Question

hat you do with your money that you designate for investing is important because what do you have some degree of risk, the possibility of losing it. The markets reached an all time high January, 2018. Where is the market today (no need to answer that for the assignment) Problems below: 1. What is the difference between savings and investing? What are you doing right now, saving or investing? 2. Explain the difference between a primary and secondary market. Give me an example of each. 3. Explain the difference between a broker and dealer market. 4. What is a market order? 5. When investing in a stock you can make money or lose money. If you invest in Facebook and make $ 1000 in 10 months, you are happy. If you decide to ell your stock and realize the profit after only 10 months, what per cent of the tax will you pay on your $ 1000 profit if your Bracket is 25%. Why?

Answer 1

Following are the answers to the problems given above which are as follows:

1. Savings refers to the part of a person's income which is appropriated out of the income for each of the particular period. It involves initial decision to initiate the savings plan at start of the period.

Whereas, investing refers to putting the amount of savings at work to earn the money for the investor. Also investment decisions require sufficient sophisticated work to get established. One must have some information about investment avenues and taxation policies to initiate into invesment area.

Right now, I am preferring savings plan as it is the time when my learning is beginning and also my income is not sufficient to fund the investments which are really viable for me.

2. Primary market refers to the market where a company or any other legal person issues their financial instruments to raise the money from the investors. In this market, the issuer introduces new investment products to the investors. There is no selling between one investor and other investor rather between investor and issuer. There is generally low volume of trading between the issuer and investor.

Whereas, in the secondary market an investor deals with another investor to buy or sell various financial instruments which have been already issued in the primary market. In this market, there is a very high volume of trading between the investors.

Example: Primary Market: NSE/BSE

Secondary Market: NCDEX

3. Broker refers to the person through which an investor deals in securities in the secondary market such as buying or selling shares, bonds and mutual funds. Market dealer refers to a company in which various brokers are employed to serve variety of investors. Brokers are employed by market dealer to serve niche as well as general customers who deal in stock market.

4. Market order refers to the order which is placed by an investor to buy or sell the share at the prevailing price in the market. Such an order is executed whenever best market price is matched with order's quantity. However, in such order there could be fast execution of order but there could be manipulation in prices for buyers and sellers too.

5. The answer would be 25% of profit, which will be payable by the investor after the period of 10 months. Because, the assesse is liable to pay tax on the profit only at the rate of 25%. As per the tax laws also, the person is liable to pay tax only on the profit component only.

Tax Amount=Profit*Tax Rate

=$1,000*0.25

=$250