Question

Scenario:

The New York Stock exhange impose a fee of $.0025 per share in addition to all existing fees and costs of on all transactions carried out on exchange.

Question:

What effect if any would this tend to have on the price of "securities trading on the exchange" and the effect on "expected returns"? (Explain)

Answer 1

Answer:

As per given information , The New York Stock exhange impose a fee of $.0025 per share in addition to all existing fees and costs of on all transactions carried out on exchange.

Following would be effects that this tend to have on the price of "securities trading on the exchange" and the effect on "expected returns" :

1. On securities trading on the exchange : The securities trading on the exchange would be costlier by $ 0.0025 per share or per security. It directly affects the price of the securities trading on the exchange, as these are costlier therefore buyer hesitate to buy securities than earlier. Due to shortage of buying the demand of security will fall and price of the securities on the exchange will fall.Whole market will fall due to such imposition of fees by The New York Stock exchange.

2. On Expected Returns : As there is imposition of fee of $ 0.0025 per share by The New York Stock exchange , the investor has to bear such cost on purchsing and selling of the securities as it imposed on all transaction carried out on exchange.

Investors or trader's expected return will be fallan by $ 0.0050 per transaction per share as it is imposed on all transaction ( Investor or trader has to pay $ 0.0025 on purchase and $0.0025 on sale transaction) . Therefore, Investor or trader will prefer to sale the securities and will diverse the investment mode other than in investing in the stock market. It will impacted badly on the market as , demand would fallan in the market and hence market will fall after imposition of fees $ 0.0025 per security per transaction.