state governments etc.

Capital Markets

The capital market, also known as stock market is a type of financial market which manages the supply and demand of funds or financial resources in the medium and long term. Its main goal is to participate as an intermediary, channeling new resources and savings of investors (Sircar, 2000). Stock markets provide financing through the issuance of shares and allow the subsequent exchange of these. Whereas, Bond markets provides financing through the issuance of bonds and allow the subsequent exchange of these instruments.

Derivatives Market

Financial derivatives are instruments based on the purchase or sale agreements, futures and forward contracts on financial, currency or commodity, swaps and options. A derivative instrument or derivative is a financial arrangement or contract between two parties whose payments or cash flows are based on or derived from the return of another instruments or assets, which is independent of the contract itself. Derivatives are issued on the basis of the underlying) currency, commodities, debt instruments, or assets (Traub, 1995). The main objective of derivative instruments is to hedge the currency, commodity or other type of risks. For example, a company may engage in a ...