The work of the Stock Exchange

Bibliographic data

Monograph

Identifikator:: 1831284952

URN:: urn:nbn:de:zbw-retromon-225876

Document type:: Monograph

Author:: Meeker, James Edward http://d-nb.info/gnd/126597340

Title:: The work of the Stock Exchange

Edition:: Revised edition

Place of publication:: New York

Publisher:: The Ronald Press Company

Year of publication:: [1930]

Scope:: XVI, 720 Seiten; Illustrationen, Diagramme

Digitisation:: 2022

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Chapter VII. Credit transactions in securities

Collection:: Economics Books

192 THE WORK OF THE STOCK EXCHANGE of Steel rises he obtains a profit, and if it declines he takes a loss. But in becoming long of stock, he has also gone short of money. Consequently, if the value of money advances he will tend to suffer a loss; while if it declines he will tend to profit. In the first case, the rising interest rate on call and time loans may make Jones’s transaction too expensive to be profitable, and he will probably “liquidate,” as it is called, by selling out his stock for what it will bring. Usually, the result of such liquidation by many margin purchasers will be to force down in turn the price of the stock itself. On the other hand, if the interest rate declines, it will assist the margin purchaser to obtain a profit, ‘since he will be directly responsible for smaller interest charges on his loan (which often may be offset by dividends paid on his stock) and since a lower “call rate” will often induce greater margin buying by others, which in turn tends to raise the price of the stocks he has purchased. Twofold Aspects of Short Sales.— Short sales of securi- ties are in the same way subject to a loss or a profit, both on the money and the stock side of the transaction. We have seen that Thompson obtained a profit if Corn Products declined in price, and stood to lose if it advanced. But conditions in the money market may also mean a profit or a loss to him, since in going short of stock ‘he has also gone long of money. An advance in the call rate of money is, therefore, favorable to him, since his broker White can often obtain from Green a higher interest rate on the money loaned to the latter in return for the loan of his stock. Also, as has been pointed out, a rising rate in call loans is apt, through forcing liquidation by margin purchasers, to depress the price of stocks, by which development Thompson, of course, profits. On the other hand, a declining interest rate may result in the interest on White's loan of money to Green becoming smaller than the dividends which Thompson must pay on the stock Green loaned to White, and since a declining call rate is also apt to result in rising stock

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