Final Report

Securities and Trading

Submitted by: Maarij Khan

Registration ID: F19BBA14
Submitted to: Sir Imran Arshad
Submission Date: 23rd Feb, 2021
Q1: Elaborate how a stock market can help to improve the economic situation of the country?

The trading of stock in public companies is a significant piece of

the economy. Stocks are a kind of security that addresses
ownership interest in an organization. Stock trading permits
businesses to raise capital to take care of debt, dispatch new
products and grow operations. For investors, stocks offer the
opportunity profit from gains in stock value just as organization
dividend payments. Stock costs impact consumer and business
confidence, which thus influence the overall economy. The
relationship likewise works the other way, in that economic
conditions frequently affect stock markets. Stock Market can help
in improving the economic situation in following ways:

 Raising Capital:

Stock markets are financial institutions set up to help businesses and entrepreneurs assist each
other to buy, sell and trade shares to give capital to enterprises that need it. As the money is in
the right hands, it surely affects nation’s overall economy in a positive manner.

 Providing Investors with opportunities:

Another role of stock market is to go about as an intermediary for large and small investors
looking to bring in money outside the domain of the standard banking institutions. The role of
stock exchange in an economy is to maximize return on savings that may some way or another
endure in static financial balances with low returns. Stock Exchange guarantees and conveys
higher benefits and in return investors get proportion of assurance, various opportunities and
adaptability.

 FINANCIAL ACCOUNTABILITY:

Modern financial market systems require credibility and accountability. If they are to work for
organizations and investors as inspired by ethics as they are in profits. Consequently, a stock
exchange profits by a formal design maintained by rules, law and regulations.

 Stock Market Trends

The prices of individual stocks are dynamic, giving the whole stock market a dynamic and even
volatile character. Stock prices will in general trend, and these trends mentally affect individuals
and organizations. Rising stock markets can make a sense of confidence about the direction of

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the economy. As prices keep on rising, more investors come into the market, which expands on
the momentum and benefits the economy.

Q2: Explain the influence of inflation on stock market in general and particularly on Pakistan.

Stock market is the most basic factor to keep economies on the direction of economic
development and advancement. Their smooth working can ensure proficient and powerful
assignment of reserve funds. Subsequently, factors hindering to their productive working ought
to be recognized, and strategy creators should attempt to control their harmful outcomes. One
significant issue, however generally disregarded, is to evaluate the effect of inflation on the size
and working of the stock market. Close perception of writing uncovers that inflation makes
vulnerability about future paces of return and fuels the stock market gratings. It could likewise
give motivating forces to the public authority to curb the monetary area to gather inflation
charge income. In spite of the fact that the outcomes are not all unambiguous, there are
significant confirmations that the factors are integrated and reciprocal causality exists between
them. The discoveries are predictable with the understanding that inflation reinforces contacts
in the stock market, diminishes genuine pace of return on monetary resources, and thus
diminishes exchanging and capitalization in the stock markets. The second understanding of
monetary area constraint appears to be legitimate in light of the fact that administration collets
inflation charge by printing cash. In this manner, based on outcomes it very well may be
reasoned that inflation matters to stock market execution. Listed below are some factors of
Inflation that can affect stock exchange:

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  Paying extra for stocks
 Loss in Stock
 Decrease in Demand

Inflation in Pakistan:

Inflation has always remained unstable in Pakistan. Researchers have inspected the connection
between the stock prices and inflation by taking evidence from Pakistan. Studies have showed
that inflation had negative impact on stock prices. The results of the study showed that inflation
had a positive impact on the stock returns at Karachi stock market, however a negative had
been found with Lahore stock market and Islamabad stock market. The impact of
macroeconomic variables such as monetary policy, fiscal policy and inflation rate on stock
market index in Pakistan is also significant. Below is a graph attached to show inflation in
Pakistan from 1956 to 2018.

Q3: Elaborate the influence of exchange rate on stock market.

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Foreign exchange rates (Forex) and stocks are two of the most traded financial markets on the
globe, so it is basic for traders to search for correlations between the two markets that may
assist them with anticipating future price movements.

The relationship between exchange rates

and stock prices can be analyzed by the
'portfolio balance approach', which
advocates that the causality runs from
exchange rate to stock prices. It is based on
the possibility that the market value of
firms can be significantly influenced by the
soundness of the national currency. It
suggests that when a country's currency is
weakened, its exported goods become less
expensive internationally, which can assist
with fueling growth and lead to an
expected increase in profits for companies
whose earnings are export based.

A higher valued currency makes a country's imports less expensive and its exports more
expensive in foreign markets. A lower valued currency makes a country imports more expensive
and its exports less expensive in foreign market. A higher exchange rate can result in worsen a
country balance of trade, while a lower exchange rate can be relied upon to improve it.

A global illustration of the relationship among forex and shares is the FTSE 100 stock index and
British pound sterling. The index is affected by the course of the national currency in light of the
fact that a ton of the recorded organizations have international operations, so an enormous bit
of their profits are made in US dollars or different monetary standards. If sterling debilitates,
the dollar revenues are worth more and the FTSE 100 is probably going to rise as the
organizations on the index become more valuable.

However, it is crucial to know that the forex market is amazingly volatile, so any effect upon the
stock market will in general lag. Likewise, until an organization delivers its earnings report we
can't completely comprehend the degree to which currency movements have affected upon
their operations and share prices. Despite the fact that the connection between trade rates and
the stock market exists, it tends to be hard to use as a pointer for share value movements.

Q4: What factors influence individual investor’s decision making to invest in the stocks?

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Movements in the stock market can be very unstable
and sometimes movements in share prices can
appear to be separated from economic factors. There
are some factors which impact the movement of
share prices and the stock market which an individual
needs to take care of prior to investing.

 Economic growth

Higher economic growth or better possibilities for

growth will assist individuals with being profitable in
light of the fact that there will be more demand for goods and services. Thus individuals will
actually want to invest when the economic growth is high.

 Interest rates

Lower interest rates can make shares more attractive for two reasons. Lower interest rates help
support economic growth making individuals more profitable. Additionally, lower interest rates
make shares moderately more attractive than saving money in a bank or holding bonds. If that
bond yields fall, it might urge investors to switch into shares which give a moderately better
dividend.

 Stability

Stock markets loathe shocks that could undermine economic stability and future growth.
Therefore, they will in general fall on news of terrorist assaults or spikes in the cost of oil. They
will likewise disdain political instability which may make it hard to seek after solid economic
strategies. Individual investors need to ensure that the there is stability when they choose to
invest.

 Confidence and expectations

A key factor is the mood of investors. If they get economic news that gives optimism, they are
bound to buy shares. If they get terrible news they will sell. This is the reason in the depth of a
recession; stock markets can begin to rise. Investors are continually attempting to anticipate
what's to come. In this manner in the event that they feel the most noticeably terrible is
finished – the stock market can rally – even when economic fundamentals stay poor.

 Similar markets to invest

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Frequently investors have options. For instance, as opposed to putting resources into stock
market, they could purchase government bonds or commodities. If investors feel government
bonds are overpriced and liable to fall, at that point the stock market can profit as individuals
move into shares.

 Price to earnings ratios

A few investors and financial experts feel the best manual for the long-term execution of shares
is their price to earnings ratios. If share prices rise significantly above historical averages, at that
point this is an indication that shares are getting exaggerated and are expected a revision
sooner or later.

 Inflation

An unexpected rapid rise in inflation would most likely reason a fall in stock markets. A rise in
inflation would most likely prompt a more prominent possibility of interest rises. This will
decrease growth and profitability. Likewise, higher inflation may urge investors to move into
more inflation proof investments like gold.

Q5: Explain the gold investment with reference to income stream.

An income which comes from something such as investment or business or by selling products
or services is known as stream income. There are many types of income streams such as rental
income, dividend income, capital gain income, profit income, diversification and interest
income. We can do many investments from this income such as investing in stock market or
buying government bonds. But nowadays because of the global pandemic investments are
risky. If you are looking to invest in something solid with mere or no loss, then one should go
for investing in gold.

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Since forever, scarcely any ventures have matched gold in notoriety as a support against
practically any difficult situation, from inflation, to economic disturbance or money variances,
to war. At the point when you consider investing in gold, don't confine yourself to simply
purchasing actual gold, similar to coins or bullion. Choices to put resources into gold
incorporate purchasing shares of gold mining organizations or gold trade exchanged assets
(ETFs). You can likewise put resources into gold by exchanging choices and prospects contracts.

In case you're worried about inflation and different catastrophes, gold may offer you an
investing place of refuge. In spite of the fact that in the more limited term it very well may be
similarly just about as unpredictable as stocks, over the long haul, gold has held its worth
strikingly well. Contingent upon your own inclination and fitness for hazard, you may decide to
put resources into actual gold, gold stocks, gold ETFs and shared assets or speculative prospects
and alternatives contracts. Notwithstanding the type of gold you pick, most consultants suggest
you allot close to 10% of your portfolio to it.

Any type of investing conveys chances. Gold is the same. Be that as it may, the particular gold
market isn't excusing and sets aside a long effort to learn. This makes gold ETFs and common
subsidizes the most secure decision for most financial backers hoping to add a portion of gold's
soundness and shimmer to their portfolios.

Q6: Elaborate the investment in real estate with reference to income stream.

The real estate businesses have been recently uprising and contributing in the financial markets
of the world. These real estate businesses have loads of population to settle and loads of
income to earn. These businesses are mainly based upon the agents and the parties who are
interested in the profit maximization through property selling, building structuring, and rental
incomes etc.

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Real estate businesses have been growing radically. They have been providing income to a large
number of people. One of the finest reasons of the constant increase in the earning of real
estate business is the over-growing population and the appreciation of land. Although the
buildings and equipment’s depreciate but the value of land does not drops which eventually
causes a greater impact on the economy of the country. In some of the developed nations, real
estate businesses have been kept as another sector which is responsible in enhancing the Gross
Domestic Product of the country. Real estate business is a complete monopoly and it is one of
the reasons of the increase in income of the owners of the property. This monopoly can be
seen as playing a major role in the economy of the country.

The younger generation is reluctant to work in the monopolistic market such as real estate
business which has a relaxation of an ample of profit maximization. People are more inclined
towards investing their money on real estate businesses as compared to investments in
financial institutions or in the share markets due to the less risk of loss of money.

Q7: Explain Sukuk and why should we invest in Sukuk.

Sukuks are bonds like in western finance, but are compliant with the sharia law to be
compatible with the Islamic corporate world. The issuer of a sukuk initially sells it to an investor
and then purchases an asset with the proceeds, of which the investor is a partial owner. The
issuer is also contractually obliged to purchase back the sukuk in the future at its par value.

Since “riba” or “interest” isn’t a halaal way of learning, the Islamic Corporate World came up
with sukuk to come around interest and be able to use financial instruments like sukuk.

Why invest in sukuk?

 Unlike bonds, when the asset that was purchased with sukuk proceeds appreciates, the
value of sukuk also appreciates
 Earning from sukuks are halaal as the stream of income is profit instead of interest
 Sukuks are more liquid than bonds as they can be easily sold in secondary markets for
cash
 Sukuk enjoy greater liquidity than their conventional equivalents. This is mainly due to
the demand that an influence the Sukuk markets, which demand is international supply
is currently limited to Asia regions. This Factor lowers the liquidity risks when investors
wish to sell their holdings.
 Most important for investors, Sukuk is that securities they are anchored in actual assets,
ownership in particular projects properties or special investments, while bonds are
more or less debt instrument.

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  Sukuk are well suited for smart management of risk, uncertainty is a big part of
investment. Islamic Securities can be issued with varying degrees of risk and yield,
allowing investors to choose a portfolio best suited for their risk management.

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